Market-Based State Policy

At-a-glance

  • Thirteen U.S. states have adopted 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.

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

  • Eleven 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 enacted a cap-and-invest program that will go into effect in 2023.

Regional Greenhouse Gas Initiative (RGGI)

State Carbon Pricing Policies

Regional Greenhouse Gas Initiative (RGGI)

Launched in 2009, RGGI is the first U.S. cap-and-trade program to reduce carbon dioxide emissions from the power sector. As of January 2021, eleven states are participating in RGGI: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia. Carbon dioxide 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. The states have set a goal of further reducing emissions 30 percent below 2020 levels by 2030.

Thirteen 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 declined by 3 percent annually from 2015 to 2020 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 a similar program in the Canadian province of Québec.

Washington cap and invest

In May 2021, Governor Jay Inslee signed the Climate Commitment Act, which creates and implements a cap-and-invest program by limiting emissions from covered entities, distributing allowances, and establishing a climate investment account for revenues from allowances. Washington is now the second state to implement a multisectoral cap-and-trade program.

The program will cover entities emitting 25,000 tons of carbon dioxide equivalent per year or more. Using a 1990 baseline, it seeks to reduce state greenhouse gas emissions 45 percent by 2030, 70 percent by 2040, and 95 percent and achieve net-zero emissions by 2050. Revenues from the program will be appropriated by the legislature for activities such as deploying clean energy, reducing GHGs and co-pollutants on over-burdened communities, transition assistance for fossil fuel workers, and programs to increase resilience to wildfires.

Washington State Department of Ecology will begin a rulemaking process for the Climate Commitment Act and the program’s first compliance period will begin in 2023.