Visualized: Carbon Pricing Initiatives in North America

Carbon pricing mechanisms are a vital component of an effective emissions reduction strategy. But these initiatives currently cover just 15% of total North American carbon emissions.

To discover which initiatives are currently contributing to this coverage, this graphic sponsored by the National Public Utilities Council maps out all of the national and subnational carbon pricing initiatives across North America using data from the World Bank.

Let’s begin by looking at types of carbon pricing.

Carbon Pricing Explained

Carbon pricing is a market-based policy tool that assigns a cost to carbon emissions, incentivizing reductions through the use of economic signals.

While there are several ways to go about carbon pricing, the most commonly used types of carbon pricing strategies include:

• Emissions Trading Systems (ETS)
  ETS establishes a market for trading emissions allowances among companies. A cap on total emissions is set, and all companies receive tradable emission units. Those exceeding their limits can buy allowances from those with a surplus.
• Carbon Taxes
  Carbon taxes impose a direct price on carbon emissions. Their goal is to disincentivize carbon-intensive activities, such as burning fossil fuels, by making them financially less attractive.

In 2022, carbon pricing strategies generated $5 billion in the U.S. and $8 billion in Canada. These funds were primarily allocated toward green investments and support for low-income households.

Carbon Pricing Initiatives By Country

The U.S. is currently the only country in North America without a national carbon pricing initiative. Both Canada and Mexico, on the other hand, have implemented federal ETS and carbon tax programs.

Beyond federal initiatives, many regions on the continent have also implemented or are considering their own carbon pricing initiatives. These subnational initiatives are listed in the table below:

The RGGI was the first mandatory ETS initiative in the U.S. and applies to power plants in Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, Vermont, and Virginia.

Since its inception, emissions in the RGGI region fell by more than 50%—twice as fast as the nation as a whole—and raised nearly $6 billion to invest in local communities.

Are All Carbon Pricing Initiatives Created Equal?

In the landscape of carbon pricing initiatives, one critical factor stands out—the price of carbon itself.

According to The High-Level Commission on Carbon Prices, achieving alignment between carbon pricing strategies and the Paris Agreement temperature target requires a price of US$40–80/tCO₂ by 2020 and US$50–100/tCO₂ by 2030.

Unfortunately, many North American initiatives fall short of these prices, especially in the U.S. and Mexico, where carbon prices reach as low as US$12/tCO₂e. Conversely, most Canadian initiatives set a price of US$48/tCO₂e.

It’s also important to note that the broader impact of these initiatives depends on a multitude of other factors, including the industries they cover, their flexibility in accommodating changing economic conditions, and the manner in which generated revenue is invested back into sustainable practices.

Within the balance of these various elements lies the potential to steer all industries—including the power sector—toward the necessary emissions reductions.

The 3 Building Blocks for a Decarbonized Power Sector

As part of the Paris Agreement, the U.S. has set goals to achieve a 50-52% reduction in emissions by 2030 and net-zero emissions by 2050.

To lay the foundation for these targets, the Biden Administration’s goal is to create a 100% clean power sector by 2035.

This infographic from the National Public Utilities Council shows why a clean power sector is essential for net-zero emissions and highlights the three building blocks needed to achieve it. This is part 2 of the Road to Net Zero series of infographics.

The State of U.S. Energy Use

Today, fossil fuels like oil and gas provide most of the energy used in the U.S. for transportation, heating, and industrial purposes.

For example, due to the prevalence of gasoline vehicles, petroleum accounts for 90% of the transportation sector’s energy consumption, with electricity making up less than 1% of the total.

Similarly, around 80% of the industrial sector’s energy needs are met with natural gas and petroleum. Meanwhile, the residential and commercial sectors use large amounts of natural gas for their space heating needs, along with electricity for other appliances.

With fossil fuels widespread in the U.S. energy mix, the fastest path to net-zero emissions is to electrify and decarbonize energy use in all sectors. This involves replacing technologies that use fossil fuels with those powered by electricity and a clean grid.

For instance, electric vehicles could transform the transportation sector’s energy consumption and reduce emissions. Additionally, electric heat pumps could replace oil and gas boilers in residential and commercial buildings.

However, for electrification to be effective in reducing emissions, decarbonizing the power sector and generating clean electricity is essential.

The Path to a Decarbonized Power Sector

Decarbonization calls for a transformation of the power sector, from one where fossil fuels generate 60% of total electricity to one dominated by clean energy and backed by an upgraded grid.

There are three foundational building blocks for the road to 100% clean electricity:

#1: Accelerate Clean Energy Deployment

With renewable energy now cheaper than fossil fuels, expanding solar- and wind-powered generation is key to replacing fossil fuels and reaching zero emissions.

According to Princeton University, for net-zero emissions by 2050, the U.S. needs to add more than 50 gigawatts of solar capacity annually from 2022 to 2035. That is significantly higher than the 13 gigawatts installed in 2021.

#2: Support Clean Energy with Grid Expansion

With the U.S. power grid aging, new high-voltage transmission capacity is essential for transporting electricity from remote solar and wind farms to centers of demand.

From 2013 to 2020, U.S. transmission capacity grew by just 1% annually. To align with the net-zero pathway, the pace of expansion needs to more than double through 2030.

Here’s how transmission expansion could affect U.S. greenhouse gas (GHG) emissions, as modeled by Princeton:

Source: Princeton University – Zero Lab

With a 2.3% annual growth in transmission capacity, U.S. GHG emissions could achieve a 32% reduction from the 5.6 billion tonnes emitted in 2021.

#3: Invest in Nuclear Power and Battery Storage

The intermittent nature and low reliability of wind and solar power generation pose a challenge for the energy transition.

Battery storage systems and nuclear power can solve the intermittency problem by supplying clean electricity when wind and solar generation falls.

For example, storage systems can store excess solar power that is produced during sunny periods of the day, and supply it in the evening when solar generation dips. Meanwhile, nuclear power plants can supply electricity around the clock, acting as a clean baseload power source.

Towards a Carbon-free U.S. Economy

New renewable capacity, transmission expansion, and reliable backup sources are key to unlocking a carbon-free power sector.

Together, these three building blocks form the foundation for economy-wide emissions reduction and net-zero emissions by 2050.

Click here to learn more about how electric utilities and the power sector can lead on the path toward decarbonization.