Absence of a Federal Carbon Price and Mechanism in the US

Absence of a Federal Carbon Price and Mechanism in the US

The United States does not have a federal carbon price. However, at the state and regional level, eleven states covering approximately thirty percent of the U.S. population participate in carbon pricing programs in the form of Cap and Trade systems. These include the Regional Greenhouse Gas Initiative (RGGI) for Northeast and Mid-Atlantic states and California’s Cap-and-Trade Program.

RGGI was established in 2009 and caps greenhouse gas emissions from the power sector in ten states: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont, which each administer their own allowance programs and are unified through the regional market. Virginia and Pennsylvania may join the system in 2020, expanding the program to cover twelve states and more than a third of the U.S. population.

The program works by setting a cap on the number of tons of emissions that may be emitted from the power sector in each state, which is reduced each year. Individual power producers (producing at least 25MW) must obtain allowances equal to the amount of carbon they emit, which are auctioned each quarter in regional auctions. Emitters can then buy, sell, or trade their allowances on a secondary market, or bank the allowances for later use. In order to keep costs down, if the price rises past a set price ceiling, allowances in the Cost Containment Reserve comprising of ten percent of the total cap are auctioned at the set price. Beginning in 2021, an Emissions Containment Reserve will be introduced, which will withhold additional allowances if the price falls below a set threshold in order to keep the price high enough to produce significant emissions reductions.

In the fourth quarter of 2019, allowances sold for $5.61 per ton, raising a total of $73.6 million in revenue. This revenue reinvested in strategic energy and consumer programs to reduce cost burdens on families, communities, and businesses.

In addition to its participation in RGGI, Massachusetts has a second cap and trade program to regulate emissions from 21 heavily emitting electricity producers: Electricity Generator Emissions Limits. This program complements RGGI and allows Massachusetts to enforce a more stringent emissions cap in line with its legal obligation to reduce emissions 80 percent by 2050.

California’s Cap-and-Trade Program is administered by the California Air Resources Board. The program went into effect in 2012 following the passage of Assembly Bill 32, which requires the state of California to return to 1990 levels of greenhouse gas emissions by 2020, and which established programs to reduce emissions by 15 percent more than “business-as-usual” projections.

California’s Cap-and-Trade program sets a statewide limit on sources responsible for 85 percent of California’s greenhouse gas emissions, covering about 450 entities including electricity generators and large industrial facilities, and distributors of transportation, natural gas, and other fuels. In 2014, California linked this program with a similar program in Quebec, Canada, enabling allowance trading between the two markets.

Similar to RGGI, California’s Cap-and-Trade program auctions allowances quarterly, which can then be traded between entities or banked for later use. However, because California’s program covers more than just the power sector, some allowances are distributed for free to offset costs to some heavily-emitting industries. The program also allows for the use of offsets to meet a portion of the emissions reduction obligations.

In the fourth quarter of 2019, allowances sold for a settlement price of $17.00 per ton, raising more than $1 billion in proceeds. These were divided among Investor Owned Utilities ($312 million), Publicly Owned Utilities ($62 million), and California ($739 million).

Activity Rating:  ** Standing Still

Although there is no unified, federal carbon pricing system, the state-and regional-level systems are effectively putting a price on carbon emitted from power generation. However, the reductions achieved by these programs are not enough to keep the U.S. in line with its commitments under the Paris Agreement, and furthermore do not cover all greenhouse gas emitting sectors. In order to reduce emissions at the level required to keep warming below the 2ºC threshold, a national carbon pricing system must be implemented that covers all sectors of the economy.

Take Action

Contact your members of Congress to voice your support for a carbon pricing system that covers all sectors of the economy and is equitable.

Carbon pricing systems like California’s Cap-and-Trade program and the Regional Greenhouse Gas Initiative have already demonstrated that carbon pricing systems are our best tool in the fight against climate change. Please support the creation of a national-level cap-and-trade system to encourage the reduction of greenhouse gas emissions from all sectors of the economy.

Contact Information: Use this website to find the contact information for your elected officials: https://www.usa.gov/elected-officials

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