Emory Undergraduate Journal of Law & Society

With the increasing effects of climate change, concern is rising regarding how to address the environmental crisis. While some states agree there must be policies to address changing conditions, it is difficult to determine the best way to treat these problems through legislation—specifically, carbon emissions. The two primary methods proposed are carbon emissions taxes and cap-and-trade policies to combat this. While both effectively reduce carbon emissions, cap-and-trade legislation should be encouraged at the state level over other carbon tax policies due to its potential for investment into green energy.

Carbon taxes are an emission tax where the government establishes a price for each metric ton of emissions produced by domestic companies and importers. The two predominant forms of carbon taxes are emission taxes, based on the carbon emitted, and taxes on capital-intensive goods and services. The tax incentivizes companies to reduce emissions by making carbon output more expensive, promoting a transition to greener technologies. While effective for generating government revenues and calculating costs for corporations, carbon taxes are less reliable for achieving specific emission reduction targets.

In contrast, cap-and-trade legislation in the United States sets a precise limit for the emissions allowed within individual states. The distribution of emission permits is through emission auctions and secondary markets. The auction-based system, while less reliable for revenues, ensures that the emissions do not exceed a given level and allows companies to individually allocate their emissions efficiently through the secondary market [1].

The most recent climate legislation passed in Washington. Their “cap-and-invest” program, outlined in the 2021 Washington Climate Change Act, taxes businesses emitting more than 25,000 tons of carbon per year, capping emissions around 90 million tons and gradually decreasing over time [2]. Their legislation intends to transition to carbon neutrality by 2050. The program also brings $2 billion in state revenue, where funds are reinvested into cleaner energy, helping to transition to a clean-energy economy [3]. 

In contrast to states, the United States federal government has had two crucial carbon tax policies proposed in the House of Representatives. The first, the Energy Innovation and Carbon Dividend Act of 2023, imposes a tax on the carbon content of fuels such as natural gas and crude oil, with notable exemptions for agriculture and the armed forces [4]. The second, the MARKET CHOICE Act, also proposes a tax on greenhouse gas emissions, with the exemptions of federal motor vehicles [5]. Even though neither act has passed, they represent bipartisan support for implementing carbon taxes on the federal level. While the Energy Innovation and Carbon Dividend Act is more aggressive, potentially raising the per metric ton price on emissions by $15 each year, it addresses the same underlying issue as the MARKET CHOICE Act, which starts the carbon taxes at $35, raising them by a maximum of $4 biannually.

At the federal level, cap-and-trade agreements may not be as sustainable or maintainable because of the complexity of permit auctions and the logistical issues of targeting every business [6]. However, they should be more encouraged at a state level to enact climate emissions policies. The Washington state legislation is an example of how policies can aid in more investment in clean energy through the revenue created by the cap-and-trade agreements. In addition, these taxes and agreements can increase natural gas and oil prices [7]. However, because natural gas and oil reserves are scarce, over time, the depletion of these resources will lead to higher prices and force an energy transition [8]. The carbon cap-and-trade legislation will encourage corporations and individuals to gradually transition to greener technology, a more efficient process in the long term. Within state legislation, a green energy transition is necessary and should implement cap-and-trade programs to generate funding for this investment while limiting emissions.

References

[1] C2ES. (2017, October 21). Cap and Trade Basics | Center for Climate and Energy Solutions. Center for Climate and Energy Solutions. https://www.c2es.org/content/cap-and-trade-basics/.

[2] Washington State Department of Ecology. (2024). Cap-and-invest – Washington state department of ecology. Ecology.wa.gov. https://ecology.wa.gov/Air-Climate/Climate-Commitment-Act/Cap-and-invest.

[3] Moore, E. (2024, October 8). (Re)explaining Washington’s climate commitment act. Sight line Institute. https://www.sightline.org/2024/10/08/reexplaining-washingtons-climate-commitment-act/.

[4] 118th Congress. (2023). H.R.5744 – 118th congress (2023-2024): Energy innovation and carbon dividend act of 2023. Congress.gov. https://www.congress.gov/bill/118th-congress/house-bill/5744.

[5] H.R. 6665; Modernizing America with Rebuilding to Kickstart the Economy of the Twenty-first Century with a Historic Infrastructure-Centered Expansion (MARKET CHOICE) Act.

[6] Environmental Defense Fund. (2020, January 22). How cap and trade works. Environmental Defense Fund. https://www.edf.org/climate/how-cap-and-trade-works.

[7] UNFCCC. (2022). About carbon pricing. Unfccc.int. https://unfccc.int/about-us/regional-collaboration-centres/the-ciaca/about-carbon-pricing.

[8] International Energy Agency. (2023, November 23). Oil and gas industry faces moment of truth – and opportunity to adapt – as clean energy transitions advance – news. International Energy Agency. https://www.iea.org/news/oil-and-gas-industry-faces-moment-of-truth-and-opportunity-to-adapt-as-clean-energy-transitions-advance.