Carbon Pricing Grows in Ten States

Posted: November 14, 2018

By now you’ve heard that Washington state Initiative 1631 – to establish a carbon fee – was defeated in the mid-terms. But carbon pricing is not defeated. Indeed, carbon pricing is thriving in ten other states – it’s called cap and trade. California (and Canadian partners) and nine Northeastern states in the Regional Greenhouse Gas Initiative have cap and trade systems.

The difference between carbon tax and cap and trade is just what part the market plays and what part the government plays. Both are market-based mechanisms – and either can work to reduce emissions.

Arguments for or against one mechanism over the other are based mostly on the market element. A big question with carbon tax is setting the right price and maintaining it (by raising taxes). That’s not a problem with cap and trade. On the other hand, an objection to cap and trade is concern that the market might give advantage to some players via free emission permits.

Trading of emission permits across states allows equalization of price across a broader market. State carbon taxes don’t have such a method for price equity.

But whether cap and trade or carbon tax/fee, there is strong agreement that putting a price on carbon is the best system to get fast, real reduction in greenhouse gas emissions at the least cost.

Washington’s carbon pricing effort is not new. Although Initiative 1631 failed in this past election, there is a solid push in the state to get a price on carbon. In 2016, a previous carbon tax initiative (I-732) failed, but Governor Jay Inslee instituted the Clean Air Rule, similar to cap and trade; it is currently in litigation.  In the past legislative session, seven carbon tax bills were proposed in Washington state. There is clearly a will in Washington to price carbon.

Other states are also on a path to institute or expand a carbon price – Oregon, Utah, Colorado, Hawaii, Minnesota, and Virginia have some sort of effort in progress. And Northeastern states currently members of the Regional Greenhouse Gas Initiative are seeking to extend RGGI beyond electricity generation or to add a carbon tax. These include Connecticut, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.

The Federal government is slow to move, but states and regions are stepping up. As climate change looms, we must quickly reduce carbon emissions. An efficient and effective method for reducing emissions is pricing carbon.