Economic Theories of Environmental Externalities: Revisiting Pigouvian Taxes in the Context of Low-Carbon Governance

Freya Simran

Abstract: This research paper examines the enduring relevance of Pigouvian taxation in the context of contemporary low-carbon governance. While Pigouvian taxes, designed to internalize environmental externalities by taxing pollution, have been theoretically lauded for their efficiency, their practical implementation faces significant challenges. This paper analyzes these challenges, focusing on uncertainties surrounding the social cost of carbon, the complexities of cost-benefit and cost-effectiveness analyses, distributional concerns, and the political realities of implementing and maintaining such taxes. Furthermore, it explores successful examples of carbon pricing, such as Germany's 2019 climate policy reform and the EU's Green Deal, to demonstrate that political feasibility is not insurmountable. The paper also considers alternative policy instruments, including regulations, targeted policies, and technology-pushing incentives, alongside Pigouvian taxes, to create a more comprehensive low-carbon policy mix. Finally, it identifies key research gaps and proposes a future research agenda to address the remaining barriers to widespread adoption of effective carbon pricing mechanisms.

Keywords: Economic, Pigouvian, Green Deal, Low-Carbon Governance

How to Cite?: Freya Simran, "Economic Theories of Environmental Externalities: Revisiting Pigouvian Taxes in the Context of Low-Carbon Governance", Volume 14 Issue 8, August 2025, International Journal of Science and Research (IJSR), Pages: 548-553, https://www.ijsr.net/getabstract.php?paperid=SR25811212550, DOI: https://dx.doi.org/10.21275/SR25811212550