Drawing on the experience she gained in Denmark, which has long taxed the CO2 content of fuels, Hedegaard argued that a carbon tax should be one of the tools to encourage people to consume less energy.
Hedegaard was speaking ahead of the European Business Summit in Brussels this week, at which she will appear alongside UNFCCC Executive Secretary Yvo de Boer in a session dedicated to climate change.
"If you do it intelligently, you can have a lot of results coming from energy taxation," Hedegaard said following a debate with her fellow commissioners last week on the revision of the Energy Taxation Directive.
The commissioner argued that shifting from taxing labour to taxing energy makes sense to encourage people to stay longer in the job market and find ways to finance Europe's "relatively expensive welfare societies".
"But of course it should not be just for generating money but it should have a purpose that you want people to do things differently," she added.
The agriculture sector, for instance, should fall under the tax as it is currently not included in the EU emissions trading scheme for carbon dioxide. She argued that a tax could be an incentive for farmers to explore possibilities like biogas.
30% or not?
A carbon tax was one of the policy options explored in a paper presented by the European Commission in May, which argued that the EU could afford to raise its emissions reduction target to 30% by 2020, up from the current 20%.
She pointed out that the economic consequences of increasing the EU's target to 30% had not been analysed when the EU pledged to raise its ambitions in case other developed countries make comparable commitments.
"The next step that we need before we can go ahead is to cooperate with the member states to analyse what the consequences of setting the goal would be for them as the potential costs and benefits are not equally spread," the commissioner explained.
She dismissed critics who claim she bowed to pressure by failing to endorse a unilateral move to 30%, arguing that it was never the Commission's intention to change the EU's strategy of making the pledge conditional.
But despite the Commission's efforts to make the assessments in time for the UN climate conference in Cancún at the end of the year, this might not be possible as member states close their administrations for the summer recess, Hedegaard said.
"Timing is very tight but we are trying to do as much as we can before Cancún and then have a very strong dialogue with the member states," she said.
But she warned that Europe should not be "complacent" about its lead on climate protection, arguing that in the past year, major economies like China, Russia, India, Mexico and Brazil have since set targets to green their economies.
"We will be playing a very different game over the next five to ten years from what we used to play before the rest of the world woke up and set domestic targets after Copenhagen," she warned.
Indeed, the EU will not go to Cancún with the same rhetoric as Copenhagen, where European leaders said it was now or never for agreeing a new climate treaty, the climate commissioner stressed.
"If we were to say 'everything that Copenhagen didn't deliver, Cancún must now deliver', then you would run a big risk of not achieving anything," she said. Instead, she believes Cancún should seek agreement on substantial issues like forestry, adaptation and fast-start financing and leave wrangling over the legal format to South Africa in 2011, after developing countries have seen what is in it for them.
"Let's be frank, how many G2 meetings did the US and China have last year to discuss the legal form without agreeing?" Hedegaard said, pointing out that it will take "at least some new signals" from Washington and Beijing to think that fundamental issues can be solved in Cancún.
Talking sectoral approaches with China
Despite giving industrialised countries a hard time around the negotiating table, China is quietly moving towards its targets, Hedegaard said.
The Danish commissioner revealed that the EU was going to start talks with the Chinese on developing industry-wide approaches for cutting emissions in early July.
"I suggested that to China's minister in late April and I thought he would just say 'no', but he said it might be a good idea," the commissioner said, adding that China was currently looking at several sectors such as cement, aluminium and steel.
She added that while China needs to significantly increase energy efficiency in these energy-intensive sectors to fulfil its domestic targets, these are also the sectors in Europe that are most exposed to foreign competition.
"So it's a good example that if we could cooperate with the Chinese to develop sectoral approaches that would be rather interesting, not only for them but definitely also for us," Hedegaard said.
Connie Hedegaard was speaking to Susanna Ala-Kurikka and Daniela Vincenti-Mitchener.