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Collection: Cascadia Climate Action

The New Oregon Carbon Tax Report is Out

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We are already paying a high price for fossil fuels: strange and severe weather, asthma and cancer cases, a Northwest economy weakened by huge bills for importing coal, oil, and gas, and the political vice grip that Big Oil has on our democracy. Last year, Portland State University (PSU) gave the Oregon legislature a teaser about how to face those problems with a carbon tax. Intrigued by the possibility of holding big polluters accountable and generating revenue for Oregonians, the legislature asked for more information, and this week PSU’s Northwest Economic Research Center (NERC) delivered. The new and expanded analysis concludes that charging carbon polluters would cut pollution and it could create jobs and raise wages. If Oregon spends the money right.

What scenarios did NERC model?

NERC modeled carbon taxes ranging from $10 to $150 per ton of greenhouse gas pollution. The tax would apply to pollution from burning fossil fuels, such as coal, petroleum, and natural gas. It would tax pollution from coal burned outside the state to generate electricity used by Oregonians. In each scenario, the tax starts at $10 per ton in 2014, and then goes up slowly and smoothly, rising just $5 or $10 each year. Knowing that the price to pollute is slowly rising over time gives dirty energy producers the time and the motivation to start investing in clean energy. NERC ran scenarios with prices that maxed out at $10, $30, $45, $60, $100, $125, and $150.

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The Washington Carbon Emissions Reduction Taskforce Report is Out

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Twenty-one Washingtonian leaders from business, labor, public interest, and public health communities and federal, tribal, and local governments walk into a room to discuss the best way to price carbon in the Evergreen State. What comes out after several months? A unanimous report that says: we should do this. With caveats and cautions and needs for more research of course, but the bottom line is that Washington will not achieve its statutory carbon targets without a price, and Washington can design a price—whether a cap or a tax—to protect public health and the economy and make the transition to a post-carbon world.

In April, Governor Inslee established a Carbon Emissions Reduction Taskforce (CERT) to provide recommendations about the design and implementation of carbon pricing in Washington. Today, the 21-member panel—with individuals drawn from business, labor, public interest, and public health communities and federal, tribal, and governments—released its unanimous recommendations. Here is my summary and commentary on their findings.

CERT’s Findings

CERT members unanimously agreed on four findings. Stripping away the cautious consensus wording and hedging (the report says “thoughtful” 15 times in 27 pages), here is my interpretation of those findings, found more in the small print than in the bold headlines:

  1. There isn’t a meaningful difference between a cap and a tax. But if we do either one and do it well, we can inspire other jurisdictions to take action too, making it easier for everyone to go post-carbon.
  2. On the topic of doing it well, Washington needs to carefully design its price to meet the criteria discussed below.
  3. The price should work with complementary policies. In particular, the transportation sector needs an integrated approach with land-use policies, transit oriented development, and alternatives to current single occupancy vehicles such as adequate transit, zero emissions vehicles, and alternative fuel infrastructure. Washington could invest carbon revenue in clean energy and transportation options for a smooth transition to a post-carbon economy.
  4. More analysis is needed, particularly around impacts on businesses and low-income communities.

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Event: Will a Carbon Tax Fly in Oregon?

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Next Thursday, join our senior researcher Kristin Eberhard to talk about carbon pricing possibilities for Oregon. The League of Women Voters of Corvallis is hosting a public forum with a great panel of speakers to lay out some smart climate policy for the Beaver State. Joining Kristin will be Jeff Renfro, senior economist at Portland State University’s Northwest Economic Research Center (NERC); … Read more

Indiana Jones and the Clean Power Rule

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In Indiana Jones and the Last Crusade, Indie finds himself on a ledge before a chasm, with no obvious way across. Ignoring the evidence of his senses, he follows a clue he’s been given, takes a leap of faith and lands on an invisible plank. The proposed US Clean Power Rule puts Oregon and Washington, along with other Western states, on a ledge, too. Oregon and Washington are on a quest to meet their own self-imposed climate targets, but the federal rule seems to lead them astray, requiring different goals and tangential negotiations that will sap their energy and make it harder for them to reach their goal. What may not be apparent is that the rule also provides a plank: adopting a regional carbon price can substitute for complicated and ineffective power-rule compliance plans and let Oregon and Washington meet their own targets. It can also carry the West to a clean energy economy.

Backstory

The US Environmental Protection Agency (EPA), fulfilling its duty under the federal Clean Air Act to regulate CO2 emissions, has issued a proposed Clean Power Rule that would reduce CO2 pollution from power plants nationwide 30 percent below 2005 levels by 2030. Although Republicans think even this relatively modest goal is too much, Oregon and Washington already have more ambitious climate laws on the books. If Oregon follows a smooth line to its goal to cut pollution 75 percent below 1990 levels by 2050, it will cut pollution approximately 50 percent below 2005 levels by 2030. A straight line to Washington’s goal to cut pollution 50 percent below 1990 by 2050 will cut approximately 22 percent below 2005 levels by 2030, but the electricity sector will likely make deeper cuts than the state average. Both states aim to squeeze out much more pollution by 2050.

Original Sightline Institute graphic, available under our Free Use Policy.
Original Sightline Institute graphic, available under our Free Use Policy.

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Four Carbon Cap-Tax Hybrids

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Fits like a fleece vest.

A tax and a cap are just different vehicles for delivering the same thing: a carbon price that holds polluters responsible for their pollution, drives the transition to clean energy, andstaves off the worst risks of climate volatility. With a tax, you know the price in advance but not the quantity of carbon pollution per year; with a … Read more

Can We Depend on the Money?

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Is carbon revenue too flighty for Washington to depend on it to solve some of its budget woes—including the State Supreme Court’s McCleary mandate to fully fund education? If a carbon price is successful at cutting pollution, won’t the revenue stream dry up as the pollution dwindles? The answer is no. Price and pollution are related; the price must progressively increase to continue curtailing pollution. If Washington keeps ratcheting down the pollution, it will receive a carbon revenue stream that will steadily rise for the next two decades and then flatten out in the 2040s.

Because it is difficult to make predictions, especially about the future, I offer three plausible price scenarios based on what we know. We know that pollution responds to price. We know that complementary policies, such as investments in energy efficiency, can work with a price to cut the cost of paring pollution. Each of the scenarios below assumes the Evergreen State hits its existing pollution abatement goals: getting back to 1990 levels of pollution by 2020, then cutting to 25 percent below 1990 levels by 2035, then slashing to 50 percent below 1990 levels by 2050.

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Carbon Pricing and Northwest Businesses

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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.

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California, Here We Come

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Editor’s note: Washington’s Carbon Emissions Reduction Taskforce is weighing alternative carbon-pricing proposals. Recently, Yoram Bauman presented the case for Washington to adopt a BC-style carbon tax swap. Now, Alan Durning and Kristin Eberhard share the argument for Washington to join California’s cap-and-trade club.

The good news is that Washington State may be getting serious about a price on carbon. The other good news is that Washington does not have to start from scratch; it can adopt California’s off-the-rack state cap-and-trade system. It can even improve it. This approach not only lets Washington take advantage of the years of work California put into designing its system but may also help drive down carbon costs, minimize some of the cross-border problems of state-by-state regulation, and create regional momentum. Below, we describe the benefits of joining California, and recommend the ways Washington could improve on California’s excellent system.

Enjoy the Benefits of Joining

Good design

California spent a lot of effort studying the European and Northeast cap-and-trade programs and building a stronger program. It has a strict cap, comprehensive scope, upstream regulation, and anti-gaming protections. It auctions most allowances and limits offsets. By the time Washington goes through its own public process, California’s program will have been operating at full scale for several years, so Washington would be joining a fully functioning and mature program. By that time, carbon polluters in the Evergreen State will have a lot of information about the past and projected carbon price, and they will be able to make wise investments from the outset.

Minimize costs

A larger market can drive down costs. The market will seek out the lowest-cost ways to cut pollution in both states, resulting in a lower overall carbon price than either state would get on its own.

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Why Washington State Should Adopt a BC-style Carbon Tax

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Cumulative BC Carbon Tax Revenues and Tax Cuts 2008-2014

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
Chart by BC Budgets 2008-2013 (Used with permission.)

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.

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The Canadians Are Coming!

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It’s common knowledge near the US-Canada border that lots of things are cheaper down south. Head to Whatcom County, Washington, and the locals will complain about Canadians holding up the line at the gas station: “They’re even filling up black plastic garbage bags!” They will point you to a video of Canadian piranhas devouring a crowd of Bellinghamsters (or at least their milk supplies at Costco). They will tell you about the Facebook page called “Bellingham Costco Needs a Special Time Just for Americans.” They may even regale you with stories of Pirate Joe’s, whose business model is to buy out the Trader Joe’s stores near the border and then resell everything to Canadians desperate for pomegranate vinegar.

All of this brings to mind two questions. One, of course, is why don’t companies in Whatcom County expand their stores? (Answer: The smart ones are expanding. For example, Costco is seeking permits for a new store in Bellingham. As for Trader Joe’s… well, instead of opening a branch near the border, the company is still trying to sue its best customer.)

The second question is about the British Columbia carbon tax: How much of the reduction in petroleum consumption in British Columbia (see graph below) is caused by Canadians filling up south of the border?

The answer: not much.

Original Sightline Institute graphic, available under our Free Use Policy.
Original Sightline Institute graphic, available under our Free Use Policy.

Before I’m attacked by enraged Hamsters, let me be clear: I feel your pain, and your eyes don’t lie: cross-border trade is a huge economic player in Whatcom County, accounting for almost half of all credit-card transactions in Bellingham, according to one estimate.

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