Nearly two years ago, New York City began charging drivers to enter its busiest streets during peak hours, the first congestion price of its kind in the U.S. The policy took decades to enact, but results arrived quickly: faster commutes, fewer noise complaints, and new revenue for public transportation. For advocates of a price on carbon, an idea with its own long and stalled history, those results are worth studying closely.
Both policies are forms of externality pricing. An externality is a cost that one party’s activity imposes on others. Each additional car on a crowded street slows everyone else’s commute, and each ton of carbon dioxide adds to climate damage that no one is billed for. Externality pricing puts a price on that cost, so the people causing it pay for it. Both concepts have also struggled to catch on in the U.S. New York’s experience suggests that externality pricing can be politically feasible as well as effective. Three features of the program offer lessons for a federal carbon price:
- Consistent messaging
- A visible balance of costs and benefits
- Implementation through systems already in place
Keeping the message consistent
Advocates began building the case for congestion pricing in the late 2000s, testing a range of frames and terms along the way. Once the term “congestion pricing” gained prominence, however, alternatives such as “congestion relief” obscured the policy and made New Yorkers feel like they were being “duped” by euphemism. The local advocates conducted focus groups and found that after congestion pricing was introduced, transparent phrasing mattered more than a friendlier label.
Carbon pricing has faced a similar naming dilemma. Few politicians are eager to campaign on a new tax; even cap-and-trade programs, which give companies more flexibility than a straight tax by letting them buy and sell emissions allowances, still draw opponents’ charge that they are a “backdoor carbon tax.” More recently, governors have championed cap-and-invest policies to emphasize that carbon pricing can fund various programs, including lowering electricity bills. New York’s congestion pricing experience suggests that once a term takes hold, voters value transparency over rebranding. Advocates and policymakers who settle on one name, and keep it after a policy is introduced, can maintain that transparency and avoid confusing attempts at relabeling.
Matching costs with benefits
The two policies — congestion pricing and carbon pricing — address externalities on very different time frames. When congestion pricing took effect, New Yorkers noticed immediate benefits from reduced traffic, faster commutes, more pedestrians (thus fewer vacant storefronts and higher sales tax revenue), and fewer auto-related injuries. In contrast, while reducing greenhouse gas emissions affects billions of lives, the greatest benefits of addressing this externality will be felt years and decades, especially locally.
This difference matters because congestion pricing’s direct and immediate benefits built public support for it after implementation. Six months into the program, a Siena College poll found a 10 percent increase in support for congestion pricing among New York City residents.
Where a carbon price can most directly model congestion pricing is in how its revenue is spent. New York has been directing congestion pricing’s revenue toward public transportation projects, which helped build support for the policy while delivering longer-term benefits to the public. A carbon price can invert that formula. Because the climate benefits of reducing emissions accrue over decades, the revenue could supply the near-term benefits instead. One way is through a carbon dividend that would return the revenue to households as checks or rate discounts. For most households, a dividend would likely outweigh the costs of a carbon price, providing a similar opportunity to build support after implementation.
Whether a carbon dividend is the best way to mirror congestion pricing’s benefits is open to debate. The benefit of a tax credit may be harder to perceive than a faster commute, and the gap may shape public support differently. Much would depend on how the dividend would be delivered. Nevertheless, the immediate benefits congestion pricing brought to New Yorkers were crucial for building public support. Whether through dividends or another mechanism, policymakers should use carbon pricing’s revenue and not shy away from highlighting its benefits.
Building on existing systems
Implementation is where a U.S. carbon price has the most to learn from New York. One strength of the rollout was its reliance on existing technology and systems. The cameras installed for congestion pricing are similar to those already used to toll the Metropolitan Transportation Authority’s nine bridges and tunnels, and drivers pay through the same E-ZPass accounts. Anyone already enrolled was ready for congestion pricing on day one.
Carbon pricing can also take advantage of preexisting systems. The Clean Competition Act, introduced by Sen. Sheldon Whitehouse (D–R.I.), would use existing data from the Greenhouse Gas Reporting Program (GHGRP) to establish emissions baselines for both domestic and foreign producers. The Department of Energy, directed by Congress through FY 2027 appropriation language, has also begun assembling the dataset a carbon border adjustment fee would need. A border adjustment is a fee on imports whose producers did not pay a comparable carbon cost at home, and it only works if the government defines how carbon-intensive those imports are. A domestic carbon price could rely on the GHGRP and a companion border adjustment on this new study.
What to watch
Carbon pricing and congestion pricing share one more foundational trait: the support of decades of research and advocacy. It took New York City 60 years to put the idea into practice. The first two years of implementation showed that a price on an externality does, in fact, induce the intended effect and holds up once people start paying it. How the program fares in its following years, and whether support keeps rising, will tell carbon pricing advocates how much of New York’s playbook, from visible benefits to revenue design to borrowed infrastructure, transfers to a price on carbon.
