fbpx
Donate Newsletters

Collection: Cashing In Our Carbon

Four Carbon Cap-Tax Hybrids

by
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?

by

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.

Read more

Marching Forward Against Climate Change

by

The day before the People’s Climate March, the Wall Street Journal (WSJ) published an opinion piece by Steven Koonin titled: “Climate Science is Not Settled.” The title conforms to the merchants of doubt’s strategy of sowing doubt and confusion, but it is not even an accurate summary of the article. The article actually affirms that the main things almost everybody thinks of when they hear “climate science”—whether climate change is happening and whether it is caused by people—are quite settled.

Interestingly, next to the climate article was Robert Sapolsky’s always-excellent column, which this week was about insect decision-making. Apparently, a solo ant can efficiently make easy decisions, but hard decisions are better when made with the wisdom of the ant crowd. Bees faced with an unclear decision are indecisive and may refuse to decide at all. The climate article with its muddled message about how to decide to act, the WSJ’s mismatched headline peddling confusion and indecision, and the day of marches all over the world demanding that decision-makers take immediate action on climate—the conjunction of these things made me think about how we humans decide. Sometimes our stellar ability to collect and share information seems to trip us up instead of help us move forward. But I remain hopeful that we can be better deciders, like ants, not like bees.

My hope is not unfounded: countries around the world and 10 US states have already bypassed indecision, and Oregon and Washington are poised to take action. This weekend hundreds of thousands of climate marchers around the world, including thousands in Portland and Seattle, showed the people’s growing power to overcome the merchants of doubt’s poisonous whisperings.

People's Climate March 2014 NYC, by flickr user South Bend Voice, cc.
People’s Climate March 2014 NYC by South Bend Voice used under CC BY-SA 2.0

Read more

Carbon Pricing and Northwest Businesses

by

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.

Read more

California, Here We Come

by

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.

Read more

There’s Plenty of Room at Hotel California

by

Pretend you’re the governor of Oregon or Washington, or the head of a key committee in the state legislature in Salem or Olympia. Let’s say you’re convinced: Climate change is real, it’s a huge risk, and we need a fast, smooth transition beyond carbon fuels. Putting a price on carbon is the single best way to nudge the whole economy in that direction.

What do you do? Designing an entire carbon pricing system from scratch… that’s a lot of work! Isn’t there an “off-the-rack” option available? There is! There are, actually. British Columbia’s carbon tax shift is ready to copy. Or, if you prefer to link up with the best US carbon market, California has spent the past eight years building a state-of-the-art cap-and-trade program and writing all the rules and regulations to go with it. Not only that, but Oregon and Washington have already done some of the groundwork for linking to California by contributing to the Western Climate Initiative’s 2010 framework.

Linking isn’t just a way to avoid recreating the wheel. It has a lot of benefits: it can cut the cost of reducing pollution, reduce the risk that emissions will “leak” across state borders, trim the costs of administering the program, and make it simpler for multi-state entities to comply because the rules are the same across borders.

That all sounds great. What do you need to do? Here is a summary of what Oregon or Washington would need to do to link, with comparisons to California’s linkage with Quebec this year.

Read more

Why Washington State Should Adopt a BC-style Carbon Tax

by
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.

Read more

Four Carbon Pricing Pitfalls to Avoid

by

Despite its widely discussed woes, every year the European Union Emissions Trading System (EU ETS) cuts more carbon pollution than the entire state of Oregon spits out. That’s no small feat. The EU cap-and-trade program limits carbon dioxide emissions from more than 11,000 power stations and industrial plants in 31 participating countries, covering 45 percent of the EU’s total greenhouse gas (GHG) emissions. The market has operated for nearly a decade with no price manipulation and no deleterious economic impacts, and it is on track to reduce pollution 21 percent below 2005 levels by 2020.

Nonetheless, the early years were rocky for Europe’s carbon-pricing pioneer. Here’s what Oregon and Washington can learn from the EU’s missteps.

(1) Set the cap right

(1.1) Use actual emissions data.

The EU ETS began with a pilot phase from 2005 to 2007. During this phase, to quell industry fears and opposition, the EU gave companies carbon allowances for free. Because the EU did not have verified emissions data, it asked companies to estimate the number of allowances they would need. Unsurprisingly, some power plants and industrial facilities used over-optimistic growth projections and overestimated their future emissions, so the EU handed out more allowances than needed. When verified emissions data became available in 2006, participants realized that there were too many carbon allowances in the market, and the price crashed.

California learned from this experience and began collecting verified emissions data years before starting its cap-and-trade program. It then based its cap on actual emissions, not self-reported estimates. Cascadia can avoid over-allocation and price shocks by setting its cap based on verified emissions data. It can help the market function smoothly by making this data publicly available and keeping it transparent.

Read more

Reggie Recommends

by

If you still need to meet Reggie, you can get introduced in Part 1.

(1) Yes, you can lower emissions without harming the economy.

RGGI’s CO2 emissions from electricity dropped by more than 40 percent between 2005 and 2012 while the region’s economy improved. The entire US economy has been slowly backing away from its unhealthy, codependent relationship with energy use, but RGGI’s economy has really broken it off. Below, RGGI CO2 emissions (blue dotted line) steeply declined from 2005 to the present, while RGGI state economies (blue solid line) improved. The US’s failure to cut emissions (dotted red) as fast as RGGI hasn’t helped the economy (solid red).

RGGI Performance To-Date and the Path Ahead, May 2014, by ENE
RGGI Performance To-Date and the Path Ahead, May 2014 by ENE (Used with permission.)

The big secrets to scaling down emissions while maintaining a healthy economy are: 1) increase energy efficiency, and 2) decrease imports of dirty out-of-state power. That should make Cascadia’s ears perk up: we have some great energy efficiency experience, and most of our dirty power comes from out of state.

Some of the dramatic decrease in RGGI’s emissions was due to lower electricity consumption, driven partly by energy efficiency programs funded by RGGI auction revenue. Some was due to shifting away from coal and petroleum.

Below, you can see that total electricity use in the RGGI states was lower in 2012 than in 2005. You can also see the changing fuel mix: coal and petroleum (red and brown) generated one-third of RGGI states’ power in 2005, but only 10 percent in 2012! Natural gas (orange) rose from one-quarter to nearly half. This change was driven by several factors, including: 1) the price of natural gas dropped relative to the prices of coal and oil, 2) coal capacity decreased as coal plants were retired or converted to natural gas, and 3) RGGI’s price for carbon piled on to widen the price gap.

Read more

Meet Reggie

by

Carbon pricing’s time may have come. California Governor Jerry Brown is crusading for climate regulation, Washington Governor Jay Inslee is considering cap and trade, and government leaders in Oregon are contemplating a carbon tax. New US Environmental Protection Agency (EPA) carbon regulations may drive states across the country to join the Northeast’s well-established cap-and-trade program.

What’s that you say? You didn’t know the Northeast has the oldest carbon pricing program in the US?

Despite years of seamless market operations and nearly $1 billion in auction revenue reinvested in the local economy, the Northeast’s Regional Greenhouse Gas Initiative (RGGI—pronounced Reggie) has gone largely unnoticed out here in the Northwest.

So here are four things that will help you understand RGGI.

(1) RGGI has been operating seamlessly for years.

RGGI was established in 2005, held its first auction of CO2 allowances in 2008, and the cap was implemented in 2009. After a 2012 program review, the states agreed to an Updated Model Rule in 2013. RGGI has held 24 quarterly auctions to date, selling more than half a million allowances and collecting nearly $1 billion in auction revenue. All that, with nary a hint of market manipulation or price volatility.

Read more

+ More