The Geography of Carbon Pricing

How much will your cost of living rise if a price is put on carbon? According to a new study in The Energy Journal, the answer may depend on where you live — and how policymakers define who’s ultimately responsible for human-made carbon emissions.

Study looks at why some states could be impacted more than others if a price is put on carbon.

On first glance, it might seem intuitive to impose a price on carbon where emissions are generated, from manufacturing facilities to power plants. But none of those point sources would be operating without the end-users of the goods and services that they produce. Consider windshield glass made in Ohio that’s exported to Michigan for assembly into automobiles, which get shipped to New York auto dealers. If responsibility for carbon emissions embodied in that glass — through its manufacture, assembly, and transport — is placed on the consumer, then a price on carbon would be imposed in New York.

“Looking at the point of emission of carbon dioxide (CO₂) can be misleading because some states like California seem relatively clean but import a lot of carbon-intensive consumer goods, so people in those states may be more responsible for CO₂ emissions than you would think,” says the study’s lead author, Justin Caron, a former postdoc with the MIT Joint Program on the Policy of Global Change who now serves as an assistant professor at the University of Montreal business school. “Getting statewide consumption and trade data has clarified who has the responsibility for the emissions and who should be taking action.”

Using a data-driven carbon emissions accounting strategy that’s far more comprehensive than earlier analyses, Caron and his coauthors — MIT Joint Program co-director and Sloan School of Management senior lecturer John Reilly and Tufts University professor of economics Gilbert Metcalf — found that attributing CO₂ emissions to states based on consumption rather than production vastly changes the total emissions for which they are responsible. The researchers also determined that the CO₂ emissions embodied in the goods consumed by households varies widely among U.S. states and regions.

According to the study, the majority of CO₂ emissions attributable to households are not due to direct energy use (e.g., home electricity and heating fuel, gasoline) but rather are embodied in all other goods consumed by those households. Because the producers of imported goods — and, hence, their embodied emissions — vary considerably from state to state, some states are responsible for much more CO₂ emissions than others, and would be more adversely impacted under a uniform carbon pricing policy.

“The differences in embodied CO₂ are reflected in all the goods that consumers buy,” says Caron, noting that previous studies assumed that the carbon intensity of non-energy-related household goods was the same across the U.S. “So a carbon pricing policy would impact the price of every good, not just energy, and these prices will differ among states.”

To arrive at their findings, the researchers used a multi-regional input-output (MRIO) framework that allowed them to track CO₂ emissions in U.S. states and regions for different products throughout the whole global production chain of a consumer good. For example, MRIO can track the CO₂ emissions involved in the production of the components of a table, including steel and wood.

“The production chain tends to be very geographically dispersed,” says Caron. “Using MRIO analysis allows us to take a dollar’s worth of a table in Massachusetts and look at all the inputs required to produce that table, no matter where it was produced, and to track where CO₂ was emitted.” Drawing upon data representing trade links among U.S. states and foreign countries, MRIO enabled the researchers to account for emissions of goods imported from all points of origin.

The authors determined that some of the largest net importers of embodied carbon are New York, Florida, and California, as well as states in the New England and Mid-Atlantic regions, whereas Texas and the south-central and Mountain states are the largest net exporters.

The differences in the carbon intensity of production and consumption across regions could impact support for carbon-pricing policies in different states within those regions, and whether those policies will be based on production or consumption. This study’s state-by-state estimates of CO₂ emissions production and consumption could inform efforts to ensure that national and regional carbon-pricing policies don’t result in excessive economic hardship for particular states and regions.

The study was funded by the U.S. Department of Energy, Environmental Protection Agency, and other sponsors of the Joint Program.

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