CarbonWA's initiative I-732 qualifies

This week we’ve got official confirmation that I-732 has qualified (!), a final 250 Club update, the unveiling of our new website (yeson732.org), and a great editorial on carbon pricing in the NY Times.

I-732 qualifies!

We will share the official document with you when it’s released, but for now we have (what else?) a Twitter post from the Secretary of State’s office that I-732 was certified, plus an email that their 3% sampling procedure “projected 262,940 valid signatures, well above the required 246,372”. Great work everyone—staff, interns, volunteers, donors—and a great segue to our final 250 Club update (with the caveat that you should let me know if we’ve mistakenly left you off the list!).

250 Club update

Congratulations to our new members of the 250 Club (and please contact us if you don’t already have your CarbonWA t-shirt!): Amity Kramer in Seattle and Jan Keller, Carol Reich, and Mary Saylor in east King County. They join previous 250 Club members Heidi Cody in Vancouver; Bob Hallahan and Judy Kaplan on Whidbey Island; Gretchen Allison and Kay Keeler on San Juan Island; Cindy Jayne and Dick Stockment in Port Townsend; Martha Bishop and Barb Zimmer from Climate Action Bainbridge; three supporters in Yakima (Peter Dufault, Chuck Foster, and Eleanor Hungate); five supporters from east King County (Bob Ellis, France Giddings, Eric Hanson, Rob Marsh, and Marilyn Mayers); six supporters from Olympia (Tom Holtz, Jennifer Miller, Carole Richmond, Susan Sunshine, Frank Turner, and Jack Zeigler); two supporters from Bellingham (Amy Nielson and Rosa Rice-Pelepko), and 26 people in Seattle (Morgane Arriola at UW Seattle, Julia Bent, Kyle Conyers, Chris Covert-Bowlds, John C., Alex Dolk, Keith Ervin, Bruce Flory, Polly Freeman, Savannah Kinzer, Lindsey Klemp, Sean Kraft, Raphael Ladmer-Price, Galen LaPlante, Alex Lenferna, Scott McClay, Phil Mitchell, Todd Mitchell, Margaret Moore, Trevor Partington, Nancy Penrose, Mishu Pham-Whipple, Bill Roach, Mike Ruby, Phil Singer, and Ed Watcher).

Double congratulations to folks who have hit 500 signatures: David Scheer and Joe Wiederhold from Bellingham and David Chapin, Court Olson, and George Reynoldson in east King County. They join Ed Chadd in Port Angeles, Gary Piazzon on Whidbey Island, Scott Finley on San Juan Island, Larry Lowther in Ellensburg; Chom Greacen from Lopez Island; Betty Hauser in Olympia; three supporters from east King County (Chris Diehl, Laura Rivendell, and staffer Jason Puracal); four members from Climate Action Bainbridge (Bruce Bonifaci, Frank Gremse, Omie Kerr, and Alex Mezentsev); five supporters from Bellingham (Andy Day, David Gary, Anna Paulson, Kayta Tourtillot, and Andew Zvilna); and nine supporters in Seattle (Robin Briggs, Megan Conaway, Ron Lindsey, John Lombard, JL, Tim Newcomb, Anne Shields, Fritz Wollett, and campaign co-director Duncan Clauson).

Quadruple congratulations to Ben Larson and John Whitmer from Bellingham for passing 1,000+ signatures. They join Louise Stonington from east King County; Ande Finley from Lopez Island; Thad Curtz and Penny Purkerson in Olympia; Dave Hopkinson and staffers David Jackman and Rheanna Johnston in Bellingham; six supporters from Climate Action Bainbridge (Brian Anderson, Herb Hethcote, Cheryl Hunter, Gerlind Jenkner, Mary Clare Kersten, and Erika Shriner); and 11 folks from Seattle (David Foutch, Bob Jeffers-Schroeder, Mike Massa, Alan Ness, Ben Pfeiffer, Julia Robinson, Aaron Tam at UW Seattle, yours truly, campaign co-director Kyle Murphy, and Seattle staffers Ben Silesky and Laurel Wolf). And extra bonus congratulations for folks with 2000+ signatures (Cheryl Hunter, Julia Robinson, and campaign co-director Kyle Murphy, joining Ben Pfeiffer and Gerlind Jenkner), folks with 3000+ signatures (staffers Ben Silesky and Laurel Wolf), and Bob Jeffers-Schroeder with over 4000!

New website

Check out our new website at yeson732.org. Please send feedback to duncan@carbonwa.org, and thanks to Duncan, to our “communications QB” Bill Boyd, and to web designer Warren Curkendall for bringing this to life!

In the news

Top of the list is the fabulous NYT editorial “Proof That a Price on Carbon Works”: “British Columbia started taxing emissions in 2008. One big appeal of its system is that it is essentially revenue-neutral… Researchers have found that the tax helped cut emissions but has had no negative impact on the province’s growth rate, which has been about the same or slightly faster than the country as a whole in recent years.”

In other news: Last year (2015) was by far the hottest year on record (see also the NYT and this visual from Bloomberg). Bloomberg also has “Watch Elon Musk and Exxon Finally Agree on Something”, and there’s a new carbon pricing study from World Resources Institute; see the WRI blog on “A Carbon Price Will Reduce Emissions More than Computer Models Predict” and note that this relates to the EIA studies that we’ve discussed previously. News specifically about Carbon Washington includes this Niskanen Center blog by Shi-Ling Hsu and Bloomberg’s “Tom Steyer Battles Green Frenemies in the Pacific Northwest”. More news from Olympia next week, and If you haven’t already done so please write your legislators… and if you have already written them then don’t hesitate to contact them again to make sure they’re in the loop on recent developments!

CarbonWA the heck is going on?

As you may have heard, the Alliance for Jobs and Clean Energy announced yesterday that they intend to file a ballot measure next year. (The single best article on the topic is Jim Brunner’s “Second group plans state initiative on climate change” in the Seattle Times.) Although this conflict has been simmering since our joint statement with the Alliance back in May, the combination of our signature-gathering success and the Alliance’s announcement has raised a whole lot of questions, the principal one being “What the heck is going on?” (Or, as the subject line suggests, “WA the heck is going on?”)

The purpose of this email is to try to describe the current landscape as best we can. We may know more after a meeting with the Alliance that is scheduled for later this afternoon, and we will have even more to say in a few days, but for now here are some Frequently Asked Questions and their answers to the best of our abilities (and note that we sent a draft of these FAQs to Alliance director Lisa MacLean and three other Alliance leaders to ask for any factual edits; we will post any updates here and as needed in future email blasts, again with the goal of describing the current landscape as best we can):

Q1: What the heck is going on? As we described a year ago, there are two potential paths to climate action. One is a revenue-neutral bipartisan approach like Carbon Washington’s. The other is a revenue-positive approach like the Alliance’s. Carbon Washington has been pushing forward on our approach, and the Alliance has been pushing forward on theirs, and now the continental plates are inching towards each other.

Q2: What is the Alliance’s policy? The Alliance’s press release notes that they are “working closely to establish the final details of the policy during the remaining months of 2015”, but what comes across in the press release is that (1) it’s going to involve a price on carbon and (2) it’s going to be revenue-positive, with funds “invested in accelerating the transition to a clean energy economy and addressing the impacts of carbon pollution on our air, land and people”. That could mean a carbon tax, or it could mean cap-and-trade, or it could even mean cap-without-trade (the so-called “cap-and-jail” option). We will have to wait for additional details from the Alliance, and we promise to share them with you when we have them (including whatever information we learn at today’s meeting that we are allowed to make public).

Q3: Isn’t it too late for the Alliance to begin collecting signatures for a ballot measure? No. There are two initiative paths to the November 2016 ballot. Carbon Washington is pursuing an Initiative to the Legislature: we have been gathering signatures this year for I-732, and those signatures are due by the end of the year. Once we qualify, I-732 will go to the state legislature in January 2016 and then (if they don’t pass it) to the voters in November 2016. In contrast, the Alliance intends to file an Initiative to the People, which involves filing in early 2016 and then collecting signatures until early July in order to put their measure on the ballot in November 2016.

Q4: So there might be two measures on the ballot in November 2016? Yes. To add an additional wrinkle, Carbon Washington must turn in signatures for our Initiative to the Legislature (I-732) before the end of the year, and the Alliance cannot file their Initiative to the People measure until after the new year begins.

Q5: What happens if both measures are on the ballot? It depends on the yet-to-be-announced details of the Alliance’s policy, and it depends on how the voting public views the issue. The fear is that confusion and conflict between the two measures will doom them both, which is why Carbon Washington and the Alliance issued a joint statement in May saying that we “we are committed to avoiding two competing carbon pollution-pricing measures on the ballot in November 2016”. But if there are two competing measures on the ballot then it’s also possible that both measures will pass, and if that happens then the odds are that they will be able to legally co-exist: I-732 would put a price on carbon and reduce existing taxes, and the Alliance’s measure would put an additional price on carbon, with funds invested in mitigation and adaption through the details they are currently working out.

Q6: What happens next? Carbon Washington and the Alliance will meet later today and we will report as much as we can as soon as we can. Until then we will say what we have said many times before: If you support the Alliance then God bless you and go support them. (You can even pledge to collect signatures in 2016!) And if you support Carbon Washington then keep your eye on the ball: to a surprising degree the situation today is essentially the same as it was six months ago, with CarbonWA pushing a detailed policy proposal and the Alliance making noises about climate action but not providing much in the way of detail. So if you’ve been collecting signatures for CarbonWA then we hope you will continue to collect signatures, and if you have been donating to CarbonWA then we hope you will continue to donate, knowing that we’re all on the same team and hence that we all have an incentive to move forward in a way that advances the cause of climate action.

Q7: Anything else? Yes, here’s a message from campaign co-director Kyle Murphy: “Our campaign belongs to everyone who has donated money, joined a chapter, gathered signatures for us, and helped to take I-732 to the cusp of making the ballot, which is where we find ourselves today. So let us know what you think about this announcement from the Alliance and provide any feedback you have for those of us at CarbonWA HQ as we carry on.” If you want to take Kyle up on his request you can email him directly at kyle [at] carbonwa.org. You can of course also email me, and you should also be able to post comments on the blog.

Carbon Taxes Are Even Better than You Think

Executive summary

The Carbon Washington carbon tax proposal is revenue neutral, with about 70% of the carbon tax revenue going to reduce the state sales tax by a full percentage point and the remaining revenue divided between reductions in manufacturing taxes and funding for the Working Families Rebate, a state-level bump-up of the federal Earned Income Tax Credit.

Household impacts will vary by household (see the carbon tax swap calculator for detailed estimates) but in aggregate the carbon tax and the sales tax reduction will roughly offset each other for each income quintile, with most households paying a few hundred dollars a year more for fossil fuels and a few hundred dollars a year less for everything else. The dominant impact on social justice will therefore come from the Working Families Rebate, which at 25% of the federal EITC will provide up to $1500 a year for 400,000 low- and middle-income working families in Washington State.

Thanks to the sales tax reduction and the Working Families Rebate, passing the Carbon Washington revenue-neutral carbon tax proposal will be the biggest improvement to the progressivity of the Washington State tax system since the 1977 ballot measure that exempted groceries from the sales tax.

 

Introduction

There are three ways that climate policy affects social justice. The first, not surprisingly, is as climate policy: everyone seems to agree that global warming will hit the poor harder than the rich, so there is a social justice benefit to reducing carbon emissions. A carbon tax is a great way to do this, as described in my previous posts: “Carbon taxes are better than you think (Part I: Transportation)” and “Carbon taxes are even better than you think (Part II: Electricity)”.

By reducing fossil fuel consumption, a carbon tax will also provide co-benefits by reducing emissions of local air pollutants like particulate matter and sulfur dioxide; these co-benefits will be especially valuable for the low-income communities and communities of color who are disproportionately affected by local air pollution hot spots. These co-benefits are the second way that climate policy affects social justice.

The third way that climate policy affects social justice is as fiscal policy. This is especially easy to see in the case of Carbon Washington’s carbon tax swap, a revenue-neutral approach that uses carbon tax revenues to reduce the state sales tax, fund the Working Families Rebate, and effectively eliminate the B&O business tax for manufacturing.

Tax Swap Poster(mini)

Before diving into the policy, however, let’s provide an overview of state and local tax systems.

 

State and local tax systems

The Institute for Taxation and Economic Policy (ITEP) has a terrific website that describes the state and local tax systems in all fifty states, including a graphical depiction of the percentage of income that different income groups pay in state and local taxes. This depiction includes the bottom four income quintiles (the lowest 20%, the second-lowest 20%, the middle 20%, and the fourth 20%) and a division of the top income quintile into three subgroups, ending with the richest 1%.

The next four graphs show the ITEP results for Oregon, Idaho, California, and Washington State. The first three all have fairly flat tax systems, meaning that households across the income spectrum pay about the same percentage of their income in state and local taxes.

OR

ID

CA

WA

Washington State has the dubious distinction of having the most regressive state and local tax system in the nation, but the ITEP graphs for Tennessee and Florida look fairly similar. What all three states have in common is a heavy reliance on sales taxes and the absence of a state income tax.

This combination almost inevitably produces a regressive state and local tax structure. Without an income tax, the share of income that high earners pay in taxes is likely to remain relatively low because they allocate relatively more of their income to savings, services, out-of-state spending, and other areas that are not subject to sales taxes in their home jurisdiction. It follows that a carbon tax—which is more like a sales tax than an income tax—is unlikely to alter the fundamental structure of the Washington State tax system.

It is, however, possible to use carbon tax revenues to reduce the tax burden on the lowest income households in Washington State, and this is what the Carbon Washington policy does by reducing the state sales tax and funding the Working Families Rebate.

 

Carbon taxes and sales tax reductions roughly offset each other

The first way our policy addresses financial impacts on low-income households (and more generally on households and businesses across the state) is by reducing the state sales tax. Cutting the state sales tax by a full point reduces the burden of sales taxes by 10-15 percent, depending on how you count it. (The state sales tax is currently 6.5 percent, but local sales taxes bring the current total up towards 10 percent in many areas of the state. If you focus on the state rate, a reduction to 5.5 percent is a savings of 15.4 percent; if you focus on the total state-plus-local rate, the percentage reduction depends on the specific local rate, but a reduction from the Seattle total of 9.5 percent to 8.5 percent is a savings of 10.5 percent.)

Sales taxes are of course regressive—lower-income households pay more as a percentage of their income because they spend more of their income on items that are subject to sales tax—so reducing the sales tax is a good way to make a carbon tax swap more progressive. (Whether or not carbon taxes are themselves regressive is a matter of some debate among economists, with one of the key questions being whether you should focus on current income or on lifetime income; see here for some details.)

To a first approximation, the household impact of the carbon tax and the sales tax reduction offset each other: most households will pay a few hundred dollars a year more for fossil fuels and a few hundred dollars a year less for everything else. The exact details will of course vary from household to household (see the carbon tax swap calculator to evaluate the impacts on your household) but for aggregate results we can use the Consumer Expenditure Survey and data from the EIA (natural gas prices, retail gasoline prices, home heating oil prices, and electricity prices) to estimate that carbon tax payments for various income quintiles are roughly in line with the sales tax savings estimated from the carbon tax swap calculator: about $100 a year for the lowest income quintile, about $200 a year for the second-lowest income quintile, and about $250, $300, and $450 a year, respectively, for the higher income quintiles.

salesTaxEstimate copy

Source: Based on the 2002 Tax Structure Study Report.

 

Assuming that the carbon tax and the sales tax reduction offset each other, we can focus on the Working Families Rebate. Stated simply, the conclusion of our analysis is this: Passing the Carbon Washington revenue-neutral carbon tax proposal will be the biggest improvement to the progressivity of the Washington State tax system since the 1977 ballot measure that exempted groceries from the sales tax. (See pp18-21 of the state’s Tax Reference Manual 2010 for a history of tax changes in the state.)

 

The Working Families Rebate

The largest anti-poverty program in the United States is the federal Earned Income Tax Credit. The federal EITC is a refundable tax credit that benefits low-income working households by providing a percentage match of earned income up to a certain level. (See figure below, and note that “refundable” means that households receive a check if their tax due is less than the amount of the credit.) The EITC provides a maximum credit of $496 for households without children, $3,305 for households with 1 child, $5,460 for households with 2 children, and $6,143 for households with 3 or more children.

eitcGraph

Source: Tax Policy Center.

 

Twenty-five states (and New York City and Washington, DC) provide local bump-ups of the federal EITC; for example, low-income households in Kansas receive from the state government a refundable state income tax credit equal to 17% of their federal EITC. The bump-up rates range from 3.5% of the federal EITC to 50% of the federal EITC.

Washington State has no income tax, but in 2008 the state government created a “sales tax exemption” for working families that equals 10% of the federal EITC. This Working Families Tax Exemption—a.k.a. Working Families Rebate—currently exists in state law as RCW 82.08.0206, but it has never been funded. (For even more details see the great work of the Washington Budget & Policy Center, but note that they’re assuming a bump-up of 10 percent of the federal EITC, while our policy provides a bump-up of 15 percent in year 1 and 25 percent thereafter.)

A 25% Working Families Rebate provides up to $1500 a year for 400,000 working families in Washington State. The impact is greatest for households with children and least for households without children and (obviously) households without earned income. The following graphics show that the Working Families Rebate has a significant impact on the state and local tax structure in Washington State for many (albeit not all) low-income households. (The red numbers in parentheses show the tax savings for a household with the average income for each ITEP income quintile.)

WA-married-1

WA-single-1

WA-married-2

WA-single-2

WA-married-3

WA-single-3

The graphics show that a 25% Working Families Rebate would have a tremendous impact on low-income households with children. In fact, funding the Working Families Rebate at a 25% level would provide the greatest improvement to the progressivity of the Washington State tax system since the sales tax exemption on groceries was passed at the ballot in 1977.

We can use the Consumer Expenditure Survey for a more in-depth comparison of the Working Families Rebate and the sales tax exemption on groceries. Households in the lowest income quintile spend an average of $2500 on groceries, so a 9.5% sales tax exemption amounts to $240 per household, or about $120 million for the approximately 520,000 households in this income quintile in Washington State. Households in the second-lowest income quintile spend an average of $3200 on groceries, so a 9.5% sales tax exemption amounts to $300 per household, or about $150 million for the approximately 520,000 households in this income quintile in Washington State. Total savings for households in the lowest two income quintiles therefore total $270 million a year.

Our 25% Working Families Rebate totals about $200 million a year, which is comparable to (albeit somewhat lower than) the total for the sales tax exemption for groceries.

One major difference is that the sales tax exemption for groceries was not revenue-neutral: it reduced state General Fund revenues. The carbon tax swap is intended to be revenue-neutral, with the carbon tax revenues offsetting the sales tax reduction, the Working Families Rebate, and the reduction in business taxes for manufacturing.

Another major difference is that the sales tax exemption for groceries is likely to provide roughly equal benefits to all households in a given income quintile. In contrast, the Working Families Rebate concentrates benefits on households with earned income and on households with children. (According to the Census Bureau, about 55% of people in poverty are in households with children.) The minimum Working Families Rebate is $100 a year, so qualifying households with children will receive a Working Families Rebate of between $100 and $1500. In contrast, qualifying households without children will receive a much smaller Working Families Rebate—the maximum is only $125—and of course households do not qualify for the Working Families Rebate if they don’t have earned income or otherwise don’t qualify for the federal Earned Income Tax Credit. These households will receive sales tax reductions that are likely to offset their carbon tax liabilities, and they will benefit from the climate policy impacts of the Carbon Washington proposal, but the main fiscal policy benefits will accrue to households with children.

Originally posted at CarbonWA

Carbon WA news

Legislative language on the home stretch: One of our winter deliverables was to finalize our legal language, so here’s an annotated copy of another new draft following our legal team meeting earlier this week. The tweaks from the previous version were fairly minor, so we expect the ballot title to be similar to the ballot title that just arrived from the Secretary of State’s office for our previous version: Initiative Measure No. 1397 concerns taxes. This measure would impose a tax on certain fossil fuels and electricity generated by fossil fuels, phase in a one-percentage-point sales tax reduction, reduce certain business taxes, and increase a sales tax exemption. Should this measure be enacted into law? Yes [ ] No [ ]. More generally, we are making good progress towards being able to file a final version on March 11, the first day that we can file our Initiative to the Legislature. The Secretary of State’s process takes about a month, so signature-gathering will begin in early/mid April.

Bellingham: Kyle Murphy and Ben Silesky will be in Bellingham this Friday and Saturday, so if you are located in/near Bellingham and want to connect, email Kyle@carbonwa.org to set up a time! Also check out the pretty hilarious post I wrote last year for Sightline about whether the BC carbon tax is successful because all the Canadians are filling up their tanks in Bellingham. (The short answer is No.)

Other events: I’ll be part of CityClub’s March Civic Cocktail on W March 4, and Duncan and Kyle are scheduled to be part of an event at Bainbridge Art Museum that same evening. Then the CCL Greater Pacific Northwest Regional Conference is coming up March 7-8 in Seattle; CarbonWA will be tabling and I’ll be doing my comedy-and-carbon-taxes routine on Saturday March 7. Earlier that day Ben Silesky will be at the South Sound Sustainability Expo in Tacoma. Cliff Mass will be at Seattle Town Hall on W March 11, and I’ll be at Town Hall on M March 16 for a panel on “Putting a price on Washington’s climate pollution” with KC Golden, Todd Myers, and Nicole Keenan. Further afield it looks like I’ll be in Spokane around April 15, Whidbey Island around April 22, Bremerton on April 25, and Bainbridge Island around April 29, so email me if you want to organize events or a house party while I’m in town! Details on most upcoming events are here.

Readings: Our friends at Oregon Climate have a nifty new 5-minute video, so check it out on the Oregon Climate homepage, or watch here:

Also Todd Myers of the Washington Policy Center has a video describing cap-and-trade (and why he’s against it, all in less than 2 minutes!). Ian Adams of R Street has a post that should be especially thought-provoking for CCL folks: “The difference between wanting a carbon tax and getting one.” Somehow that dynamic seems to be missing from the state transportation discussion, where Senate Republicans introduced a “poison pill” that eliminates funding for transit, pedestrians, and bicyclists if Governor Inslee introduces a Low Carbon Fuel Standard (LCFS) via executive order. Richard Davis also argues against the LCFS in the Seattle Times, and in doing so he has nice things to say about how the CarbonWA carbon tax would be better than an LCFS… but so far the oil companies can’t manage to translate their theoretical support for carbon pricing into practical support. Elsewhere, “Sea-Tac Airport tells of need for expansion”, and Clean Energy Canada has a report based on BC’s experience called “How to adopt a winning carbon price”; they have a handy summary in “How B.C. brought in a carbon tax without tears”.

CarbonWA is hiring! Our campaign co-directors Kyle Murphy and Duncan Clauson are assembling a team of talented organizers to help us build a strong volunteer network, get the word out about CarbonWA, and collect signatures. We are open to candidates across the state, but we are especially interested in hiring in the greater Puget Sound region. More details in this job posting (PDF), please share widely! Applications and inquires can be directed to Kyle@carbonwa.org.

As always comments welcome on the blog or via Facebook and Twitter.

News from CarbonWA

Campaign co-directors: We are delighted to announce that Kyle Murphy and Duncan Clauson will be starting on February 1 as campaign co-directors! Kyle, who worked last year as Field Director for the Yes for Seattle Transit campaign, will focus on Organizing; Duncan, who has an MPA from the UW Evans School of Public Affairs, will focus on Operations. Both have already been working hard on the campaign as volunteers, and as full-time paid staff they will follow in the footsteps of our previous stellar staffers Claire Meints and Kristy Royce. You can reach Kyle and Duncan at kyle@carbonwa.org and duncan@carbonwa.org, but please note that they don’t start full-time until the first of February!

Media and readings: One of our eight winter deliverables is to become part of the conversation, and as evidence that we’re succeeding note that our carbon tax effort was highlighted in the first question of this Grist interview with Governor Inslee. The governor took a little jab at carbon taxes—“Don’t bring a feather to a knife fight”—and as we build momentum we can expect more jabs. (See here and here and here for additional examples, the last two being responses to pieces like “How B.C. does climate policy right” from Matt Horne of Pembina and the amazing editorial on “Why Stephen Harper should love carbon taxes” in the Globe and Mail: “Aspiring politicians outside of BC, book yourself a plane ticket, and go visit your future.”)

Now, it’s not for CarbonWA to get into a back-and-forth with the governor about carbon taxes v. cap-and-trade—CarbonWA is the relief pitcher, and the relief pitcher doesn’t criticize the starting pitcher!—but we will provide evidence supporting the effectiveness of our policy, so if you’re interested please check out my two new research posts: “Carbon taxes are better than you think (Part I: Transportation)” and “Carbon taxes are even better than you think (Part II: Electricity)”.

Other readings for the week include Cliff Mass’s “What should Governor Inslee do about climate change?”, Sara Cate’s “Saturday Soapbox” in the Yakima Herald, Sustainable West Seattle’s Andy Silber on an “Alternative approach to climate change negotiations”, conservative columnist Charles Krauthammer’s “Raise the gas tax. A lot” in the Washington Post, and these three pieces from carbon pricing advocates in Oregon. Also, Governor Inslee’s bill has been officially introduced as SB 5283 / HB 1314… and the state Senate voted in a rule change that apparently requires a two-thirds supermajority in the Senate to pass the governor’s proposal.

Materials: Another one of our eight winter deliverables is to update our website and materials. This is something that Duncan will be spearheading when he comes on board full-time, but for now I want to post (and encourage feedback on) this PPT presentation (based on my UW panel presentation last week) and on our 2-page brochure (which as you’ll see is intended to be printed and folded in half).

Endorsements: We are delighted to announce endorsements from the Washingotn State UU Voices for Justice and from Climate Action Bainbridge (formerly Coal Free Bainbridge). They join other endorsers like Olympic Climate Action, whose annual membership event is coming up Feb 8 in Port Angeles. Some of these groups have endorsed both CarbonWA and the governor’s effort and we think that’s terrific and are excited to pick up additional endorsements in the weeks ahead!

Events: I (Yoram Bauman) will be at the Earth Care Summit in Portland this weekend and am tentatively meeting folks in Vancouver WA this Sunday, so email me (yoram@carbonwa.org) if you want to join in! In Olympia, CarbonWA’s Akua Asare-Konadu and Thad Curtz will be presenting on Saturday Jan 31 as part of a Carbon Fee Forum co-sponsored by Olympia FOR’s Climate Group and Climate Solutions. And for folks in Bellingham, I know that CarbonWA’s Ben Silesky is planning a visit on T night Jan 27, so email him (ben@carbonwa.org) for details. As for Seattle, I have presentations on W Jan 28 (I’ll be doing my comedy-and-carbon-tax talk as part of Climate Week at the UU Church) and other talks in the weeks ahead at Seward Park Audubon and Pinchot University, plus the UW panel discussion I was part of last week was so successful that it’s going to be repeated at Town Hall on M March 16. Details on all our events here! And if you want to support Governor Inslee’s bill then there’s a hearing in Olympia on T Jan 27 at 1:30pm; details and more info from Climate Solutions or EPC.

As always comments welcome on the blog or via Facebook and Twitter.

Thoughts on Governor Inslee's climate proposal… and UW forum on Jan 14

The past week has been dominated by Governor Inslee’s climate proposal (and by the Seattle Times editorial board arguing for a revenue-neutral alternative!), so here are some thoughts, with a preface that Divest UW and Green Evans are organizing a climate policy forum for Wednesday night Jan 14 featuring KC Golden from Climate Solutions, yours truly, and hopefully others. Details TBD!

Carbon Washington’s position in brief: As we noted in our open letter to the environmental community, we think a bipartisan approach is a more promising path to climate action than pursuing what we called the Progressive Take-Over of the World. Consequently, while Carbon Washington is certainly not opposed to the Governor’s proposal, we agree with the Seattle Times editorial board when they write that “A revenue-neutral approach — one that would mitigate consumer’s costs of a carbon tax — would be both less financially risky and more politically viable in the divided Legislature.”

Additional thoughts:

Some policy details and analysis. The governor’s climate policy covers a lot of ground, but the focal point is carbon pricing, and his carbon pricing proposal is essentially a California-style cap-and-trade system, with auctioned permit revenue mostly going to education, transportation, and social justice. (It will also almost certainly include linking with California, although I’m not sure if that’s explicitly mentioned.) For all the details see this info from the Governor’s office; in particular scroll down to the policy briefs for the Carbon Pollution Accountability Act, which is the proposal relating to carbon pricing. For an enthusiastic analysis see Kristin Eberhard’s Sightline blog post, which includes this terrific revenue graphic. For a not-enthusiastic analysis see the blog posts from Todd Myers at the Washington Policy Center.

Think of it as a clever “Christmas tree”. It’s a Christmas tree because it’s got lots of ornaments: there’s a California-style cap-and-trade bil, there’s money for education, there’s money for transportation, there’s money for social justice… and that’s just one part of the Governor’s proposal. (See the links above for details about electric vehicles, clean fuels, etc.) And it’s clever because it makes for a compelling legislative strategy given the challengs that lie ahead: having different ornaments allows the governor to reach out to a variety of different interest groups for support and to claim (even if the bills don’t pass) that he tried to make progress on their priorities.

The expert consensus is that the governor’s proposal is unlikely to pass in the legislature. This is not intended to be a downer (and, for the record, unlikely doesn’t mean impossible, so if you want to contact your legislator then read this from Washington Environmental Council) but it is intended to be a reality check. There was an election last month, and as the Seattle Times wrote the day after the election, “The results mean it will be harder for Gov. Jay Inslee to act on an aggressive plan to reduce carbon emissions in the state, or to pass legislation that’s been a priority for Democrats including education and transportation funding.” And the story in last week’s paper was similar: “A tougher crowd waits in Olympia.” The truth is that the governor has introduced a bold plan that faces a very steep uphill battle in the legislature, especially the Republican-controlled state Senate.

Comparison with the latest iteration of our Carbon Washington proposal. The governor’s proposal is a California-style cap-and-trade system, with permit prices estimated to start at about $12 per ton CO2 and then grow over time at a rate determined by supply and demand and by minimum bid requirements for the permit auctions; our Carbon Washington proposal is a BC-style carbon tax with a tax rate of $15 per ton CO2 in the first year and $25 in the second year, increasing thereafter at about 5.5% per year in order to maintain revenue neutrality. The governor’s carbon price covers about 90% of greenhouse gas emissions in the state, with the major exceptions being agriculture and waste managment; our Carbon Washington proposal covers about 84% of the greenhouse gas emissions in the state, with the major exceptions being agriculture, public transportation, and emissions of non-fossil-fuel GHGs. The bulk of the revenue from the governor’s proposal goes to fund education and transportation (see Sightline’s terrific revenue graphic
How Washington will spend the carbon revenue in 2017, in millions of dollars
).

The bulk of the revenue from the Carbon Washington proposal goes to fund a one-percentage-point reduction in the state sales tax. The governor’s proposal includes funding for the Working Families Tax Exemption (a state-level bump-up of the federal Earned Income Tax Credit) sufficient to provide a 10% bump-up of the federal EITC for low-income working families; our Carbon Washington proposal includes funding for a 25% bump-up of the federal EITC. The governor’s proposal includes a small chunk of money ($20m a year) to address impacts on manufacturers; our Carbon Washington proposal allocates a much larger chunk of money (closer to $200m a year) to effectively eliminate the B&O tax for manufacturers.

“Tax” versus “Fee” versus “Revenue”. Discussion of the governor’s proposal will be a good test-case for looking at the kind of language that gets used in public discussion. The governor is steering away from calling his proposal a tax (or even a cap-and-trade system) but the public discussion may go elsewhere; for an extreme example see the San Juan Islander, which flat-out calls it a “carbon tax”. Polling suggests that language differences may not matter all that much anyway—the recent G-Squared poll has carbon tax outpolling cap-and-trade—but in any case the weeks ahead will be instructive for learning about who gets to determine what language gets used and how much it matters.

As always comments welcome on the blog or via Facebook and Twitter.

Readings about carbon taxes

* Our endorsement in September from Seattle Business magazine prompted a half-dozen Letters to the Editor in the latest issue, including pro-carbon-pricing letters from Rogers Weed, former director of the state Department of Commerce; from real-estate heavyweight Craig Kinzer; and from Gwen Hanson of the Bellevue chapter of Citizens Climate Lobby.

* Forbes magazine is featuring a new voice from the Tri-Cities: geologist Jim Conca. I especially recommend “So You Think We’re Reducing The Use Of Coal? — Think Again” and (for something more positive!) “Can A Carbon Tax Create Jobs, Jobs, Jobs?” Jim is also the co-author of the 2007 book The GeoPolitics of Energy: Achieving a Just and Sustainable Energy Distribution by 2040. Another essay from Forbes is from the CEO of Royal Dutch Shell: Why This ‘Big Oil’ CEO Believes In Applying A Price To Carbon.

* For another truly inspiring read, try “The Sudden Rise of Carbon Taxes, 2010–2030” by Lawrence MacDonald and Jing Cao. The authors note that “this essay is what might be called a future history, a work of imagination set in 2030 that looks back at one possible scenario for global climate policy. We are tempted to call it “policy fiction” or perhaps “political science fiction”—a tribute to science fiction—except that such terms seem to suggest that the scenario we have sketched could never come true. Our intention to persuade the reader that some rough approximation of the events we have described is indeed possible, and thus to increase the likelihood that something like it will come to pass.” A key excerpt:

Before long, British Columbia’s success attracted attention south of the border, in the US states of Washington and Oregon, where the large share of voters in favor of climate action had ringside seats to watch the British Columbia experiment with carbon taxes to their north and California’s experiment with cap-and-trade to the south… [A] lively debate ensued in Washington and Oregon about which path to follow. California’s cap-and-trade system seemed to be off to a good start, and the idea that reductions in emissions could be obtained at lower cost and without politically difficult “tax” increases appealed to significant numbers of voters and politicians… It wasn’t long, however, before California’s cap-and-trade system began to lose its luster [and for a variety of reasons described in the full piece] both Washington and Oregon followed British Columbia’s lead and adopted revenue-neutral carbon taxes… As in British Columbia, revenue was rebated through a combination of cuts in business taxes, personal tax breaks, and low-income tax credits. And, as in Canada, other subnational jurisdictions took notice when the US Pacific Northwest managed to combine increased economic growth and falling emissions with tax reductions.

Note that this was written before the authors knew about our CarbonWA campaign!

* I’ve got two articles on the Sightline blog: “The #1 Question from Conservatives about Revenue-Neutral Carbon Taxes” and “The #1 Question from Progressives about Revenue-Neutral Carbon Taxes”. (Hint: They’re the same question!) Another reading along the same lines is “Do Carbon Taxes Just Feed the Beast?” from Bloomberg View.

* The latest hint from Governor Inslee (who’s CERT taskforce recommendations are due in a few weeks) is “Inslee: Carbon regulation could fund education, flood control“.

* Finally, the New York Times has “Environment Is Grabbing Big Role in Ads for Campaigns” and (on a somewhat lighter note) “Why Republicans Keep Telling Everyone They’re Not Scientists”. Excerpts:

Mr. Krosnick of Stanford analyzed polls in 46 states conducted between 2006 and 2013 and found that in every state surveyed, at least 75 percent of the population acknowledged the existence of climate change, and at least 67 percent said the government should limit greenhouse gas emissions.

One result is that a cadre of Republican staffers and advisers, most under the age of 40, have started pushing their bosses to find a way to address the issue.

The general dialogue has been, ‘We have to do something about this,’” said one Republican adviser who asked to remain anonymous in order to speak candidly. “We have to be less head-in-the-sand and acknowledge we are losing public opinion on this issue.

Now that you’ve read all this, what can you do? Well, check out our winter deliverables and see how you can help out! Can you set up a Carbon Washington chapter in your area to help spread the word? Can you make a signature gathering pledge for yourself or your group? Can you complete and comment on the carbon tax swap calculator? Can you help us connect with organizations, businesses, economists, or members of the media? Can you forward our email newsletter (this newsletter!!) to your friends and encourage them to sign on at CarbonWA.org? Can you make a donation? Can you connect with us on Facebook and Twitter? Everybody can do something!

PS. For those of you in the Seattle area, I’m giving a book talk on T Nov 4 at 7pm at University Bookstore on The Cartoon Introduction to Climate Change. Note that I’ve pledged all of my royalties for the year to Carbon Washington and that I’m still happy to send a signed copy to you if you make a donation to Carbon Washington of at least $100… or a monthly contribution of just $20!

Carbon Pricing and Northwest Businesses

This post is 14 in the series: Cashing In Our Carbon, from SightLine Daily.

Many business owners and workers worry that carbon pricing will hurt local economies. They need to know: How would carbon pricing affect businesses and job creation in Washington and Oregon? In particular, how would it affect energy-intensive businesses that compete in national and international markets with companies not yet covered by carbon pricing? Will these energy-intensive, trade-exposed (EITE) businesses, like steel and aluminum manufacturing, still be able to compete with businesses outside the state or will carbon pricing send their sales plummeting? Will pricing carbon in the Northwest just send production and carbon pollution elsewhere? In other words, will carbon emissions “leak” to out-of-state firms?

The answer? Most businesses are not energy-intensive and consequently would be essentially unaffected; they might even benefit from carbon pricing if they receive offsetting reductions in existing taxes. However, a small group of energy-intensive businesses, only some of them trade-exposed, would be substantially affected by a price on carbon. Fortunately, there may be ways to partially and perhaps fully address those impacts, for example by reducing existing taxes on manufacturers.

In this article, I will spell out that answer, industry by industry, for Oregon and Washington. I assume a carbon price of $25 per ton of CO2. That figure is based on the proposal for Washington State that I’m working on with CarbonWA.org, and it’s close to the $30 carbon tax in BC. If you’re more interested in a California-style system, divide most of the carbon pricing financial impacts by two because permit prices there are roughly $12 per ton at the moment. For simplicity, I concentrate on CO2 from fossil fuels, which account for more than 75 percent of the total. A more-complete review would need to study more thoroughly the handful of industries with significant emissions of other greenhouse gases (GHGs) or of CO2 from other sources.

Who pays a price on carbon?

There are three ways to see that direct impacts of a carbon price on most businesses would be modest. The first approach is anecdotal: let’s consider a hypothetical energy-intensive business that spends 50 percent of its revenue on petroleum fuels. (That’s very roughly in the ballpark for an airline or a trucking company.) A carbon price of $25 per ton of CO2 works out to about 25 cents a gallon, so to keep the math simple let’s call that an extra 10 percent in fuel costs. Overall costs, then, increase by 5 percent. And since our hypothetical energy-intensive business sees a carbon pricing impact of only 5 percent, the vast majority of businesses—retailers, software companies, etc.—are going to see an impact that is much, much smaller.

The second approach is to look at actual data from an energy-intensive sector of the economy—manufactured goods—and notice how stable prices have been despite the wild price changes in oil and natural gas over the past 15 years. The impacts of a $25 carbon price would be much less than these natural price swings, and if these natural price swings haven’t had a strong impact on the selling price of manufactured goods then it’s clear that the vast majority of businesses will not be greatly affected by a carbon price.

Data sources: Prices for crude oil (U.S. first purchase price) and natural gas (industrial price) from EIA; Producer Price Index (for total manufacturing industries) from BLS. Original Sightline Institute graphic, available under our free use policy.

The third and final approach is to consider the data from the Carnegie Mellon Economic Input-Output Life Cycle Assessment (EIO-LCA) model, which breaks down the economy into 428 sectors and tracks the direct and indirect carbon emissions associated with each one. (The sectors are not of equal size: “retail trade” is one sector, and so is “power generation and supply,” and so is “tortilla manufacturing.”) The exact numbers from this model need to be treated with caution. For one thing, the model uses 2002 data and fossil fuel prices have changed since then. For another, national models like EIO-LCA don’t reflect the electricity mix in the Pacific Northwest. Still, the general results are informative.

Using the model, I estimate the impact of a $25 carbon price on each economic sector. Of the 428 sectors, only 2 (power generation and cement manufacturing) would see costs go up by an amount equal to more than 10 percent of revenue. Another 14 sectors would see a carbon price impact of 5-10 percent of revenue; examples include carbon black manufacturing, fertilizer manufacturing, and industrial gas manufacturing. The next 60 or so sectors—including pulp and paper mills, glass manufacturing, fishing, and air and truck transportation—would see a carbon price impact of 2.5-5 percent. The next 200 or so sectors would see a price impact of 1-2.5 percent; manufacturing still dominates this group, including most types of food and beverage manufacturing, but the group also includes various sectors of agriculture, forestry, mining, construction, and even a few unexpected sectors like colleges and universities. The final 150 or so sectors, with a price impact of less than 1 percent, include retail trade, software publishing, and high-value-added manufacturing such as aerospace.

A good summation comes from quoting “Who Pays a Price on Carbon?” a 2010 study of household and business impacts by economists Corbett Grainger and Charles Kolstad that uses an earlier version of the EOI-LCA model: “There are remarkably few sectors [of the economy] that see substantial cost increases.” They add that “what constitutes substantial is a subjective judgment” and I would add that whether businesses are trade-exposed matters here as well. A cost increase of (say) 3 percent is unlikely to significantly affect a business that will be able to raise its prices to compensate; the same cannot be said for a business that competes nationally or internationally, and consequently cannot raise prices, because that 3 percent will have to come out of the firm’s profit margin. (Typical profit margins for non-financial companies range from 5-10 percent according to investment advisor Jon Shayne. As another point of comparison, business and occupation [B&O] taxes in Washington State are 1.5 percent for most businesses and about 0.5 percent for manufacturing.)

Focusing on the Pacific Northwest

To bring these numbers down to the level of Washington and Oregon, consider EPA data on direct GHG emissions (not including electricity consumption) from large facilities, including all facilities that generate more than 25,000 tons of such emissions per year. For context, that level of emissions roughly equals the combined emissions of 1,000 households. In 2012, only 90 entities in Washington and 63 entities in Oregon made the cut for the EPA database.

Data source: EPA. Original Sightline Institute graphic, available under our free use policy.

Data source: EPA. Original Sightline Institute graphic, available under our free use policy.

Power plants and refineries

The dominant carbon polluters are power plants in Washington and Oregon and oil refineries in Washington. Each of those 3 sectors generates emissions of more than 6 million metric tons of CO2. At $25 per metric ton, pricing carbon would cost each sector more than $150 million.

That’s a lot of money, but remember that these are huge industries. For example, the Washington Research Council reports that the five oil refineries in Washington produced about 3.7 billion gallons of motor gasoline in 2011, plus a roughly equal amount of other products such as diesel and jet fuel. About half of their products are consumed in-state, including about 2.6 billion gallons of motor gasoline. Some $150 million in carbon pricing revenue divvied up among approximately 7.5 billion gallons of petroleum products is only about two pennies a gallon.

You might think that big industries like this would generate a lot of tax revenue for the state under the existing tax system. And you’d be right: the Washington Research Council estimates that the petroleum industry paid about $105 million in business and occupation (B&O) taxes and $163 million in other taxes, mostly the hazardous substance tax.

These existing taxes create an opportunity for a swap. Eliminate the B&O tax for refineries, and those $105 million in tax savings would be in the ballpark of the $150 million cost of a $25 carbon price. (Of course, the impact on individual companies would depend on their specific business practices and B&O tax liabilities, and since those are proprietary all we can do is express an interest in doing case studies on this topic. Also note that the Multiple Activities Tax Credit—under which refinery products sold in-state are subject to the B&O tax for selling rather than for manufacturing—may limit the tax savings to only about $60 million [figure 10.2])

A tax swap would give refineries a strong incentive to reduce emissions (every ton of reduced emissions would be $25 in savings) without greatly increasing their overall tax bill—or encouraging them to move production out of state. Besides, refineries may not be terribly exposed to trade competition anyway. No one has built a large refinery in the United States since 1977, and the two refineries in British Columbia—the Chevron refinery in Burnaby and the Husky refinery in Prince George—have not reduced their output since the province implemented its revenue-neutral $30 carbon tax. Likewise, Washington refineries have not cut output, even though the dollar value of B&O taxes paid by refineries has more than tripled since 2003 (Appendix A). The B&O tax is a tax on gross receipts, not profits, so if the price of crude oil goes way up then refineries pay much higher taxes, even if they’re not seeing any increase in profits.

Refineries in Washington or British Columbia may deserve tax reductions to offset the cost of a carbon price, but the purely economic case is tenuous.

Similar and additional questions about trade exposure arise with electric utilities. These businesses are regulated monopolies. They are subject to different types of economic pressures than most businesses. In any case, as with refineries, the $150 million carbon pricing bills for electric utilities in Washington and in Oregon should be seen in the context. For example, Washington’s largest electric utility, Puget Sound Energy (PSE), provided more than 22 million megawatt-hours of electricity in 2012 and had revenues of $2.2 billion. Based on PSE’s fuel mix disclosure reports, a $25 carbon price would cost the company about 1 cent per kilowatt-hour. That’s about a 10 percent increase of its retail prices.

If Washington chose to provide tax reductions to address the impact on electric utilities, it could trim the public utility tax, which utilities pay in lieu of B&O tax. The state’s Tax Reference Manual estimates that electricity providers pay about $225 million a year. Washington is roughly divided between public utilities like Seattle City Light that get a lot of hydropower and private utilities that are more carbon-intensive, so focusing just on the private utilities (because they are the ones that would be hit hard by a carbon price) would correspond to a public utility tax of about $100 million a year. As with refineries, that’s in the ballpark of that sector’s carbon pricing liabilities in Washington.

Opportunities for an electric utility tax swap in Oregon may be more limited. The relevant existing taxes in Oregon appear to be the corporate income tax and perhaps the electric cooperative tax, and according to the state’s Legislative Review Office (pages A7 and C21), utility tax payments totaled only about $3 million and $7 million, respectively, in 2010.

In any event, utilities are closely regulated by state utility commissions, and commissions will presumably allow utilities to pass carbon costs through to power consumers. Utilities, therefore, may not suffer in the least from a carbon price. (Consumers, for their part, could be compensated for power price increases with reductions in sales taxes, per-capita rebates, or other ideas discussed in two of the previous posts in this series.)

Other manufacturers

What about large emitters other than power plants and refineries? The EPA data show that emissions excluding these two industries totaled 7 million tons in Washington and 4.1 million tons in Oregon. At $25 per ton, that’s $175 million for Washington and $103 million for Oregon.

Data source: EPA. Original Sightline Institute graphic, available under our free use policy.

Data source: EPA. Original Sightline Institute graphic, available under our free use policy.

Carbon pricing liabilities in these sectors of the economy depend on the coverage details of the carbon price itself. The figures above reflect what might happen in a California-style system that covers most if not all GHG emissions. A BC-style system that just targets fossil fuels—or, to be more accurate, a large subset of fossil fuels—would not include the red (non- CO2) gases. And even the blue (CO2) bars in the figures overstate the actual impacts of a BC-style carbon tax because, for example, about half of the CO2 from cement production is from non-fossil-fuel-related chemical processes. For the sake of approximation, though, the blue bars shown in the figures above—only CO2 emissions, excluding power plants and refineries—total 4.6 million tons in Washington and 2.5 million tons in Oregon. At $25 per ton, that’s equal to a carbon pricing bill of $115 million in Washington and $63 million in Oregon.

How do these potential carbon pricing liabilities—on the order of $75-175 million in Washington and $40-100 million in Oregon, depending on the details of the policy—compare with existing taxes on manufacturers? In Oregon, the state Department of Revenue collected $49 million (page C21) in taxes from mining and manufacturing businesses in 2010. In Washington, the Department of Revenue estimates that manufacturing B&O taxes totaled $160 million in 2011. As noted, about $60 million of this came from refineries, leaving $100 million in B&O taxes for manufacturers other than power plants and refineries. In both states, then, existing taxes on large manufacturers are (in aggregate) in the ballpark of the additional direct cost of a $25 carbon price.

Beyond manufacturing

Moving beyond manufacturing entirely, the EIO-LCA model suggests that most other businesses would see a cost increase of less than 1 percent as a result of a $25 carbon price.

Moreover, in Washington State there’s a way to address carbon pricing impacts on many non-manufacturing businesses. I’ve argued previously that reducing the state sales tax by a penny (from 6.5 percent to 5.5 percent) is an excellent way to “recycle” carbon tax revenue, and that would benefit businesses as well as households. In fact, the state Department of Revenue estimates (table 9-3) that business purchases account for 36 percent of state sales tax revenue. The state sales tax generates more than $7 billion a year, so a 1-cent reduction would be $1.2 billion. More than $400 million of those tax reductions would accrue to businesses.

Let’s look at a specific example. Information from trucking companies is proprietary, but there’s a fairly similar entity that opens its books to the world: King County Metro. (You could argue that public transit systems should get an exemption from a carbon price, but never mind that for now.) According to its 2012 Annual Management Report (page 11), Metro uses about 10.6 million gallons of diesel fuel a year, so a $25 carbon price would work out to about $2.7 million a year. But Metro also spent $110 million on “transit fleet procurement” (that is, buses). And it pays state sales tax on those buses, so a 1 percentage point reduction in the sales tax would save it about $1 million, trimming Metro’s hypothetical carbon-pricing hit by 37 percent. That doesn’t entirely eliminate the impact of a hypothetical carbon tax, but it provides a substantial reduction. And most businesses are much less carbon-intensive than King County Metro.

The bottom line

When it comes to carbon pricing, the business world divides into three groups: businesses that are not energy-intensive, businesses that are energy-intensive but not trade-exposed, and businesses that are both energy-intensive and trade-exposed.

The first group includes the vast majority of businesses in Washington and Oregon. These businesses would pay relatively little in carbon pricing costs, and a reduction in sales taxes in Washington State would almost certainly offset costs for most of them. (If you’re especially concerned about small businesses, you could triple the small business B&O tax credit; that would save small businesses about $100 million a year.) Opportunities for a tax swap are less obvious in Oregon, but remember that the impacts of carbon pricing on businesses in Group One is quite small.

The second group consists of businesses that are energy-intensive but not trade-exposed. Refineries and power plants might fit this description, but let’s consider two less-energy-intensive examples that provide more clarity: local trucking and construction. Any company that wants to truck something around the Pacific Northwest or build something in the Pacific Northwest needs to conduct those business activities in the Pacific Northwest. All such companies would consequently pay the carbon prices associated with those business activities, and the laws of economics suggest that the market price of those business activities would increase accordingly. That’s all well and good because those business activities generate a lot of CO2: true-cost accounting means that those activities should be more expensive.

The third group consists of businesses that are both energy-intensive and trade-exposed, and the fact that they get an acronym (EITE) speaks to their importance. In an ideal world, there would be no businesses in this group: an ideal world would have an international carbon price instead of a state carbon price, and with an international carbon price all energy-intensive businesses would end up in Group Two. In the real world, however, states are leading the way on carbon pricing, and that obligates us to pay special attention to energy-intensive businesses that face out-of-state competition.

Fortunately, Washington and Oregon can reduce or eliminate impacts on EITE businesses by using about 10 percent of the revenue from carbon pricing to reduce or eliminate existing taxes on manufacturers. The relevant numbers may or may not balance for individual firms but in the aggregate they’re pretty close for a $25 carbon price. (And I’m looking for businesses that are willing to open their books and do a case study—anonymously if desired—-so if your business is interested please contact me!) That suggests that properly designed carbon pricing policies in the Pacific Northwest can pencil out for the business community and can help point the way forward for the nation and the world.

Research assistance by Summer Hanson. Thanks to Mia Reback and Jon Shayne for research guidance and to Quintin Barnes for feedback on a draft of this article.

 

Why Washington State Should Adopt a BC-style Carbon Tax

Editor’s Note: Washington’s Carbon Emissions Reduction Taskforce is on the job, weighing alternative carbon-pricing proposals. Some members of the panel have asked what our ideal policy would be for Washington State. Yoram Bauman shares his thoughts today. Alan Durning will share his argument for a California-style cap-and-trade system, with key modifications, another day.

If I had my druthers, Washington State would push for a BC-style revenue-neutral carbon tax. Full disclosure: I’m part of the CarbonWA.org campaign to put just such a policy on the ballot in Washington State in 2016. In this article you’ll find information on the latest iteration of the CarbonWA policy proposal.

The BC approach

The basic idea behind the BC approach is to phase in a carbon tax on fossil fuels and pair it with broad-based tax reductions that benefit most households and businesses—which BC does by reducing personal and corporate income taxes—plus targeted tax reductions that focus on communities that may be disproportionately affected by the carbon tax, such as low-income households. (To match the language I’ve used in previous posts, the broad-based tax reduction is the entrée and the targeted benefits are the side dishes.)

Cumulative BC Carbon Tax Revenues and Tax Cuts 2008-2014

Adapting the BC approach for Washington State

Something very much like the BC approach might work in Oregon, which, like BC, has an income tax. But Washington State has no income tax, so the CarbonWA proposal is for the entrée to be a reduction in the state sales tax, which generates revenue from just about all of the state’s households, businesses, and organizations, and for the side dishes to be targeted benefits for low-income households, manufacturers, and small businesses.

More specifically, the latest proposal from CarbonWA.org is to reduce the state sales tax rate (currently 6.5 percent) to 6.0 percent in year 1 and to 5.5 percent in year 2 and beyond. (City and county sales taxes would be unchanged, so in most parts of the state the result would be a reduction in the total sales tax rate from about 9 percent to about 8 percent.) A one-percentage-point reduction in the sales tax may not sound like much, but sales taxes generate revenues of $2,000 a year or more (see Table 9-1) from most households in Washington State; a one-percentage-point reduction would save many households almost $300 a year. Not coincidentally, that’s also what an average household would pay for a BC-style carbon tax, so in broad strokes this policy would mean that an average household would pay about $300 more for fossil fuels and about $300 less for everything else. (Results may vary for individual households, so CarbonWA.org is developing a carbon tax swap calculator that will allow you to see how it pencils out for your household.)

The sales tax reduction is the entrée, but there are side dishes for three groups of special concern in terms of carbon tax impacts: low-income households, small businesses, and energy-intensive trade-exposed manufacturers. For low-income households, the CarbonWA.org proposal will fund the Working Families Rebate, a policy based on the federal Earned Income Tax Credit that will provide up to $1500 a year for 400,000 working families in Washington State. (See the great work of the Washington Budget & Policy Center, but note that they’re assuming a 10 percent credit, while we’re assuming a credit of 15 percent in year 1 and 25 percent thereafter.) For small businesses, we will triple the small-business tax credit for the business and occupation (B&O) tax. For manufacturers we will reduce or eliminate the B&O tax for manufacturing. And note that the state Department of Revenue estimates (see Table 9-3) that business purchases generate 36 percent of state sales tax revenue, so all businesses—like all households—would save from the sales tax reduction.

CarbonWA.org Tax Swap

All those incentives would cost almost $2 billion a year, and we will recoup that money with a carbon tax. The carbon tax would start in year 1 at $15 per metric ton of CO2 (equal to about $0.15 per gallon of gasoline or 1.5 cents per kWh of coal-fired power) and increase in year 2 to $25 per ton. Thereafter it would go up 5 percent per year in order to maintain revenue neutrality by keeping pace with inflation, economic growth, and carbon reductions. Like the BC carbon tax, the Washington State carbon tax would apply to the carbon content of fossil fuels burned in the state; unlike the BC carbon tax, it would also apply to the carbon content of imported electricity (carbon by wire) and to the carbon content of fuel loaded onto planes and boats heading out of the state. We are considering a peak rate of $100 per ton, which would occur in about 2050, and we are also considering exemptions for fuel used by farmers and public transportation systems (see Table 17) that total about 2 percent of fossil fuel consumption.

The big idea, again, is not to increase or decrease state tax receipts but to shift them in a revenue-neutral way so that more-polluting commodities and activities becomes more expensive and less-polluting commodities and activities becomes less expensive. Carbon emissions will gradually decline (BC has seen reductions of 10-15 percent), and money in and money out will be in rough balance for the next two or three decades. Beyond that, revenue neutrality is a bit less certain, but what is certain in that longer time frame is that tax reform will be necessary anyway. (For example, if there’s no carbon tax revenue in 50 years, then there will also be no gas tax revenue, and hence no money for road maintenance.) And keep in mind that our tax swap amounts to about 10 percent of state government tax revenue, so from a budgetary perspective the “worst-case scenario” (of zero fossil fuel emissions!) features only a 10 percent reduction in state tax revenue.

Thinking strategically about the political context

Now for the politics: The benefits of a revenue-neutral carbon tax are twofold: If we win, it will be terrific; if we lose it will still be OK. We need to think strategically about both outcomes because carbon pricing is what is known in political circles as a heavy lift. Success is not impossible, but it’s certainly not a slam dunk.

First, let’s think about what happens if a carbon tax loses. Losing would, of course, be unfortunate, but it wouldn’t be the end of the world. In large part that’s because nobody expects a carbon tax to win (“It’s got the word ‘tax’ in it,” “You can’t be honest with voters,” “Nobody will vote for a gas tax,” etc.). Those expectations are misguided—the polling basically suggests that carbon tax proposals are neither doomed nor less popular than cap-and-trade proposals once all the arguments are on the table—but it’s nonetheless true that those expectations do exist.

The bottom line, misguided though it may be, is this: If a revenue-neutral carbon tax loses, the chattering classes will say, “Duh!” If a cap-and-trade system loses, the chattering classes will say, “Climate action has no public support.”

A loss for cap-and-trade would be especially damaging because of the national implications. Right now there’s a cap-and-trade system in California and some East Coast states, and folks who are keen on these policies want to take them national. A win in Washington State would build momentum toward national action, but a loss would be a significant setback. That’s not true for carbon taxes because there’s no momentum to lose; all we have is the world’s best climate policy in a West Coast province of Canada that most folks ignore.

That’s an additional benefit of a carbon tax: Even if it doesn’t pass, we will raise the profile of the BC carbon tax. The old joke is that the most boring headline in the world is “Worthwhile Canadian Initiative,” but a revenue-neutral carbon tax campaign in Washington State would help bring more attention to the BC success story.

Finally, there’s some chance that a carbon tax proposal would reduce emissions even if it loses and doesn’t become law. Evidence from BC suggests that the carbon tax has reduced motor gasoline emissions much more than expected because of “salience.” My own interpretation here is that the carbon tax was in the news every day for a long time, so consumers responded not just to the price increase but also to the news stories. It therefore seems plausible that news stories by themselves—about legislative or ballot measure proposals to implement a carbon tax—could reduce carbon emissions even if the carbon tax never happens. (This would make a great PhD dissertation topic. Of course, the really great dissertation would be to follow the successful implementation of a carbon tax.)

Building on the best climate policy in the world

Let’s be honest: Everybody in the climate world can tell happy stories about how great it will be if their particular policy gets implemented. But I think the carbon tax story is especially compelling. This policy means we will be putting a price on carbon that is on par with BC’s carbon price, which is the highest broad-based carbon price in the world. A price of $25 per ton of CO2 is double California’s price and many multiples of the carbon prices on the East Coast and in Europe.

Passing a revenue-neutral carbon tax—and following through by keeping it revenue-neutral—wouldn’t just be a win for left-wing tree huggers. It would also be a win for all the brave conservatives, including local champions like Todd Myers as well as national figures like Hank Paulson and Bob Inglis, who have stuck their necks out for revenue-neutral carbon taxes. This is important because ultimately the goal is not to solve climate change in Washington State but to lay the groundwork for national and international action, and national action will almost certainly require votes from conservatives. Getting those votes will be hard, but a BC-style carbon tax is our best hope. (Remember that the BC carbon tax itself was passed by a right-of-center government.)

The upside, then, is that Washington State follows the path of British Columbia: carbon emissions fall, revenue neutrality works out as promised, and (grumbling aside) voters and both major political parties accept the carbon tax swap as part of the fiscal and environmental landscape. Like British Columbia, Washington State could then focus on building a strong economy and serving as a model for North America and the rest of the world.

A BC-style revenue-neutral carbon tax is a policy that makes sense for the economy and for the environment in Washington State. The politics play out in such a way that the policy has a limited downside if it loses and a great upside if it wins. That combination—low risk, high reward—makes for a great investment.

Originally published at Sightline Daily 

Carbon Tax Update

Summer and Akua and I have been working so hard on the policy side of our campaign, but we’ve been making great progress and in fact are happy to announce the following campaign deliverables that we will finish by the end of the summer:

1) We will create a carbon tax swap calculator that will allow Washington residents to enter a bit of information (zip code, household size, household income, etc.) and get an estimate of how much they will pay in carbon taxes, how much they will save in sales taxes, etc. The calculator tool will also include a Sankey diagram to provide an overview of our carbon tax swap policy.

2) We will complete an in-depth exploration of policy and legal alternatives, including actual ballot language from the Secretary of State’s office (as for example in the ballot language we got last month).

Stay tuned for more on all of this—and deliverables from other facets of the campaign—and if you’re keen on helping us work on either or both of these policy/legal fronts please let me know. (In particular: We are looking for an Olympia-based lawyer who is willing to file paperwork for us as needed in the months ahead. Nothing right now, and no actual involvement in litigation or anything—although we can talk about that too!—but for starters we would like to have a physical presence in Olympia in case we need to file things in person. If that’s you please holler!)

And to round out this email:

* Events: I’ll be doing a bit of comedy and talking carbon taxes at the Thurston County Progressive Network annual picnic and candidate forum on July 13.

* Past events: Last week Alex Lenferna, Vivian Weber, and I attended Governor Inslee’s Climate Taskforce meeting. The good news is that, as promised, there was a presentation on the BC carbon tax as well as on the CA cap-and-trade system. (Good summaries of both of these policies can be found via posts #1 and #4 on this Sightline carbon pricing blog series). The bad news is that the governor’s office has a clear preference for cap-and-trade. Here are comments from Alex Lenferna: “The governor’s office says they lean towards cap and trade because it offers certainty [of emissions limits], flexibility and linkage. While cap and trade can arguably deliver better on certainty, it’s not clear to me that it can deliver better on the other two. On the flexibility front it is clear that a carbon tax would deliver much better, as it puts a price on carbon and allows the market to decide how it wants to react, whereas a cap and trade the government has a much more active role in deciding who gets permits and how reductions must be made – often involving handing out free pollution permits to polluting industries, which grandfathers in dirty industries. With regards to linkage, while Washington could link up to California through a cap and trade, a tax on carbon also provide linkage to BC, and perhaps it makes more sense to link up to our neighbors. Plus linking up with a price on carbon is much easier than linking up to California’s rather complex system.”

Also in the good news/bad news camp is my report from the Seattle Chamber / WA Clean Tech Alliance lunch panel on cap-and-trade. The good news is that Senator Doug Ericksen (R-Bellingham/Ferndale) said he preferred carbon taxes to cap-and-trade; the bad news is that he said the choice was like asking him if he wanted to jump off the cliff to the left or the cliff to the right. Sen Ericksen also ducked a question about whether he thought climate change was a problem, which in my view matched up quite well with fellow panelist Susan Frank ducking a question about whether cap-and-trade would raise gas prices.

* Readings: I recommend “B.C. put a price on carbon. What happened next will surprise you” and “Climate campaign can’t be deaf to economic worries, Obama warns”. And if you really want to get into the weeds on the Obama EPA power plant rule, the Georgetown Climate Center has lots of info on section 111(d) and more 🙂

As always, comments welcome on the blog!