John Gage and Katharine Gage

The U.S. is now the only developed country without a carbon price on fossil fuel emissions. There is a growing gap between the U.S. carbon price ($0) and the carbon prices of our major trading partners. This gap has significant consequences for our economy, global competitiveness, and the climate. Let’s explore why carbon pricing is important, why the U.S. is lagging, and what we can do about it.

World Bank, State and Trends of Carbon Pricing 2025, Figure 1: Share of global greenhouse gas emissions covered by an emissions trading system (ETS) or carbon tax.

Why Carbon Pricing Matters

When pollution is free, we get too much of it. Carbon-based climate pollution from fossil fuels is the main driver of man-made global warming. Economists agree that an economy-wide carbon price on fossil fuels is an essential part of any solution mix that can meet science-based climate goals.

The Intergovernmental Panel on Climate Change (IPCC) reports that a minimum global price of $135 per ton of CO2 in 2030 and rising $9 annually through 2100, plus complementary policies, is required for a relatively safe climate future. According to MIT’s En-ROADS climate policy simulator, a strong carbon price is half the solution to global warming (bit.ly/cfd-is-half-the-15-solution).

Carbon Pricing is Spreading

The World Bank reports that 28% of global fossil fuel emissions are now covered by a carbon price, up from 24% last year. Why is it spreading? The Paris Agreement requires all countries to commit to climate pollution reductions and charging fossil fuel producers a steadily rising fee based on their products’ carbon emissions is the most cost-effective way to meet those commitments (clcouncil.org/economists-statement).

Prices are Rising and CBAMs are Coming

Carbon prices usually start low and rise over time to give market actors time to adapt. The prices of the EU and some of our other trading partners are rising in line with the IPCC’s minimum target.

Carbon Border Adjustment Mechanisms (CBAMs) are how countries and regions that price carbon can level the playing field in trade to eliminate the artificial competitive advantage of producing in countries where it is free to pollute. CBAMs impose a carbon price at the border on imports from countries with a lower or no carbon price (e.g., a carbon import tariff), and may also rebate exporters.

The EU’s CBAM starts in 2026, the UK’s in 2027, and Japan’s in 2028. Canada and Australia are considering using CBAMs. U.S. exporters can only avoid paying other countries’ CBAMs when we close the U.S. carbon price gap.

The U.S. Carbon Advantage

CBAMs reward cleaner production. Since U.S. producers are among the cleanest in the world, CBAMs implemented in both the U.S. and elsewhere will give U.S. producers a competitive advantage over producers from most other countries (clcouncil.org/our-solutions/carbon-advantage).

Protecting People with Cash Back

Carbon pricing raises fossil fuel costs. A popular way to address the impact on household budgets is to rebate the money collected from fossil fuel producers to all households on an equal per-capita basis each month. Most families will receive more cash back than the total they pay in trickle-down higher prices (citizensclimatelobby.org/household-impact-study).

”Carbon pricing is most effective if revenues are… returned to taxpayers corresponding to widely accepted notions of fairness” – IPCC AR6.

A policy that does all of the above, Carbon Fee and Dividend, is a winner for U.S. citizens, businesses, the economy, and life on Earth. A bipartisan, bicameral bill that implemented this policy was introduced in Congress several sessions ago. A recent iteration attracted 96 co-sponsors.

Economic Opportunity

The U.S. became a global superpower by leading the technological revolutions of the last century—nuclear, space, computers, and internet. The new revolutions are clean energy solutions and the electrification of transportation and heating. The lack of a U.S. price signal on climate pollution has delayed unleashing the full potential of private investment, innovation, and production, allowing China to take the lead in clean energy technology production and deployment. Closing the U.S. carbon price gap can put the U.S. back in the race.

Powerful Headwinds

Pollution from fossil fuels costs the U.S. $700 billion annually (bit.ly/2025-700b-subsidy). These social costs are an implicit subsidy we give to the fossil fuel industry, providing a competitive advantage over cleaner energy options. To protect that subsidy, fossil fuel interests have spent billions in the U.S. on disinformation and political manipulation (bit.ly/two-faced-game).

Another reason the fossil fuel industry works especially hard to delay carbon pricing in the U.S. is that a strong U.S. carbon price is the key to a global carbon price. A CBAM-protected carbon club that included the U.S., EU, UK, Japan, Canada, and Australia would cover 70% of international trade. The remaining countries will likely match our carbon price to avoid paying CBAMs.

As climate damages, losses, and adaptation costs rise, the question of who should pay is being raised. Some fossil fuel interests seem to be trying to replace our democracy with a fossil fuel autocracy to avoid being held accountable for their fraud and the associated costs (bit.ly/billionaire-families-fund-climate-denial).

Action is the Antidote

What can you do? Talk about this with your friends and family—they’ll have questions that will motivate you to learn more (bit.ly/cfdresources). Guide school environmental clubs to cfdmovement.org. Speak at democracy rallies, and ask: “Do you think it should be free to pollute?” When people respond “no,” explain that we need leaders who will charge the fossil fuel billionaires for their climate pollution and give the money back to us. Talk climate with candidates (Green Energy Times, Oct 2024). Vote wisely. Join a group and help spread the word.

Closing the U.S. carbon price gap with Carbon Fee and Dividend has many upsides, and there are inconceivable downsides if we fail to do so. We can each help create the political will needed for Congress to act. For more information, see bit.ly/carbon-price-gap-presentation.