More states and provinces adopt carbon pricing to cut emissions

(ACEEE blog, 3 Jan 2019) Across North America, efforts to put a price on greenhouse gas emissions are growing, creating a market-based incentive to reduce emissions and energy use.

Currently 14 US states and Canadian provinces plus one US city have done so, with seven additional states and provinces in active pursuit, according to ACEEE’s new white paper.  

We profile these state and provincial efforts and explore lessons learned from them. Their progress is important, because federal steps to address climate change are unlikely even though the recent Fourth National Climate Assessment warns of dire climate impacts. While some carbon pricing efforts cover just the power sector, others also cover transportation, buildings, and industry.

Two major approaches are now in use—a carbon tax (sometimes called a fee or levy) and a cap and trade system, both of which can improve energy efficiency. A carbon tax charges a fee for every unit of carbon dioxide that is emitted. While its cost is known, its effect on emissions is less certain. Carbon taxes are now in place in the provinces of Alberta and British Columbia, and the city of Boulder, Colorado. Massachusetts, Washington state, Newfoundland, Prince Edward Island, and the Canadian Northwest Territories are all seriously considering carbon taxes. Most of these cover multiple economic sectors.

A cap and trade system puts a cap on greenhouse gas (GHG) emissions and issues emissions permits, often referred to as “allowances” or “certificates.” Emitters can trade these certificates, allowing the market to find the lowest-cost emissions reductions available. With cap and trade, the level of emissions is known. What is less certain is the market price of the certificates. This approach is in place in California, Quebec, Nova Scotia, and nine northeastern states that are part of the Regional Greenhouse Gas Initiative (RGGI). New Jersey, Virginia, Oregon, and Saskatchewan are now seriously considering cap and trade programs. RGGI covers just the power sector; the other programs are broader.

Both carbon taxes and cap and trade programs affect energy efficiency in two ways. First, they can raise energy prices, which makes the economics of efficiency more favorable (e.g., if the price of energy is 10% higher, the value of energy savings increases by 10%, all other things being equal). Second, in all of the jurisdictions that we looked at, some of the funds collected are invested in energy efficiency for residents and businesses (or there are plans to begin such investments in the future).

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ACEEE blog, 3 Jan 2019: More states and provinces adopt carbon pricing to cut emissions