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We analyze the labor market and aggregate effects of a carbon tax in a framework with pollution externalities and equilibrium unemployment. Our model incorporates labor force participation and two margins of adjustment influenced by carbon taxes: (1) firm creation and (2) green production-technology adoption. A carbon-tax policy that reduces carbon emissions by 35 percent—broadly consistent with Biden Administration’s new Paris Agreement commitment—can generate mild positive long-run effects on consumption and output, an expansion in the number and fraction of firms that use green technologies, and greater labor force participation, with marginal changes in the unemployment rate. In the short term, the adjustment to a higher carbon tax need not be accompanied by losses in output and consumption or a substantial increase in unemployment. Abstracting from green technology adoption implies that the …