Reuven Carlyle takes credit for the biggest trend in U.S. carbon markets: the name.
In 2019, after Washington state voters had twice rejected creating a statewide carbon tax, Carlyle read that some in California wanted its cap-and-trade program revenues “invested” in carbon-reduction projects in communities. Carlyle was a state senator, and the word triggered a “brainstorm” to create a similar program and call it “cap and invest.”
“Everybody agreed that it was spot on,” Carlyle, a Democrat, said in a recent interview. “I never looked back.”
Five years later, the cap-and-invest name has stuck, making the older cap-and-trade name for carbon markets sound like Kentucky Fried Chicken in a KFC world.
The cap-and-invest name, Carlyle said, is speeding “market momentum and political momentum” for programs that limit emissions.
“Cap and invest is a much better idea,” acknowledged Mary Nichols, who was chair of the California Air Resources Board in 2012 when the state launched the nation’s first economywide carbon market and called it cap and trade.
“It’s a better name, and it’s a more accurate name,” Nichols said, noting that California’s revenues have funded programs advancing “cleaner energy.” The money has helped pay to build intercity rail lines and housing near transit and for installation of solar panels and other improvements for homes in lower-income neighborhoods.
Washington launched its cap-and-invest market last year under climate legislation Carlyle backed. The bill passed in 2022, after Carlyle spent three years working with environmental advocates, tribal communities, labor groups and those representing communities with low incomes, said Dallas Burtraw, senior fellow at Resources for the Future, a nonprofit research organization.
The state’s need to fund transportation projects helped build support for the legislation, Burtraw said.
“People wanted to fund clean energy programs and asked, ‘How are we going to pay for it?’” Burtraw recalled. “Well, we’re gonna pay for it by putting a price on carbon.”
New York plans to start a carbon market, which Democratic Gov. Kathy Hochul called cap and invest when she announced it in 2023. Hochul emphasized that revenues would help residents most harmed by climate impacts by paying “utility bills, transportation costs and decarbonization efforts.”
In Pennsylvania, Democratic Gov. Josh Shapiro has proposed a cap-and-invest plan focused on the state’s electricity and natural gas sectors. A new program would link to the Regional Greenhouse Gas Initiative, an alliance of 10 Northeastern states trying to cut power sector emissions.
In calling it cap and invest, Shapiro is adopting the popular nomenclature for carbon markets, said Jackson Morris, the Natural Resources Defense Council’s director of state power sector policy, who was co-chair of a Shapiro working group on emissions reduction.
Shapiro wants to give most of the cap-and-invest revenue to consumers for utility rebates. He faces tough odds in the Pennsylvania Legislature. Senate Majority Leader Joe Pittman, a Republican representing a coal-rich area, has decried the governor’s proposalas “cap and tax.”
Maryland recently commissioned a report analyzing whether a cap-and-invest market could help meet the state’s goal of reducing greenhouse gas emissions in the state by 2031 to 60 percent of their 2006 levels.
A state analysis last yea said cap-and-invest revenues could potentially help “sectors or individuals who are less able to pay for [emissions] reductions” or for infrastructure “to support the green transition.”
A ‘much simpler way’ to explain
Cap-and-invest markets function the same as ones called cap and trade, such as the California program, said Danny Cullenward, climate economist and member of the California Independent Emissions Advisory Council. Both markets require polluters with the highest carbon emissions to make reductions or pay a penalty.
Washington and California both sell “allowances” that businesses must buy from the state if they cannot meet annual limits on greenhouse gas pollution.
But calling it cap and invest is a “much simpler way” to signal that a carbon market is aiming to limit emissions “and invest money in good things,” Cullenward said.
“If you’re just like a regular person that is not a policy nerd, what does cap and trade mean to you?” Cullenward said. “Is that something that excites you? No.”
Carlyle insists the new name is not simply rebranding. The operation of carbon markets has changed, he said, to emphasize the investments that program revenues fund over the trading of allowances by regulated companies and investors.
Companies regulated under the California program for the most part buy the allowances sold by a state to use as permits for their own greenhouse gas pollution, not to sell or trade with other businesses. In Washington state’s May auction, regulated polluters snapped up more than 91 percent of the allowances sold. Investors looking to sell or “trade” allowances made up less than 9 percent of buyers.
Meanwhile, there’s more interest among residents and lawmakers about how auction revenues are spent, several officials said. Washington state’s auctions produced $1.8 billion in revenue last year.
California’s cap-and-trade auctions produced more than $3 billion last year. The revenues have become “a major part” of political support for the rule, said Nichols, the former CARB chair.
“That money turned out to be a big enough sum that it made a real difference especially in the years when, [state] revenues were less,” Nichols said in an interview. The California Legislature likes that “they have these funds” to spend.
A ‘clever new idea’ hatched by Republicans
Cap and trade started as a Republican idea in the 1980s to fight acid rain, experts say. At the time many power plants burned coal and emitted sulfur dioxide, which mixed with atmospheric moisture.
President George H.W. Bush supported a Clean Air Act amendment in 1990 mandating a 50 percent cut in sulfur dioxide emissions by 2010. Power plant owners decided how to achieve pollution cuts. The owners able to reduce emissions faster or at lower cost could sell their allocated or purchased “allowances” to other companies to help meet their emissions limits.
“It was the clever new idea that allowed for Republicans to see this as a more market-friendly, business-friendly approach,” Nichols said.
California launched the nation’s first statewide cap-and-trade carbon market in 2012, based on climate legislation passed in 2006 and signed by then-Gov. Arnold Schwarzenegger.
But on the national stage, the cap-and-trade name had started to lose market appeal. Federal legislation to launch a nationwide cap-and-trade system, known as the Waxman-Markey bill, died in the Senate in 2009 after pushback from corporations. Some Republican lawmakers branded it “cap and tax.”
The 2010 Republican Tea Party sweep of Congress intensified opposition to climate programs.
Cap and trade “fell into disfavor because it was meeting with political challenges,” said Burtraw at Resources for the Future.
Even with the new name, carbon markets continue to draw criticism from those who say they raise gasoline and electricity costs.
The Washington market faces a potential repeal through a November ballot measure sponsored by a wealthy Republican donor, Brian Heywood. The initiative asks voters if they want to repeal the legislative authorization for the market.
Heywood called the cap-and-invest moniker “putting lipstick on a pig.”
“It’s all marketing,” he said in an interview. “They have to use market words because those words might make people think” it’s investing.
Heywood criticized Washington Democratic Gov. Jay Inslee, saying he’s given groups grants from market revenues “to get them to support [the program ] or to be quiet.”
Mike Faulk, an Inslee spokesperson, said the Washington Legislature and not the governor decides how cap-and-invest revenues are spent.
Washington’s Carlyle said he’s had “some of the premier political people in California” praise his name choice and say that “we need to rethink our title as well.”
Asked whether California should change the name, Nichols said that cap and trade isn’t the actual name.
The program’s official title is “Regulation for the California Cap on Greenhouse Gas Emissions and Market-Based Compliance Mechanisms,” CARB spokesperson Dave Clegern said in an email.
“We use cap-and-trade for short,” Clergern said. The agency doesn’t plan to change the name, he added.
