Does Regulating for Cleaner Air Push Industry towards Favoring a Carbon Tax?

By Joni Sliger, Energy Fellow

Carbon tax supporters collected signatures to get Measure 732 on the ballot.
Credit: Washington Secretary of State Blog. 

Tonight, Washington could become the first state in the nation to enact a carbon tax. Ballot Measure 732 proposes an escalating tax on carbon emissions, with complementary tax reductions for what is meant to be a revenue-neutral measure (though there is some debate on that front). While there are still too many undecided voters to call it, Ballotpedia reports that four polls on the measure show support for the tax slightly edging out the opposition but still within the margin of error (averaging 41.75% to 37.45% with a +/- 4.45% margin of error). Notably, that support does not include many of the state’s environmental groups, whom the Seattle Times reports are working on an alternative proposal. So how is a carbon tax on the verge of passing despite industry opposition and a divided environmental community?

A carbon tax or “carbon pollution tax” imposes a tax on fuels in proportion to the amount of greenhouse gas emissions they emit. Suppliers of gasoline or coal thus would pay the state for the expected emissions of the product they sell. Consumers may expect suppliers to raise prices accordingly. In Washington, Measure 732 proposes to cut other taxes, such as the state sales tax and the business and occupation tax, and to protect low-income families by raising the Working Families Tax Credit. On the balance, these changes aim to be revenue-neutral, meaning the state would neither lose nor gain money with the Measure versus the current tax structure. The overwhelming majority of economists have repeatedly supported a carbon tax as the most economically efficient way to take action against climate change.

Proponents of the measure—led by the Washington State Chapter of the National Audubon Society—have outraised and outspent industry opponents: proponents raised almost $2.8 million and spent about $2.5 million while opponents raised less than $1.5 million and spent less than $800,000. Why are industry opponents—including such deep-pocketed players as the American Fuel & Petrochemical Manufacturers and the Koch Brothers—not fighting harder against Washington’s carbon tax measure?

Perhaps industries facing sector-specific climate change regulations would prefer a carbon tax.

Washington just finalized its Clean Air Rule (Rule), as my fellow Energy Fellow, Ed Jewell, blogged last month. This new regulation is more stringent than the federal Clean Power Plan (CPP). The Rule went into effect in mid-October, requiring the state’s 24 largest emitters to reduce greenhouse gas emissions by 25% below 1990 levels by 2035 or pay compliance credits for reductions. Over time, the qualifying cap defining who is regulated by the Rule will decrease, effectively covering more and more emitters. The Washington Department of Ecology has compiled a list of the 68 entities potentially subject to the Rule. The state’s economic analysis estimates that entities may pay as little as $410 million or as much as $6.9 billion over 20 years to comply, depending on how they decide to comply. Again, these costs will fall primarily on only 68 entities (and then indirectly to their consumers).

Economists generally favor a carbon tax because it can spread the costs of taking action against climate change across the entire economy. An industry player, such as power producers, may prefer that the costs of regulation be spread across all economic players rather than only themselves. This is one reason why the EPA, in the CPP, provided the use of a carbon tax as one option for states to use in compliance. In Washington, the Rule already is more stringent than the CPP, but unfortunately both the Rule and the CPP are locked in legal battles. If the Rule fails but the CPP survives, a carbon tax like that proposed by Measure 732 might be the best way for Washington to comply. 

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SB 1547: A Step on Oregon’s Path to Reducing Greenhouse Gas Emissions:

By Andrea Lang, Energy Fellow

 

Credit: Oregonlegislature.gov

Last Wednesday’s passage of SB 1547, called the “Clean Electricity and Coal Transition Act,” marked a historic first step towards reducing Oregon’s carbon footprint. The bill is the first in the nation to attempt to completely eliminate coal from a state’s electricity supply, and may be the first of many steps on the path towards getting Oregon on track to meet its goal of reducing greenhouse gas emissions to75% below 1990 emission levels by 2050. This blog explores what the bill achieves and outlines future strategies Oregon could pursue to achieve its emission reduction goals. 

What does the bill do?

The Clean Electricity and Coal Transition Act contains a number of components aimed at reducing carbon emissions. To summarize, the bill: (1) requires the state’s two investor-owned utilities to eliminate coal-fired generation from their retail electricity mix in Oregon by 2035 (with an exemption for short-term wholesale purchases), (2) increases the state’s renewable portfolio standard to require that 50% of Oregon’s electricity comes from renewable sources by 2040, (3) creates a community solar program, and (4) allows utilities to propose transportation electrification projects. 

What other policy options are available?

There is no doubt that the bill improves on existing policies to reduce Oregon’s carbon emissions. However, this bill should not be the “end of the line” in terms of Oregon’s actions to address climate change. In fact, when lawmakers and advocates discussed a previous and nearly identical version of SB 1547 in the Senate Committee on Business and Transportation in February, Oregon Public Utility Commissioner Susan Ackerman stated that she thought there were better policies to address greenhouse gas emissions. Specifically, she identified cap-and-trade and carbon tax policies as being effective, low-cost ways to reduce emissions in the state, and also said that she thought such policies could coexist with and supplement the Clean Electricity and Coal Transition Act. 

Cap-and-trade programs, such as the program currently in place in California, work by mandating a cap on emissions, allocating emission allowances, and allowing emitters to buy and sell those allowances. By creating a finite number of tradable emission allowances, cap-and-trade policies create an incentive to reduce emissions by establishing a market for buying and selling allowances. Oregon had considered enacting a cap-and-trade policy this year, but the bill did not make it out of committee. 

A carbon tax is the other obvious policy option for Oregonians to consider as a next step. This relatively straightforward policy would involve levying a per-ton tax on carbon dioxide emissions. As a result of the tax, emitters are forced to consider whether the benefits gained from emitting carbon are greater than the cost of the tax. In addition, the revenues generated could be used to offset other tax burdens, mitigate the effects of climate change, or support other efforts to reduce emissions. A Congressional Budget Office study concluded that carbon taxes can be up to five times more effective than a cap-and-trade system, but voters often find the idea of a “tax” hard to swallow, making such policies politically difficult to enact.  However, British Columbia has already adopted a carbon tax, and Washington is currently considering one as a result of a successful ballot initiative. 

Adoption of either of these policy options could be the next step in reducing Oregon’s carbon emissions once Governor Brown signs the Clean Electricity and Coal Transition Act into law.

Is piecemeal policy-making enough?

In addition to considering individual policies to address carbon emissions, it is time for Oregon to carefully assess whether its existing energy governance framework is sufficient to address the problems facing the state. Climate change, along with a rapidly transforming electricity system, likely necessitates a reform of the state’s energy governance. For example, New York is attempting to reform its energy system through its “Reforming the Energy Vision” (REV) initiative. The REV aims to develop a comprehensive strategy to evaluate the ways the electricity system is changing or should change, and to address those changes. As we explained in our Countdown to 2050 Report, Oregon is sorely lacking a comprehensive policy framework to facilitate the transition to a 21^st century energy system. Continuing to enact piecemeal policies without adopting a comprehensive strategy and establishing an effective governance system to properly implement such policies is ineffective. 

Thus, it’s important that the passage of the Clean Electricity and Coal Transition Act does not make renewable energy and climate advocates complacent. To be sure, the bill is a useful step in the right direction, but it’s only one of many steps on the path to meeting Oregon’s emission reduction goals and transitioning to a 100% renewable power grid.