Cap and Trade: What’s New, What’s Next

In 2017, the current administration announced its plans to withdraw the US from the Paris Climate Agreement, scrap the Clean Power Plan, and squash other climate change efforts. In response, states, cities, and businesses that make up over half of the US economy are taking matters into their own hands with independent cap and trade plans to reduce GHG emissions. 

Countries around the world have also announced their plans for carbon pricing programs. 

Here’s a look back at what happened in cap and trade in 2017:

• Even without a federal cap-and-trade bill, the US has reduced emissions faster and farther than any other large nation. The US is halfway to its Paris commitment and half the country’s coal plants have closed or are being phased out. 
• A total of 34 US states now have climate action plans.
• Nine states are now part of the Regional Greenhouse Gas Initiative (RGGI). This includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. RGGI is the first market-based regulatory program in the United States to reduce greenhouse gas emissions.
• Virginia approved a plan that would make it the first Southern state with a carbon cap-and-trade program, while linking the state to the Regional Greenhouse Gas Initiative.
• Hawaii became the first state to pass a law committing to the Paris climate targets. 
• The California Supreme Court upheld the state’s plan to cut carbon. The state also expanded its program to trade carbon credits with Quebec. 
• China, which is the world’s #1 polluter, unveiled a plan to create the world’s largest carbon market. If all goes according to plan, the emissions market will reward Chinese power companies for operating more cleanly. 
• The European Union announced plans to reform its Emissions Trading System, since the current cap is higher than the amount of carbon produced by the industries it covers. 
• The United Kingdom, France, Germany, Sweden and the Netherlands agreed to implement or evaluate the introduction of a meaningful carbon price.
• Ontario, Canada, launched a cap-and-trade program as part of a strategy to cut greenhouse gas pollution to 15% below 1990 levels by 2020.
• Alberta, Canada, launched a new carbon tax for transportation and heating fuels that emit GHGs. Alberta has had a price on carbon for large emitters since 2007.
• Chile’s carbon tax took effect in 2017, making Chile the first South American country to tax carbon.
• South Africa delayed the implementation of a planned carbon tax and carbon reporting. 

Looking ahead to 2018:

• Nearly 100 countries have expressed interest in joining up with an international carbon pricing system as a way to meet their emission reduction targets.
• California, Ontario, and Quebec will link their cap-and-trade programs to create the largest carbon allowance market in North America. The linkage starts January 1, 2018.
• New Jersey has promised to rejoin the RGGI under its new governor. The state previously withdrew from the partnership in 2012. 
• Canada’s federal government has plans to implement a national carbon price in 2018. Provinces will have until the end of the year to submit individual carbon pricing plans. 
• Mexico, which recently began simulated permit trading, will launch a national carbon market in late 2018. 
• British Columbia, Canada, will raise its carbon tax by $5 per tonne per year, and expand the tax to fugitive emissions and slash-pile burning. 
• Some countries have pledged to participate in Carbon Pricing in the Americas (CPA). This includes Canada, Chile, Colombia, Costa Rica, México, California, Washington, Alberta, British Columbia, Nova Scotia, Ontario and Quebec. The CPA is an initiative to implement carbon pricing and strengthen regional cooperation.

The bottom line

Many regions adopted cap-and-trade programs in 2017, and that number is expected to grow in 2018. As carbon pricing programs become more common, companies that are able to reduce their emissions faster will gain a competitive advantage. View our free climate risk management guide for more information on how to address climate-related risks.