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.

Visualized: Clean Energy and Emissions Goals by State

In its Nationally Determined Contribution to the Paris Agreement, the U.S. set a target of reducing its greenhouse gas (GHG) emissions by 50-52% below 2005 levels by 2030, as well as achieving 100% carbon-free electricity by 2035.

To discover how each state is contributing to these goals, this graphic sponsored by the National Public Utilities Council provides an overview of each state’s ultimate clean energy or GHG emission reduction goal.

Varying Commitments

An analysis of the aggregated data by S&P Commodity Insights reveals a broad spectrum of clean energy and emission reduction goals in the United States.

While some states have more ambitious goals of attaining 100% clean energy by 2040, others, such as Ohio, have opted for more modest and short-term targets, aiming to achieve 8.5% renewable electricity by 2026.

Eleven states, or 22%, have never set clean energy or emission reduction goals. These states include Alabama, Florida, Georgia, Mississippi, Tennessee, and West Virginia.

Similarly, another ten states (20%) have expired goals with target dates as far back as 2015. These ten states, including the Dakotas, Missouri, Kansas, Montana, and Oklahoma, have not reset their goals since.

Shares of Clean Energy by State

To get a glimpse into how far each state has to go in achieving its goal, a snapshot of the use of clean electricity in each state is shown below.

Using data from the Nuclear Energy Insitute, the bars show each state’s 2021 share of emission-free electricity broken down by nuclear and various renewables.

While clean electricity made up 70% or more of the electricity mix in several states, nuclear and renewable energy sources comprised approximately 40% of total U.S. electricity generation in 2021.

To hit its 100% carbon-free electricity goal, therefore, the U.S. needs a minimum 4.3% annual increase in clean electricity generation through 2035. For context, an average annual growth of 2.4% was observed in the last five years.

On the GHG reduction side of things, emissions were 17% below 2005 levels in 2021, showing the need for an additional 35% reduction by 2030.

As these figures show, achieving the ambitious clean energy and emissions reduction goals in the U.S. will require a significant ramp-up of clean electricity generation in the upcoming years, along with accelerated decarbonization efforts across all sectors.

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