United states of net zero

Welcome to Carbon Risk — helping investors navigate 'The Currency of Decarbonisation'! 🏭.

It is now almost 16 years since a proposal to limit America's greenhouse gas emissions using a nationwide cap-and-trade scheme was dealt a fatal blow.

The legislation was supported by most Democrats and a policy that US President Barack Obama campaigned on. Unfortunately, fierce opposition from Republicans concerned that it would raise energy prices, coupled with dwindling approval ratings, eventually forced Obama to abandon the plans. Plan B involved regulating industrial emissions on a plant by plant basis. Compared to carbon pricing, mandates are inefficient, unwieldy, and costly.

Today, just over 10% of America's GHG emissions are covered by a carbon pricing mechanism. Among those states where an emissions trading scheme operates, the average carbon price is currently around $35 per tonne CO2 (~€30).

Instead of being a patchwork of different programs, states are increasingly looking to link to other more established multi-jurisdiction schemes. Those that do will benefit from a deeper pool of carbon abatement opportunities and reduce the risk of 'carbon leakage', i.e. when companies choose to relocate to jurisdictions with lower environmental standards. It also enables them to tap into a rich vein of revenues, that can be used to unblock decarbonisation barriers, or reduce power prices for lower income households.