This paper shows how firms use carbon allowances to reduce corporate tax burdens by exploiting internal trading hubs in low-tax jurisdictions and fluctuations in carbon prices. Using a unique dataset on all carbon allowance transactions of the European Union Emission Trading System (EU ETS) over the period 2014-2020, we show that many multinational firms subject to the EU ETS use tax haven operations to substantially reduce corporate their tax burdens. These tax savings reduce tax avoidance firms' net price for carbon allowances. In a subsequent step, we examine how tax haven operations for carbon allowance trading, i.e., tax avoidance with carbon allowances, are associated with firms’ emission reduction, innovation, and investment in abatement technologies.