A price on carbon in North America: Why? Where?

A price on carbon in North America: Why? Where?

By Keane Gruending

December 17, 2013

As of December 2013 a number of North American jurisdictions have implemented or are considering carbon pricing

Carbon emissions from human activity are the primary driver of climate change and occur, quite simply, because it is free to pollute. While most natural resources are valued in the economy, there is most often no cost to release carbon into the atmosphere. Our market economy has failed to incorporate the cost of greenhouse gas pollution into the decision-making of individuals and businesses. However, cap and trade systems and carbon taxes address this shortfall by putting a price on greenhouse gas emissions. A price on carbon creates a financial incentive to tighten up on emissions.

Despite the fact that North America is usually associated with carbon-intense lifestyles and economies - large road vehicles, sprawling suburbs, and large oil and gas industries - over a dozen Canadian and US jurisdictions have implemented a price on carbon. What’s more, this climate leadership is inspiring other regions to adopt carbon pricing.

Why a price on carbon? 

The combustion of fossil fuels, primarily through electricity/heat generation, transportation, and manufacturing, accounted for nearly 60% of global emissions in 2004 (the IPCC’s next mitigation assessment report will update this number early next year). While there are many ways for governments to encourage emissions reductions - by putting absolute limits on polluters, mandating the use of certain technologies, or paying companies to stop polluting - the most effective and inexpensive policy is to put a price on carbon. Forget about the details, a carbon tax and cap and trade system essentially work in the same way: they both assign property rights for the atmosphere. Despite what you may hear in the media or from critics of cap and trade or carbon prices, there is widespread consensus among economists and even in the Canadian Senate that carbon pricing is the most effective and efficient way to address climate change

Where is there a price on carbon? 

British Columbia introduced its well-known revenue neutral carbon tax in 2008, which began at $10 per tonne of emissions and has since moved to $30/tonne. The tax has been lauded by the Secretary-General of the OECD as a “textbook case” of good economics and climate policy. While Alberta has mandated performance standards for companies, which sees firms reduce their emissions intensity or pay into a technology fund, this policy applies only to large emitters and merely “simulates” carbon pricing. Quebec has a small carbon tax ($3.20/tonne) and is currently implementing a cap and trade system. In 2015 Quebec’s system will be expanded to include vehicle fuel distributors and will link with California’s carbon market. In addition, Manitoba currently charges an emissions tax on coal for those who purchase more than a tonne. In Saskatchewan, the government is working on implementing "carbon compliance" payments for large emitters that would, like Alberta, funnel into a technology fund.

California implemented a cap and trade program that aims to reduce the state’s emissions to 1990 levels by the year 2020. It currently covers large emitters, but by 2015 fuel distributors and most polluters will be included in the program. The Regional Greenhouse Gas Initiative (RGGI) is another multi-state cap and trade program that is modeled, in part, on successful NOx and SOx trading systems. Participating states include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. Each state has capped total greenhouse gas emissions from its energy utilities and allows permits to be traded between companies in a competitive marketplace. New Jersey is convening hearings to consider rejoining the RGGI. With the ink still drying on the Pacific Coast Action Plan, and with BC’s experience in mind, the states of Washington and Oregon are hoping to implement carbon pricing in the near future.

Interestingly, the City of Boulder has shown that a carbon tax can be done on a municipal scale in the US. Boulder charges $12-13 per tonne of greenhouse gas emissions and invests the revenue into carbon reduction programs. Similarly, the San Francisco Bay area also has a carbon tax (although at $0.05/tonne it has a questionable impact). The City of Portland is now looking at implementing a municipal carbon tax and is consulting with residents on the merits of the charge.

Seeking to reduce its emissions 30% by 2020 and 50% by 2050, Mexico is currently in the process of legislating a carbon tax. The tax would charge $5.77 for every tonne of carbon generated from most fuels in the country.

Mitigation by a thousand cuts

While countries in North America are in desperate need of national carbon pricing, the effectiveness of small and emerging pockets of climate policy are not to be discounted. Between BC and Quebec, one third of Canada’s population and GDP is covered by carbon pricing. Likewise, California and the RGGI states comprise over 25% of the US’ population and GDP.

 (Icon photo courtesy of widnr/Flickr, map copyright of Carbon Talks)




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