Massachusetts looks towards carbon pricing to reduce GHG emissions

By Bill Holloway

Last month Massachusetts released a study investigating how the commonwealth could implement a revenue-neutral carbon fee or tax to support the state’s GHG reduction goals. Massachusetts’ Department of Energy Resources requested that the researchers develop a system that would incentivize GHG reduction but that would use tax cuts or rebates to return to businesses and individuals an amount of money equivalent to what they pay under any new carbon pricing plan. The researchers also had to ensure that any plan would:

  • Have a high potential to reduce GHG emissions
  • Cover all major sources of GHG emissions
  • Be phased in gradually
  • Mitigate harm to in-state businesses caused by competition from firms in jurisdictions lacking a carbon tax

The researchers modeled three different pricing scenarios for the charge. Each begins with a carbon price of $10/ton that climbs to $30/ton over the course of the first five years—the same approach taken by the Province of British Columbia when it introduced its carbon tax in 2008. After the initial five-year period, the price per ton would increase gradually to a maximum of $50, $75, or $100 in 2040. The researchers offer a detailed discussion and recommendations for the specific structure of how a carbon tax or fee would be implemented based on potential equity and business impacts.

The researchers conclude that a carbon pricing plan would reduce GHG emissions by 5-10 percent and generate 6,000-15,000 additional jobs by 2040. Most of the emissions reductions would be due to reduced consumption of transportation fuels.

Unlike the cap and trade program in California, which began affecting transportation fuels on January 1, Massachusetts’ carbon pricing proposal would not put a cap on total GHG emissions. Massachusetts does, however, participate in the Regional Greenhouse Gas Initiative, a cap-and-trade type program that involves nine northeastern U.S. states and applies only to the power sector.

Bill Holloway is a Transportation Policy Analyst at SSTI.