Do environmental taxes encourage the decarbonization of economies?

The fight against weather change requires a great reduction in greenhouse gas emissions. Environmental taxes are a potential tool for encouraging businesses and households to adopt more sustainable behaviour. This study explores the impact of environmental tax on the decarbonization of economies. It focuses on OECD countries and analyses changes in CO₂ output in the industry and transport sectors following the introduction of environmental tax. Econometric approach alongside machine learning are used to estimate the causal and heterogeneous influence of environmental tax on CO₂ output. The outcomes of the research indicate that environmental tax have a positive and significant effect on reducing CO₂ output. Moreover, it reveals that the effect is more pronounced in energy-intensive sectors such as manufacturing and transport. The achievements of the study support the idea that ecotax can serve as an efficacious mechanism for encouraging the decarbonization of economies. It also highlights the importance of designing well-calibrated environmental taxes and combining them with other incentive policies. This study provides empirical evidence that ecotax can play an important role in transitioning to a low-carbon economy. This article encourages governments to adopt ambitious environmental taxation policies to encourage the transition to a more carbon-free economy.