Explanation:

A carbon tax is a tax levied on the carbon content of fuels. It is a form of carbon pricing. Since GHG  emissions caused by the combustion of fossil fuels are closely related to the carbon content of the respective fuels,  a tax on these emissions can be levied by taxing the carbon content of fossil fuels at any point in the product cycle  of the fuel.

Statement 1: Carbon tax is revenue positive when it involves no adjustment to other tax rates in the economy. It is revenue neutral when other tax rates are adjusted so that the revenue Inflow from carbon tax is exactly balanced by an equal reduction in yields from reduced taxes. So, a carbon tax does not have to lower the revenues.

Statement 2: Carbon taxes offer a potentially cost-effective means of reducing greenhouse gas emissions. It may actually help the economy in the long-run by promoting sustainable development by promoting environment friendly methods of growth. It does not have to hurt the GDP growth necessarily even in the short-run because the benefits from non-pollution may far exceed the economic benefits of an emission laden economy.

From an economic perspective, carbon taxes are a type of Pigovian tax. They help to address the problem of emitters of greenhouse gases not facing the full social cost of their actions. Carbon taxes can be a regressive tax, in that they may directly or indirectly affect low-income groups disproportionately. The regressive impact of carbon taxes could be addressed by using tax revenues to favour low- income groups.