Tiny fee on Minneapolis carbon pollution won’t do much for the climate

When Minneapolis City Council Member Robin Wonsley began pursuing a carbon fee in 2022, she saw it as a promising way to cut the city’s greenhouse gas emissions and raise revenue for climate-related projects.

Wonsley succeeded in passing the carbon fee last year, making Minneapolis the only major city in the Midwest to do so. The city began charging its largest carbon polluting facilities for their annual emissions in July, with a total of 65 facilities becoming subject to the fee starting next year.

There’s just one problem: The fee will likely have little effect on climate change.

“It’s way too small to significantly cut pollution,” said Noah Kaufman, who researches carbon taxes at Columbia University’s Center on Global Energy Policy.

As the Trump administration retreats from the nation’s commitments to tackle climate change, many city and state governments are stepping in to pick up the mantle. But there are limits to what local governments can do to address a global issue like climate change.

Carbon fees work by incentivizing companies to voluntarily reduce emissions to avoid paying the extra cost. A utility might invest in more renewable energy or install carbon capture technologies. A commercial building owner might invest in energy efficiency upgrades to reduce gas use. Companies won’t change, however, if simply paying the fee is cheaper, Kaufman said.

The carbon fee Wonsley proposed last fall set the price at $452 per ton of carbon dioxide emitted. If a company’s annual carbon emissions were 1,000 tons, it would need to pay the city $452,000. State law, however, only allowed the city to generate enough revenue to recoup the cost of running the program, including administering grants for pollution reduction projects.

The office of Mayor Jacob Frey estimates that Minneapolis’ new carbon fee will reduce annual emissions by 1,000 tons. That’s compared to 3.6 million tons of CO2 the city released into the atmosphere last year.

“I think it’s disappointing,” Wonsley told the Minnesota Star Tribune. “We’ll see if this truly reduces carbon emissions in the coming months, as we get further information back, but I’m skeptical.”

The mayor’s office said a higher fee would have likely constituted an illegal tax. Under Minnesota law, cities can’t establish new taxes or raise current taxes without state approval — a legal dynamic that’s broadly known as pre-emption.

“Minneapolis is committed to leading the way when it comes to climate change,” Ally Peters, communications director for Frey’s office, said in a statement to the Star Tribune. “Every policy shift has to start somewhere, and this is a really important start at the local level.”

The limit on the city’s taxing authority also prevents Minneapolis from charging a facility more than $175,000 per year under the carbon fee, even if the facility’s annual carbon emissions warrant a far higher price.

Asked about the carbon fee, Xcel Energy spokesman Kevin Coss said the company would “continue to evaluate opportunities” to cut emissions, and he noted that Xcel Energy converted its Riverside plant from burning coal to burning natural gas in 2009, resulting in “significant carbon reductions.”

Cordia, the Arizona-based company that owns NRG Energy Center, did not address the carbon fee, but Jacob Graff, Cordia’s chief operating officer, said it had taken steps to lower carbon pollution from its operations.

Catherine Wolfram, an energy and economics professor at the MIT Sloan School of Management, said the price cap will limit the program’s effectiveness. Without it, she said, Xcel Energy would be paying $5 million next year instead of $175,000.

“That’s unfortunate,” Wolfram said. “A ton of CO2 is a ton of CO2. It doesn’t matter if it came from a small company or a big company.”

Altogether, the city expects to raise more than $1.1 million from 65 facilities next year. That will pay for new staff, as well as grants offered through the city’s Green Cost Share program. Facility owners can apply for grants up to $175,000 under that program to pay for energy efficiency upgrades and other improvements that help mitigate overall air pollution, but don’t necessarily focus on carbon emissions.

The Obama administration, for example, estimated the social cost of carbon at about $43 per ton, while the first Trump administration put that number closer to $3 per ton, Coleman said. A fee of $452 per ton, he added, would be on the very high end, even for more progressive governments like the European Union. Sweden currently levies the highest carbon tax rate at $144.62 per ton.

Amelia Vohs, the climate program director for the Minnesota Center for Environmental Advocacy, shared similar reservations about the city’s carbon fee. But she also saw it as a positive step as the federal government stalls and reverses climate action.

“Having Minneapolis do it helps familiarize people with it and normalize it,” she said. “Turning local and turning toward the state and looking at what can be done in places where we have more control or more influence is exactly the right thing to do in this moment.”

Other municipalities are pursuing similar aims. A report released this week by a coalition of cities and environmental groups found that at least 22 Minnesota cities and counties have crafted climate action plans that aim to reduce emissions. Many of them are also seeking ways to raise funds for their climate programs after federal funds were cut.

Minnesota Sen. Jennifer McEwen, a Democrat representing the Duluth area, said that local governments may not be able to solve climate change on their own, but she still thinks it’s important that they continue advancing strong climate policy.

Meanwhile, Wonsley isn’t giving up her fight for a higher Minneapolis carbon fee. Working with state Sen. Omar Fateh, they’re hoping to pass new legislation that would give cities more flexibility with their taxing authority.