Abstract: Either numerical simulations or qualitative analyses on the carbon tax policy in the related literature mainly focus on its emission reduction effectiveness and accompanying economic loss. However, this literature ignores the oriented impact of the carbon tax on production factors and the tax fairness caused by enterprise heterogeneity. More importantly, the flow of production factors among industries determines resources’ allocation efficiency. Meanwhile, tax fairness is the premise of the carbon tax policy implementation. Therefore, from the viewpoint of mechanism design, this paper first examines the issue about how to set the carbon tax rate under the Pigouvain framework. It is found though the Pigouvain tax rate is effective in the short run, it does not satisfy the long-term entry-exit condition and cannot reflect the heterogeneity of enterprises’ emissions. To improve the Pigouvian defects, we design a modified Pigouvain carbon tax mechanism by the integral idea. The results show that the new mechanism not only holds the short-term effectiveness of the Pigouvian tax, but also can avoid the long-term mismatch of resource allocation. At the enterprise level, the tax of the new mechanism is fair. Finally, we discuss the effects of green technology progress and emission reduction investment on the carbon tax mechanism design. All of this may provide market-oriented policy tools for achieving China’s carbon peak and carbon neutralization.

Key words: carbon tax, efficiency, fairness, mechanism design