Why the United States Should Establish a Carbon Pricing Policy

by Ian Chang, March 27, 2022

As the human population continues to grow, the demand for a variety of resources, whether they be fossil fuels or foods, has created an abundance of carbon emissions. These carbon emissions have negatively affected our planet, trapping heat and warming our atmosphere. The year 2020 was found to be the second warmest year on record, and the global average temperature has been rising each decade since 1880 by around .08 degrees celsius (Lindsey & Dahlman, 2021). The increased temperatures of our planet have several negative effects, including more frequent natural disasters such as droughts and floods as well as heatwaves (Venkataramanan & Smitha, 2011). To combat the increasing warming of our planet, the United States government should take action implementing carbon pricing policy, a system in which prices are increased on certain products depending on the amount of carbon they emit in order to take into account their environmental impact. Ultimately, if the United States government passed legislation enforcing carbon pricing countrywide, it would significantly help slow down climate change, reducing its effects and also providing some economic advantages. First, I will discuss how several everyday activities in the United States release carbon dioxide which promotes climate change and pollutes the environment. Second, I will discuss how carbon pricing will reduce the rate at which carbon is released into the atmosphere by discouraging carbon-emitting activities. Third, I will explain how carbon pricing would overall generate economic benefits within the country. Fourth, I will conclude.

According to the OECD Better Life Index (2021), the United States is a fairly well developed country. Around 88% of individuals are in good health and life expectancy averages around 79 years old, allowing for the population to grow at a steady rate. In order to support this population, however, several steps are taken which not only harm the surrounding natural environment but also have negative effects on the population. One of the effects from an increasing population is a need for more food resources. Between 2008 and 2012, around three million hectares of land in the United States were converted into cropland. This cropland expansion led to a massive increase in carbon emissions, around 38.8 teragrams of carbon per year (Spawn et al., 2019). Another source of carbon emissions within the United States are fossil fuels, which include coals and gases. These fossil fuels are the main energy source to power transportation and homes and everyday technologies. Today, around twenty three to twenty four percent of global carbon emissions from fossil fuel consumption occur within the United States, a country which makes up only around 4.25% of the world population (Soytas, et al., 2007).

These releases of carbon emissions have several drawbacks, not only catalyzing the rate at which the climate warms, but also directly affects the health and wellbeing of the citizens in the United States. Outdoor air pollution, according to OECD Better Life (2021), is estimated to become one of the top environmental causes of premature death globally by 2050. Carbon emission pollution, especially in urban areas, creates and aggravates respiratory issues such as asthma and can also eventually lead to lung cancer.

In order to combat these releases of carbon emissions that warm the climate and cause respiratory issues, the policy of carbon pricing has shown to be effective in reducing carbon emissions. In California in 2014, the state government took track and capped emission releases at 394 million metric tons of carbon dioxide and reduced this cap by three percent every year. Entities who released more carbon output than allowed were fined. As a result of this emission cap, entities who were regulated decreased their carbon emission output by about nine percent on average. At the same time, the European Union implemented a similar policy which also took track and capped emissions, reducing the cap based on different phases rather than by year. They found that in the first phase of their policy, the total carbon emissions output was reduced by around 2.5 to 5%. The second phase of their carbon pricing policy also seemed to yield similar results with a 6.3% reduction in carbon emissions. However, this phase also occurred during the same time as the 2008 economic crisis so it is difficult to determine whether or not the policy was responsible for this reduction. However, carbon emission rates continued to decrease with greenhouse gas emissions decreasing by 2.9% from 2015 to 2016. The European Union continues to lower the cap on carbon emissions as the population increases, moving into another phase of reduction by 2025 (Narassimhan, et al., 2017). These results from California and the European Union demonstrate how, if established nationwide in the United States, carbon pricing provides a viable solution to helping reduce carbon emissions.

While implementing carbon pricing would help reduce the rate at which carbon is emitted, therefore helping diminish the effects of climate change, there are also several economic benefits that would arise. One of these economic benefits is that carbon pricing would promote the invention, production, and consumption of new technologies that are more carbon neutral. Carbon pricing would make products, which run on fossil fuels such as gas or oil, more expensive to produce. This would incentivize companies to to develop more renewable energy products while simultaneously bringing up demand for already existing non-carbon or low carbon emitting products. According to Baranzini et al. (2017), innovation for energy efficient equipment tends to rise during times in which oil prices rise, reinforcing the idea that higher prices on fossil fuels would promote innovation. At the same time, the European Union’s carbon pricing policy led to a ten percent increase in clean innovation, further backing the idea that it can work. Carbon pricing would also significantly influence how consumers decide what kind of products they purchase. Today, many consumers do not take into consideration or are unaware about purchasing products that can mitigate or worsen their environmental impact, as measured by the carbon footprint. Rather, they make decisions based on which products have the lowest price. Consumers who are aware of the carbon emitting impact of their purchases have sometimes done little to nothing to change their habits of purchasing goods and services at the lowest cost. Furthermore, an individual action, when not counted collectively, does not usually yield significant beneficial results, discouraging individual consumers from taking any sort of action at all. With the implementation of carbon pricing, this issue of consumers not taking action to reduce their carbon footprint would be addressed. Producers would adjust their prices in order to make up for the extra costs from carbon pricing, encouraging consumers to purchase more carbon neutral products This, in turn, would help transition the economy to become more carbon free (Baranzini et al., 2017).

Not only can carbon pricing policy help transition the economy to become more energy efficient and promote innovation of clean energy technologies, it can also directly benefit communities and the well being of citizens. Revenue gained from carbon pricing can be utilized to help build up communities and overall bring about more public investments. Carbon pricing can also help reduce distortionary taxes, or taxes put in place to discourage the purchase of a certain product. Essentially, carbon pricing directly increases pressure on greenhouse gas-emitting industries to reduce the amount of carbon emissions they produce, leading them to raise prices on their goods and services therefore eliminating the need of distortionary taxes because the carbon price is included in the product (Baranzini et al., 2017).

While carbon pricing has several economic benefits, some argue that it could have distributional effects on poorer individuals. Households within the United States who already struggle to afford goods and services that produce greenhouse gases may be even more financially burdened when trying to purchase clean energy products. However, carbon pricing policies are slowly transitioned into society, giving time for households to adapt to the changing prices of energy. The revenue also gained from carbon pricing can be put back into the economy to compensate low-income households, as illustrated by the Energy Innovation and Carbon Dividend Act. This act hopes to utilize revenue gained from carbon pricing to return dividends to households (Kaufman et al, 2019). Some individuals have also argued that carbon pricing would be difficult to implement due to the significant amount of carbon emitting companies lobbying against carbon pricing in order to keep their goods and services cheaper than cleaner energy alternatives. These carbon emitting companies' lobbying have influenced voters, turning them against the idea of carbon pricing. While there are several companies lobbying against carbon pricing, there are also several organizations lobbying for the implementation of it, helping to build momentum for its support. At the same time, events such as the Paris Climate Accords have promoted the idea of carbon pricing globally, with 150 companies stating that they will begin incorporating their own self-maintained carbon pricing into their practices (Baranzini et al., 2017). These lobbying groups and climate accords have helped shape public opinion to be more positive about carbon pricing.

Climate change continues to pose a threat to the wellbeing of societies all over the world today. With an increasing population comes a need for more resources, degrading the environment. In order to help reduce the effects of this growing population, carbon pricing policies would place restrictions on individuals and companies, making them consider their environmental impacts in the daily choices they make. Overall, carbon pricing would be greatly beneficial in both improving the natural environment as well as building up the economy.


Baranzini, A., Bergh ,J., Carattini, S., Howarth, R., Padilla, E., Roca, J. (2017). Carbon pricing in climate policy: seven reasons, complementary instruments, and political economy considerations. Wiley Interdisciplinary Reviews.

Kaufman, N., Larsen, J., Marsters, P., Kolus, H., & Mohan, S. (2019). An Assessment of of the Energy Innovation and Carbon Dividend Act. Columbia Center on Global Energy Policy.

Lindsey, R., & Dahlman, L. (2021). Climate Change: Global Temperature. Climate.Gov.

Narassimhan, E., Gallagher, K., Koester, S., & Alejo, J. (2017). Carbon pricing in practice: a review of existing emissions trading systems. Taylor & Francis Online.

OECD Better Life Index. (2021). United States. OECD Better Life Index.

Soytas, U., Sari, R., Ewing, B. (2007). Energy consumption, income, and carbon emissions in the United States. Ecological Economics, (62), 482-489.

Spawn, S., Lark, T. & Gibbs, H. (2019). Carbon emissions from cropland expansion in the United States. Environmental Research Letters, (14), 4.

Venkataramanan, M. & Smitha. (2011). Causes and Effects of Global Warming. Indian Journal of Science and Technology.

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