Carbon Pricing Grows in North America

Despite the resistance to putting a price on carbon at the U.S. federal level, carbon pricing is gaining momentum in Canada, Mexico and within states and regions of the U.S.. Canada is requiring carbon pricing in all provinces by 2018, and Mexico has both a carbon tax and is beginning implementation of cap and trade, with trading to be across North America (California, Quebec, Ontario, Mexico).  In addition to California and RGGI cap and trade programs which are in force in the U.S., six separate states are pushing for some form of carbon pricing.

United States

RGGI:  The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions from the power sector. It has been in operation since 2009.  Each state determines how to use revenues; most have invested in energy efficiencies with good success.

California began its cap and trade system in 2011, but has been hampered by litigation since 2013.  The case brought by the California Chamber of Congress claims that cap and trade is a form of tax and so requires a 2/3 vote. California upped their emission reductions target by 40% of 1990 levels by 2030 with the passage of SB 32 in 2016. To help reach that ambitious goal, there are rumors of adding a carbon tax, but no specific proposals have been made to date.

Progress in Other States: Efforts to put a price on carbon through legislation or initiatives are gaining momentum in Massachusetts, Vermont, Rhode Island, New York, Oregon, Washington, and Utah.

  • Massachusetts has both a revenue neutral and partially revenue positive proposal for a carbon tax which are on the legislative docket for 2017.
  • Vermont has a growing push for a carbon tax, and, of course, the support of Senator Bernie Sanders.
  • Rhode Island is pushing for a carbon tax.  Senator Sheldon Whitehouse of Rhode Island has introduced federal legislation as well.
  • New York has put forward legislation for a carbon tax and legislation to reduce emissions which include both cap and trade and carbon tax as tools.
  • Oregon legislators have proposed but failed with both carbon tax and cap and trade. The 2016 Oregon legislature requested that the Department of Environmental Quality (DEQ) do a study on how a market-based approach – specifically cap and trade – would work in Oregon.  It will be presented to the legislature in February, 2017.
  • Washington passed the Clean Air Rule in September 2016, instituting what is essentially cap and trade on large stationary emission sources. Initiative 735 (a revenue neutral carbon tax) was on the ballot for the 2016 general election, but failed, at least partially because of a split in support from environmental groups, some of whom wanted the proposal to be at least in part, revenue positive, i.e. revenues used for mitigation and/or adaptation projects rather than all revenues returned as a dividend.
  • Utah: A press release announced that a fee and dividend would be proposed in the 2017 session.

Canada

Canada has just announced a national framework to put a price on carbon emissions with flexibility for each province. Prime Minister Justin Trudeau announced the policy in October 2016. The proposal is for an initial price  of $10 (Canadian) per metric ton (“tonne”) of CO2e, to increase annually by $10/tonne to reach $50 in 2022. Provinces will have until 2018 to to adopt a carbon pricing scheme, or the federal government will impose a price system for them.

Currently there is a carbon tax in British Columbia, instituted in 2008, and Alberta has just implemented a carbon levy (tax) of $20(Canadian)/tonne in 2017 and $30/tonne in 2018.  In both provinces the tax is on gasoline, diesel, natural gas and propane. Cap and trade is the pricing mechanism in Quebec and Ontario.  Quebec began its program in 2014 and Ontario implemented in January, 2017.  Both are trading in a joint market with California with support of the Western Climate Initiative.

Mexico

Mexico instituted a federal carbon tax as part of a broad fiscal reform approved by Congress in 2014. The tax is on liquid transportation fuels, and on coal when used for transportation.  Jet fuel is excluded.  The average tax started at $3.7US/ ton CO2e, increasing with inflation. Mexico also launched a pilot cap and trade program in November 2016, with full implementation expected in 2018.  They announced that as part of cap and trade, they will join the growing North American market for carbon allowances with Quebec, Ontario, and California.

This story was updated Feb 17, 2017.