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Market-Based State Policy

At-a-glance

  • Eleven U.S. states use market-based approaches to reduce greenhouse gas emissions.
  • State-based market policies to reduce greenhouse gases have been in operation since 2009.
  • More than a quarter of the U.S. population lives in a state with carbon pricing. These states represent a third of U.S. GDP.

While federal action to reduce greenhouse gas emissions has developed slowly, states have become an important testing ground for climate policies. A handful of leading states have set a price on carbon as an incentive for reductions by major emitters of greenhouse gases. While these states are responsible for only a small portion of global emissions, market-based pricing policies have proved effective at reducing emissions, and serve as important models for other states and for national policy.

Eleven states have adopted carbon pricing policies either as part of a regional initiative or on their own:

  • Nine Northeast states jointly cap power sector emissions through the Regional Greenhouse Gas Initiative (RGGI)
  • California has an economy-wide cap-and-trade system.
  • Washington state’s Clean Air Rule sets individual emissions caps for large sources across the economy.

State Carbon Pricing Policies

Regional Greenhouse Gas Initiative (RGGI)

Enacted in 2009, RGGI is the first U.S. cap-and-trade program to reduce carbon dioxide (CO2) emissions from the power sector. Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont are members. CO2 emissions from power plants throughout the region are capped, and the regulated power plants trade emission allowances. Since the program started, covered emissions have fallen by about half from their 2005 high, and investments from allowance auctions have generated almost $3 billion in economic value for the member states. RGGI states announced in August 2017 their intent to reduce covered emissions another 30 percent between 2020 and 2030.

Eleven states have adopted carbon pricing policies as part of a regional initiative or on their own.

California cap and trade

Unlike RGGI, which covers only the power sector, California’s cap-and-trade program covers virtually the entire state economy. It was the first multi-sector cap-and-trade program in North America. The greenhouse gas emissions cap set under the program will decrease about 3 percent annually to help the state achieve its legislated goal to reduce emissions to 1990 levels by 2020. After that, under a state law enacted in 2017, the cap will be further reduced to help achieve an additional 40 percent reduction in state emissions by 2030. The program is linked with similar programs in the Canadian province of Québec and (soon) Ontario.

Washington Clean Air Rule

In 2016, Washington state’s Department of Ecology adopted the Clean Air Rule to reduce greenhouse gas emissions across the economy. The program sets facility-specific caps for large sources of emissions, beginning in 2017, and requires each facility to reduce emissions 1.7 percent each year thereafter (though some industrial facilities have slightly different annual reduction requirements). Unlike the other state programs, there are no emission allowances to auction, but sources can earn tradable credits by overachieving their reduction targets. Facilities can also use carbon offsets or allowances from other programs for compliance.