A carbon price and a tax on a fuel both discourage the use of fossil fuels, but there are some differences in how the fees are applied. The Carbon Price slider places a fee on fuels depending on the amount of carbon dioxide they release when burned, while the Coal, Oil, Natural Gas, and Bioenergy sliders adjust the cost of producing the fuels themselves. The “taxed” label here is broader than a direct government tax, and reflects any action that would increase the cost of these resources. A carbon price also incentivizes carbon capture and storage, while a fossil fuel tax does not. 

This means that if an approach like carbon capture and storage (CCS) for carbon dioxide is used on, say, a natural gas power plant, then the natural gas would not be subject to a full carbon price because emissions are reduced by CCS. However, the price of the fuel could still be increased by a natural gas tax. 

The maximum ranges of the En-ROADS sliders do not represent equivalent amounts of effort. For example, the maximum range of the Carbon Price slider is $250/ton, which is equivalent to $660/tce tax on coal. The maximum range of the Coal tax slider is $120/tce. Moving the Carbon Price slider to its maximum appears more powerful than taxing fuels, but this is only because the slider ranges are different.

Fuel tax vs. carbon price in En-ROADS

Fuel (coal, oil, gas, or bioenergy) tax

Carbon price

What is it?

Tax per amount of specific fuel (dollars per ton of coal, per barrel of oil, per thousand cubic feet of natural gas, or per barrel of oil equivalent of bioenergy)

Represented as tax per ton of CO2 emitted by burning coal, oil, gas, and bioenergy (dollars per ton of CO2 emitted)

What is the tax on?

Amount of fuel produced

Carbon dioxide emissions (highest for coal)

Who’s it paid by?

Fuel producers (but consumers often pay for it through increased energy prices)

Fuel producers (but consumers often pay for it through increased energy prices)

What are its effects on fuels?

Affects whatever fuel it applies to. Possible “squeeze the balloon” effect: if only one or two fuels are taxed, then there will be greater demand for another fuel

Affects coal much more than oil, gas, or bioenergy because the carbon density of coal is so high

What happens with carbon capture and storage (CCS)?

Tax on the fuel applies regardless of CCS. Doesn’t incentivize CCS.

CO2 emissions that are captured and stored are not taxed. Incentivizes CCS (this dynamic can be turned off by reducing CCS effectiveness under Assumptions).

A carbon tax could be achieved by applying a comparable tax on each fuel. A carbon tax of $40/ton is roughly equivalent to:

  • $106/tce tax on coal

  • $15.2/boe tax on oil

  • $2.20/MCF tax on natural gas

  • $13.2/boe tax on bioenergy

To go deeper, explore the En-ROADS Reference Guide.

What happens in a scenario with both a carbon price and a tax on fuels?

When both a fossil fuel tax and carbon price are implemented, there is some redundancy. The cost of producing coal, for example, can be increased with either a tax or a carbon price. When this occurs, you'll notice that the primary energy demand of coal decreases. When you add another way of pricing it, producers have already taken steps to reduce their supply of that now more expensive fuel, and the impact of an additional policy that increases costs will be less.