We study the effects of carbon taxes on inflation dynamics with a focus on a margin at the core of the green transition: green technology adoption. We build a New Keynesian model with environmental externalities and an energy sector that incorporates endogenous green technology adoption in both the goods and the energy sectors. Calibrating the model to European Union data, we show that for the same carbon tax increase in the goods and energy sectors and the same sectoral emissions shares, raising the tax on emissions from the goods sector leads to a smaller reduction in emissions, a larger increase in output, and a smaller increase in headline inflation compared to raising the tax on emissions from the energy sector. Further model analysis reveals that the ability of goods-producing firms to adopt green technologies plays a key role in explaining the positive output and inflation effects of carbon taxes in the non-energy sector in the data, while green technology adoption in the energy sector plays an out-sized role in reducing emissions. More broadly, our work highlights the importance of green technology adoption across sectors for understanding the quantitative impact of carbon taxes on both inflation and output along the transition to a lower-carbon environment.