Carbon Pricing
The “carbon” in carbon pricing comes from the gas carbon dioxide. Carbon dioxide is one of several pollutants that make up greenhouse gas emissions. Greenhouse gas emissions from vehicles are one of the biggest contributors to climate change, which has negative impacts across Oregon.
Carbon pricing is a market-based approach to reduce greenhouse gas emissions by assigning a cost to emitting carbon. The cost incentivizes lower emissions and cleaner technologies.
Regulations can influence fuel prices. Fuel prices can vary based on how much greenhouse gas emissions those fuels emit when they are used. Fuels that emit less greenhouse gas emissions become more affordable, while fuels that emit more emissions become more expensive.
The Oregon Department of Environmental Quality implements the Climate Protection Program. It sets mandatory declining limits, or caps, on emissions from fossil fuels, including gasoline and diesel.
DEQ also runs the Clean Fuels Program, which sets decreasing limits for lifecycle emissions from transportation fuels use statewide. The program has a marketplace for high-emission fuel providers to buy credits from low-emission fuel providers. This lowers the cost of low-emission fuel options.
Both programs incentivize replacing higher-emission fossil fuels with lower-emission fuels like biofuels, renewable natural gas, and electricity. As a result of these market-based regulations, environmental and social costs are reflected in the retail price of fuels sold in the state, which also encourages less driving.
Companies regulated by the Climate Protection Program can choose to contribute funds to third party nonprofits instead of reducing a portion of their emissions. These funds, known as Community Climate Investments, must be invested in projects that reduce greenhouse gas emissions in Oregon. Eligible projects include ones that reduce emissions from transportation, buildings, or industry.
Community Climate Investments are prioritized for benefitting environmental justice communities in Oregon, with at least 15% of the funds benefiting Tribal communities. Learn more about Oregon’s Community Climate Investments.
Carbon pricing: Emissions reduction vision
By 2050, a successful carbon pricing program or regulations will ensure prices/fees for fossil fuel will be higher while prices/fees for low-emission fuels will be cheaper.
Oregon will use funding generated from carbon pricing or regulations to provide more lower-emission transportation options.
How Oregon is doing
State government carbon pricing and regulations are in place thanks to DEQ’s Climate Protection Program and Clean Fuels Program.
Both programs aim to accelerate Oregon’s transition to lower-emission fuels by introducing costs based on a fuel’s greenhouse gas emissions. DEQ publishes annual reports on how the Clean Fuels Program influences fuel costs and reduces greenhouse gas emissions. The impact on fuel costs was less than 10 cents per gallon in 2024.
Our vision anticipated such programs would provide dedicated funding to invest in transportation options that lowered emissions, like the bike and pedestrian projects funded by the cap and invest programs in California and Washington. (See our Other True Costs to Drive page)
In Oregon’s Climate Protection Program, resulting funds – called Community Climate Investments-- will be reinvested in projects that reduce greenhouse gas emissions creating a virtuous cycle that supports the transition to cleaner fuels while also investing in those communities most impacted by pollution. Transportation projects may include things like public transit, biking, and electric vehicles. Other projects may include things like heat pumps and weatherization, solar, and efficiencies in industrial process.
How Oregon can improve
Oregon needs to protect the programs that reflect the cost of carbon in the price of fuel. This incentivizes the use of lower emission fuels while adding a market-based price signal that can reduce vehicle miles traveled.
Oregon can build on the strong progress of existing carbon pricing and regulations to develop a program that provides a dedicated funding source for travel options that produce less greenhouse gas emissions, like public transit, biking, walking and rolling. It should be done in a way that can support people and businesses in Oregon that are more vulnerable to rising energy costs, like those who have no other option than to drive an older, less fuel efficient car.
State government can also work with industry partners to keep down the costs of lower-emission fuels and make them more available for all vehicle types across the state. (See the Lower Emissions Fuels page)