Carbon pricing generally refers to a market-based method for reducing greenhouse gas emissions. Governments implement carbon pricing in two main forms:
- A carbon tax or fee on the amount of carbon dioxide a source emits
- A cap-and-trade system that sets a declining cap on carbon dioxide and then requires emitters to purchase the right to pollute by acquiring shares of that cap
Carbon pricing in the electricity markets can also mean a mechanism that accounts for environmental policies in the deployment of energy resources.
More than 40 nations have implemented a carbon tax or trading system. In the U.S., California has an economy-wide carbon cap-and-trade program, while states in New England and the Mid-Atlantic have formed a utility-sector trading regime known as the Regional Greenhouse Gas Initiative (RGGI). Between these two programs, nearly one-third of all Americans will live in a state with a carbon price by 2020.
The Nicholas Institute assesses carbon pricing schemes for environmental integrity, cost-effectiveness, and distributional equity. Since the 2007 landmark Supreme Court decision Massachusetts v. EPA, we have explored carbon trading as a method for regulating emissions under the Clean Air Act. More recently, we have begun to analyze the role of power sector carbon pricing to maximize air quality benefits from electrifying the transportation sector. We also facilitate public workshops and state convenings to socialize the carbon pricing concept and consider program design options. Finally, Institute staff work with faculty partners at Duke to study methods for calculating the social cost of carbon for use in carbon markets or traditional regulation.