Former Citadel Researcher Explains Carbon Pricing in U.S. Cap-and-Trade

Neel Somani breaks down how carbon emissions are priced through cap-and-trade systems in the United States.

Apr. 14, 2026 at 5:56pm by

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An abstract illustration composed of overlapping geometric shapes in shades of blue, green, and grey, representing the complex systems and concepts behind carbon pricing and emissions trading.A conceptual illustration of the complex mechanisms behind carbon pricing and emissions trading in the United States.San Francisco Today

Neel Somani, a former quantitative researcher who covered power markets at the investment firm Citadel, is providing insight into how carbon emissions are priced in the United States through cap-and-trade systems. Somani explains that if the price of carbon is too low, it doesn't effectively change behavior, but a well-designed cap-and-trade program can put a meaningful price on carbon and drive emissions reductions.

Why it matters

Understanding how carbon is priced is crucial as the U.S. and other countries work to transition to a low-carbon economy and meet emissions reduction targets. Cap-and-trade systems are one of the primary policy tools used to put a price on carbon, but the details of how they function are often complex and confusing for both consumers and professionals.

The details

In a recent breakdown, Somani explained that cap-and-trade systems work by setting an overall cap on emissions, then issuing a limited number of emissions allowances that companies must hold to cover their carbon output. The price of those allowances on the open market determines the effective price of carbon. Somani noted that if the price is too low, it doesn't really change behavior, but a well-designed cap-and-trade program can put a meaningful price on carbon and drive emissions reductions.

  • Neel Somani recently provided this breakdown on carbon pricing.

The players

Neel Somani

A former quantitative researcher who covered power markets at the investment firm Citadel.

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What they’re saying

“If the price is too low, it doesn't really change behavior,”

— Neel Somani, Former quantitative researcher

The takeaway

Understanding how carbon pricing mechanisms like cap-and-trade work is crucial as policymakers and businesses navigate the transition to a low-carbon economy. Somani's insights shed light on the complexities of these systems and the importance of setting carbon prices at levels high enough to drive meaningful emissions reductions.