A carbon tax is a fee charged on fossil fuels based on the amount of carbon dioxide they produce when burned. By making carbon-intensive activities more expensive, the tax creates economic incentives to reduce emissions through efficiency improvements, switching to cleaner energy, or changing behaviour. Canada has federal carbon pricing that applies in provinces without equivalent provincial systems. Revenue from carbon taxes can be returned to residents (carbon rebates), used for climate programs, or reduce other taxes. Carbon taxes are considered economically efficient because they allow individuals and businesses to decide how to reduce their carbon footprint. Debates continue about tax levels, impacts on affordability, and competitiveness concerns.