Economic literature generally favours market-based instruments for regulating environmental externalities, since they ensure compliance at the least cost to society. With the focus shifting to carbon dioxide after the adoption of the Kyoto Protocol in 1997, emission taxes have increasingly been introduced. This chapter reviews the theoretical economic and legal literature on energy and emission taxes. From an economic perspective, the focus is on theoretical recommendations regarding the optimal design of environmental/carbon taxes, their performance relative to other instruments and the concept of a double dividend. The survey of the legal literature concludes that many different aspects must be considered in designing a carbon tax, regarding both the types of legal instruments to be used and their actual design. This overview of economic and legal aspects may help to create an effective and efficient regulatory system for achieving long-term emission reductions.