Carbon Pricing in North America

Carbon pricing has seen mixed successes in North America. The USA has not implemented a federal carbon pricing measure, however certain states in the USA, most notably California, have created their own emissions trading systems. Political circumstances have made it difficult to pass federal carbon pricing legislation, but a bipartisan bill would commission a study into the emissions intensity of goods with the aim of informing a potential carbon pricing mechanism and CBAM. 

In contrast to the USA, carbon pricing covers all provinces within Canada. The Canadian system operates on both a provincial and federal level – certain provinces such as British Columbia have their own systems with prices exceed federal levels, but a federal price applies to those provinces without their own systems. Additionally, Canada’s ‘carbon fee and dividend’ approach returns revenue to lower-income residents. Despite this progressive system, there has been some political opposition to Canada’s carbon pricing mechanism. Mexico levies a modest carbon tax of $3.5/tCO2e.

North America, in particular the USA and Canada, demonstrates successful carbon pricing measures but also the potential for political circumstances to present a barrier to this type of climate policy. However, state-level pricing mechanisms in the USA and Canada’s two-tiered approach also show the potential for subnational governments to drive carbon pricing policy. Many foreign businesses area already impacted by Canada’s carbon pricing system and state-level mechanisms such as California’s cap-and-trade system, but the introduction of federal carbon pricing in the USA could have even more significant implications for global businesses. Carbon pricing developments in North America, through the linking agreements between California and Quebec’s emissions trading systems, also highlight opportunities for cross-border collaboration between subnational government.