States are taking action to mitigate climate change by charging emitters for carbon dioxide and greenhouse gas (GHG) emissions. There are multiple policy models states have looked to both curb emissions and strengthen their energy economies in the process. What follows is a summary of these models and examples of introduced legislation that utilize them.
Key Point 1
The public pays for the negative impacts on health, environment, and climate from fossil fuel emissions. Putting a price on carbon shifts those costs back onto industry emitters. (Union of Concerned Scientists)
Key Point 2
Businesses agree that putting a price on carbon would bring predictability to energy prices, provide long term savings, and reduce the economic costs of climate change. Almost 1,400 companies, including more than 100 Fortune Global 500 companies, impose an internal carbon price for that very reason. (American Sustainable Business Council)
Key Point 3
Renewable energy is now more cost-competitive to conventional fossil fuels, and in some regions is the lowest-cost option, making a shift to a clean energy economy more feasible. Setting a price on carbon will aid that transition without burdening consumers. (Resources for the Future)
Key Point 4
States can utilize a carbon price as a new revenue source to invest in infrastructure modernization, support clean energy deployment to underserved communities, and spur economic growth by offsetting other taxes levied on the public. (Green For All)
Revenue Positive pricing schemes accrue new revenue for the state, which can be reinvested in renewable energy deployment or distributed in other state programs and funds.
- Legislative examples of this model include: Hawaii S.B.1463, Montana H.B.193, New Mexico S.B.393, and Rhode Island H.5869.
Revenue Neutral pricing schemes don’t accrue new revenue, instead they offer rebates back to consumers directly or by replacing other taxes whose revenue stream can be covered by a carbon price.
Cap-and-trade systems set a cap on allowable GHG emissions and distribute limited emission permits that can be purchased and traded amongst emitters. This system uses market forces to set a price on GHGs.
- An example is the Regional Greenhouse Gas Initiative, a cooperative effort among several east-coast states to cap and reduce CO2 emissions from the power sector.
Cap-and-Invest. An iteration of cap-and-trade, this model takes the process a step forward by allocating the funds generated by the sale of permits to certain programs, such as sustainable infrastructure, retrofits, and other efforts to reduce GHG emissions.
- Washington’s S.B.5126 (2021) is an example of this model.
Study commissions are created to better understand the policy impacts of a carbon price within a state. Commissions are usually composed of private, public, and academic representatives to carry out research, providing recommendations to the state legislature and executive on policy paths for pricing carbon.