Elements of a Cap-and-Invest Program Design for Maryland

Eliminating greenhouse gas emissions throughout the global economy will entail comprehensive actions to reshape society’s approach to producing and using energy. Shifting to complete reliance on low- and zero-emissions sources of energy will require substantial investments in technology and infrastructure. Such investments could simultaneously drive economic growth and deliver environmental benefits in disproportionately impacted communities. Accomplishing a rapid energy transition—and doing so in a way that seizes the economic opportunity of that transition—will require a supportive policy framework.

The state of Maryland has already taken significant policy steps toward achieving its own transition to clean energy. Reductions in emissions from the power sector are guided by Maryland’s membership in the Regional Greenhouse Gas Initiative and further supported by the state’s renewable portfolio standard. Efforts to address transportation emissions were included in the Advanced Clean Cars II rule, under which the share of zero-emissions vehicles would reach 100 percent of new-vehicle sales by 2035, and the Advanced Clean Truck rule. These rules have been blocked at the federal level, however that effort is under legal challenge. Building energy performance standards mandated by the Climate Solutions Now Act of 2022 require a 20 percent reduction in direct GHG emissions from existing large buildings by 2030, relative to 2025. An emissions cap-and-invest policy provides a potential complement to these regulatory measures.

This slide deck provides a policymaker toolkit outlining the options for the design of an economy-wide cap-and-invest program in Maryland. We draw on both policy science literature and experience in existing emissions markets. Market-based mechanisms that place a price on emissions are an effective tool to incentivize cost-effective emissions reductions because they give private parties the flexibility to reduce emissions where it is least expensive to do so. An emissions cap would boost confidence that the climate plan goals, and the overall emissions reduction target, will be achieved. Adding the investment framework can provide incentives to leverage federal and private funds to achieve the goals and place equity for small businesses and low- and moderate-income households at the front of the energy transformation. However, in designing this emissions cap-and-invest program, policymakers face many decisions that will influence its fairness, effectiveness, and enforceability.