If you've ever been to Europe, you know that Europeans pay through the nose for gasoline, especially compared to pump prices in the U.S. High taxes are largely to blame for this, and a concerted government effort to reduce fuel consumption. The government distorts the market further by taxing diesel fuel less, meaning that diesel is much cheaper than regular gasoline in most European market. Diesel cars outsell regular-fuel cars in Europe.

Now, it looks like those prices are going to go up even further. A plan to introduce a pan-European carbon tax on fuel has been leaked to the media. The plan is under consideration by the European Commission, which hasn't made a formal announcement yet. The plan is seen as necessary to achieve EU-wide reductions in carbon emissions, covering sectors (transportation and farming) not currently covered by Europe's carbon cap and trade program, the ETS.

The tax would have to receive unanimous approval from member countries in order to become law. Sweden and France have already introduced similar measures and thus support the law. Great Britain, however, is openly hostile to the legislation and is generally quite suspicious of EU efforts to interfere with domestic tax policy. There's a lot more behind the scenes lobbying and persuading that needs to take place before this goes anywhere.

Would increasing the price of fuel reduce carbon emissions? Only if less fuel is consumed. At some point, an economy won't be able to reduce its fuel consumption any further without an alternative. To that end, the proposed tax wouldn't apply to biofuels or other renewables. The idea, therefore, is to shift market use from fossil fuels to renewable fuel. That's a fine idea, and using tax mechanisms to make that shift arguably has already worked in other areas in the EU, but the big question in my mind is, what's the alternative? If this tax is timed properly, it could give hybrid and electric vehicle technologies an extra push as consumers and business look for a cheaper alternative to gasoline. If it's too early, though, it will only serve to increase the costs for businesses in moving their goods around.