Determinants of firms’ acceptability of carbon taxation: a systematic literature review

Carbon tax is a key policy instrument for reducing greenhouse gas emissions and achieving carbon neutrality. However, the adoption of carbon taxes remains slow, uneven, and often below recommended pricing levels, limiting effectiveness. While much research has focused on household acceptability, firms’ acceptability of carbon taxation is comparatively underexplored. This systematic literature review examines 109 screened articles using the RepOrting Standards for Systematic Evidence Syntheses (ROSES) protocol to identify key determinants shaping firms’ acceptability. The results highlight three critical factors: firm and industry heterogeneity, political and institutional environment, and policy design and implementation. Firm-specific characteristics, such as emission intensity, trade exposure, and market structure, shape firms’ acceptability of carbon taxation. Political and institutional factors, including business lobbying, governance transparency, and trust in government, also play a significant role. Furthermore, policy design elements – such as tax rate predictability, revenue recycling, and complementary measures – determine acceptance of carbon tax policies. The study underscores the need for carbon tax frameworks that account for firms’ economic and competitive concerns while maintaining environmental effectiveness. Transparent governance, stakeholder collaboration, and targeted policy mechanisms can enhance policy acceptance. Policymakers should tailor carbon tax design based on industry characteristics, such as emission intensity and trade exposure, to mitigate resistance and enhance policy support. The effective use of carbon tax revenues – such as reinvesting in green technologies, renewable energy subsidies or reducing other taxes that directly benefit affected firms – can improve policy acceptability and economic stability. Strong governance, stakeholder engagement, and predictable policy frameworks are essential to gaining firms’ trust and reducing uncertainty in long-term carbon pricing commitments. Carbon tax alone may not suffice; it should be integrated with subsidies, innovation incentives, and trade adjustments (e.g. Carbon Border Adjustment Mechanisms (CBAM)) to ensure a balanced and fair transition. A phased introduction of a carbon tax with clear, incremental increases can help firms adapt while minimising economic disruption and political backlash.