Introduction:

Since the turn of the 21st century, governments and policymakers have increasingly turned to carbon pricing as the primary policy instrument to address the climate crisis. Nonetheless, carbon pricing policies have remained controversial, with critics arguing possible ineffectiveness or negative economic impacts.

Carbon pricing incentivizes carbon dioxide emitters to reduce their emissions by charging them for each ton of carbon dioxide they emit. Policymakers decide on the scope of the carbon price through three main factors: the jurisdictions covered, the share of the jurisdiction’s greenhouse gas emissions covered, and any sectors or fuels covered. 

Policymakers’ major decision in designing a carbon pricing policy is choosing between two approaches: carbon taxes and cap-and-trade programs. According to the World Bank’s Carbon Pricing Dashboard, 64 carbon pricing initiatives that were implemented or scheduled for implementation existed as of April 1, 2021. These 64 initiatives consist of 35 carbon taxes and 29 emissions trading systems, covering 11.65 GtCO2e, or about 21.5% percent of global greenhouse gas emissions. 

A carbon tax simply sets a direct price for each ton of carbon dioxide that a consumer emits, and this price influences the total emissions reductions in the jurisdiction. A carbon tax offers price certainty, but it offers no guarantee as to how much it will stimulate emissions reductions. In some cases, policymakers can adjust the price of a carbon tax if emissions reductions do not meet expectations.

A cap-and-trade program sets a limit on the amount of greenhouse gases that consumers can emit, and this cap influences the price of each allowance. Governments issue a limited number of emissions allowances each year. Facilities are then able to buy or sell allowances, or allowances are sometimes distributed without cost. In some cases, cap-and-trade systems utilize banking and borrowing, in which consumers can save allowances for a future year or use allowances from future years in the present. Whereas a carbon tax offers price certainty, the limited allowances of a cap-and-trade program offer emissions certainty, or a guarantee that emissions will not be above a certain threshold. However, the varying supply and demand of allowances leads to price volatility for consumers. Price floors and ceilings can be used to limit the price of an allowance within a certain range.

The point of a regulation of a carbon price determines who must purchase allowances or pay the carbon tax. The carbon price can be levied upstream, where the fewest entities exist, on fossil fuel producers, such as coal suppliers, natural gas processing facilities, and oil refineries. The carbon price can also be levied midstream on the first purchasers of fossil fuels, such as electric utilities. Or, the carbon price can be levied downstream on the end users, such as households and businesses. When the carbon price is upstream, entities often pass the carbon price down to the consumer; in essence, consumers can be responsible for the carbon price, regardless of the point of regulation.

Survey and Methods:

This study analyzes all national and subnational North American carbon pricing schemes implemented during or before 2018. These carbon pricing schemes include: 

* Regional Greenhouse Gas Initiative (RGGI)
* California Cap-and-Trade Program
* Québec Cap-and-Trade Program
* Alberta Technology Innovation and Emissions Reduction (TIER) Regulation
* British Columbia Carbon Tax
* Boulder, Colorado Climate Action Plan (CAP) Tax
* Mexico Carbon Tax
 

Data was collected and analyzed on the following attributes of each carbon pricing scheme: 

* Type
* Jurisdictions Covered
* Year of Implementation
* Emissions Covered
* Sectors and/or Fuels Covered
* Price in 2018 (US$/tonneCO2e)
* Per Capita Revenues in 2018 (revenue / population)
* Share of GDP in 2018 (revenue / GDP)
* Emissions Reductions Since Start of Program (Until 2018)
* Ratio of greenhouse gas Emissions per Capita
* Jurisdiction vs Country less Jurisdiction
* Point of Regulation
* Greenhouse gas emissions per Capita in 2018 (Metric tonnes of CO2-eq. per Capita)
* GDP Change Since Start of Program
* GDP Change Relative to the Rest of the Country
* Revenue Use

Data sources include government and annual reports, databases, the World Bank’s Carbon Pricing Dashboard, academic literature, and various other sources as noted in the supporting information.

Effects of Price and Emissions Covered on Emissions Reductions:

The study shows that there is no correlation between a carbon pricing policy’s price and emissions change of the jurisdiction covered, as well as the percentage of emissions covered and emissions change. Many of the jurisdictions with the highest prices actually saw very little emissions reductions, no change in emissions, or even an increase in emissions. In fact, the jurisdictions with the second and third cheapest carbon prices actually saw the greatest emissions reductions. Similarly, there is no correlation between a carbon pricing policy’s percentage of emissions covered and emissions change of the jurisdiction covered. One would likely expect the emissions reductions to increase the percentage of emissions covered increases, but the jurisdictions with the highest percentages of emissions covered saw miniscule or no emissions reductions. The jurisdiction with the lowest percentage of emissions covered had the greatest emissions reductions. 

The above observations indicate that many factors, rather than just the design of the carbon pricing policy, must be pushing down emissions in each of the jurisdictions that saw emissions reductions. Greenhouse gas emissions actually increased in the jurisdictions with the two most expensive carbon prices. In the two jurisdictions, California and Quebec, with the third highest carbon price, at $15/tCO2e, there were very modest or no emissions reductions at all: California emissions dropped by 7.34%, and Quebec saw no emissions reductions at all. Out of the five carbon prices that covered the most greenhouse gas emissions, at more than 40% each, only one of those jurisdictions saw emissions fall since the start of the program.

Most surprisingly, the jurisdictions covered by RGGI, the carbon pricing policy that had the second lowest carbon price and covered the least amount of emissions, saw the greatest greenhouse gas emissions reductions, at 47% reduction. RGGI had nothing extraordinary or unique about its policy design that the other carbon pricing policies omitted. The emissions reductions in RGGI’s covered jurisdictions are unrelated to the implementation of RGGI but rather several other factors listed below:

* The biggest contributor has been the region’s decades-long trend of fuel switching from high-emitting power sources to cleaner, highly efficient natural-gas-fired generation. For example, natural gas fueled just 15% of New England’s electricity in 2000, but fueled 48.5% in 2019. Natural gas generally outcompetes oil- and coal-fired generators in terms of market price.
* Tighter emissions controls on coal-fired resources
* Increasing reliance on renewable and zero-emission energy sources, such as wind and solar
* Increasing reliance on cheaper imported electricity, which does not count toward the region’s emissions
* Decreasing demand for electricity
 

Effects of Price and Emissions Covered on GHG Emissions per Capita:

The study shows that the greenhouse gas emissions per capita are very similar among the jurisdictions, regardless of factors like price and emissions covered. The jurisdictions all have greenhouse gas emissions per capita that are smaller than those of their countries. A ratio of less than one of greenhouse gas emissions per capita in the jurisdiction to the emissions in the country, not including the jurisdiction, indicates that the jurisdiction emits less greenhouse gas per person. 

The one outlier is Alberta. Surprisingly, if Alberta was a nation, it would be one of the highest greenhouse gas emitters per capita in the world, as its per capita emissions are three times those of the largest nationwide polluter per capita, Saudi Arabia. Alberta’s abnormally high greenhouse gas emissions per capita are due to its rich availability of natural resources. Alberta produces most of its energy from fossil fuel combustion, whereas other Canadian provinces like British Columbia generate electricity largely through hydropower. Alberta also generates emissions through its intensive mining, oil, and gas industries, as it has a heavy reliance on oilsands, heavy oil production, while other provinces have fewer large industrial emitters. The study suggests that carbon pricing policies do not differentiate jurisdictions significantly in terms of greenhouse gas emissions per capita. While these jurisdictions commonly perform better than their countries as a whole, their greenhouse gas emissions are still relatively high at around 15 metric tons of CO2e per person.

Effects of Carbon Pricing Policies on GDP Growth:

The study shows that there is no correlation between a carbon pricing policy’s price and emissions change of the jurisdiction covered, as well as the percentage of emissions covered and emissions change. Similarly, there is no correlation between a carbon pricing policy’s percentage of emissions covered and emissions change of the jurisdiction covered. One would likely expect the emissions reductions to increase the percentage of emissions covered increases, but the jurisdictions with the highest percentages of emissions covered saw miniscule or no emissions reductions. The jurisdiction with the lowest percentage of emissions covered had the greatest emissions reductions. The above observations indicate that many factors, rather than just the design of the carbon pricing policy, must be pushing down emissions in each of the jurisdictions that saw emissions reductions.

There is also no evidence that a carbon price stalls GDP growth, as almost all jurisdictions saw GDP growth regardless of the rate of their carbon price. Unexpectedly, the carbon price that stalls GDP growth the most is the cheapest one. Mexico's GDP decreased because of sluggish industrial output, especially in construction and oil, falling business investment, and a slowdown in services and employment.

It is important to note, however, that while the GDP of all jurisdictions covered by a carbon price grew, they grew less than the jurisdiction’s country, not including that jurisdiction. With the exception of the Boulder, Colorado Climate Action Plan (CAP) Tax, all subnational and regional jurisdictions had GDP growth that was smaller than the GDP growth of the country, not including those jurisdictions. 

Conclusion 

The main takeaway of the study is that carbon pricing schemes on their own are insufficient to significantly reduce greenhouse gas emissions. Rather, the greatest emissions reductions are seen when carbon pricing schemes are paired with other factors.

A carbon pricing policy likely has a smaller effect on emission reductions than other factors, such as a downturn in the economy, fuel switching, or a shift from heavy to light manufacturing. If policymakers want to make a carbon pricing policy more effective at reducing emissions, they will need to pair it with additional policies, such as subsidizing green technology research, development, and deployment, that decrease a jurisdiction’s reliance on fossil fuels and invest in greater energy efficiency. 

Work Cited:

[1] 2017_GHG_Inventory.pdf. (n.d.). Retrieved August 9, 2021, from portal.ct.gov/-/media/DEEP/climatechange/2017_GHG_Inventory/2017_GHG_Inventory.pdf

[2] Bureau, U. C. (n.d.-b). American Community Survey 5-Year Data (2009-2019). The United States Census Bureau. Retrieved August 26, 2021, from census.gov/data/developers/data-sets/acs-5year.html

[3] Canada, E. and C. C. (2007, January 9). Greenhouse gas emissions [Research]. canada.ca/en/environment-climate-change/services/environmental-indicators/greenhouse-gas-emissions.html

[4] Canada, E. and C. C. (2021a, April 12). Greenhouse gas sources and sinks: Executive summary 2021 [Program results]. canada.ca/en/environment-climate-change/services/climate-change/greenhouse-gas-emissions/sources-sinks-executive-summary-2021.html

[5] Canada_GHG_emissions_trend_by_-province_1990-2013.pdf. (n.d.). Retrieved August 26, 2021, from climatechangeconnection.org/wp-content/uploads/2014/08/Canada_GHG_emissions_trend_by_-province_1990-2013.pdf

[6] Carbon Pricing 101. (n.d.). Resources for the Future. Retrieved July 4, 2021, from rff.org/publications/explainers/carbon-pricing-101/

[7] Carbon Pricing Dashboard | Up-to-date overview of carbon pricing initiatives. (2021, April 1). carbonpricingdashboard.worldbank.org/map_data

[8] Climate Mitigation Actions, Sustainability, Maine Department of Environmental Protection. (n.d.). Retrieved August 9, 2021, from maine.gov/dep/sustainability/climate/mitigation-actions.html

[9] Community GHG Emissions | City of Boulder. (n.d.). Retrieved August 26, 2021, from bouldercolorado.gov/boulder-measures/community-greenhouse-gas-emissions

[12] Current California GHG Emission Inventory Data | California Air Resources Board. (n.d.). Retrieved August 26, 2021, from ww2.arb.ca.gov/ghg-inventory-data

[13] Final 2019 CO GHG Inventory Report.pdf. (n.d.). Google Docs. Retrieved September 5, 2021, from drive.google.com/file/d/1TxyoktxCOLFd6CaUKZzeqsKgEIHMjdqt/view?usp=drive_open&usp=embed_facebook

[14] GDP by State | U.S. Bureau of Economic Analysis (BEA). (n.d.). Retrieved August 26, 2021, from bea.gov/data/gdp/gdp-state

[15] GDP (current US$)—Canada | Data. (n.d.). Retrieved August 26, 2021, from data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=CA

[16] GDP (current US$)—Mexico | Data. (n.d.). Retrieved August 26, 2021, from data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=MX

[17] GHG Emissions and Mitigation Policies | Mass.gov. (n.d.). Retrieved August 9, 2021, from mass.gov/info-details/ghg-emissions-and-mitigation-policies

[18] Government of Canada, S. C. (2017, February 8). Population and Dwelling Count Highlight Tables, 2016 Census. www12.statcan.gc.ca/census-recensement/2016/dp-pd/hlt-fst/pd-pl/Comprehensive.cfm

[19] Greenhouse Gas Emissions Inventory. (n.d.). NH Department of Environmental Services. Retrieved August 9, 2021, from des.nh.gov/climate-and-sustainability/climate-change/greenhouse-gas

[20] Greenhouse Gas Inventory Data Explorer | US EPA. (n.d.). Retrieved August 26, 2021, from cfpub.epa.gov/ghgdata/inventoryexplorer/#allsectors/allsectors/allgas/gas/all

[30] Revenue recycling | Climate Change Connection. (2016, September 22). Climate Change Connection | Connecting Manitobans to Climate Change Facts and Solutions. climatechangeconnection.org/solutions/carbon-pricing/revenue-recycling/

[31] The Regional Greenhouse Gas Initiative: Ten Years in Review. (n.d.). Acadia Center. Retrieved August 26, 2021, from acadiacenter.org/resource/the-regional-greenhouse-gas-initiative-ten-years-in-review/

[32] Total greenhouse gas emissions. (n.d.). Our World in Data. Retrieved August 26, 2021, from ourworldindata.org/grapher/total-ghg-emissions

[33] U.S. Bureau of Economic Analysis. (2001, January 1). Total Gross Domestic Product for Boulder, CO (MSA). FRED, Federal Reserve Bank of St. Louis; FRED, Federal Reserve Bank of St. Louis. fred.stlouisfed.org/series/NGMP14500