Washington State’s Carbon Tax: Still a Chance for First in the Nation?

Washington State’s Carbon Tax: Still a Chance for First in the Nation?

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By Chris Ajemian

Earlier this month on election day 2016, Washington state proposed the nation’s first ever carbon tax. I-732 raised interest in whether a cost-effective method for combating climate change could be achieved by imposing a price on fossil fuel in a manner alternative to the cap and trade policy adopted by California.

The measure sought to create the broad economic incentive necessary to reduce carbon emissions across different industries and state boundaries (if later adopted by other states). In a politically liberal state with a strong environmental movement, expectations were high.

Instead the initiative was decisively rejected.

What began as a modest grass roots campaign led by an economics professor gradually became a movement that encountered many political obstacles and could portend future struggles in other states. The assumption held in Washington was that with strong environmental conservation values, the various environmental groups would naturally cooperate in achieving the common goal of converting the state to a low carbon economy.

Instead, I-732 found its leadership unable to translate the theoretical language of economics into humanizing politics necessary for social justice groups to understand. Starkly different philosophies emerged.

By implementing a tax, I-732 backers sought to incentivize large carbon dioxide emitters to lower their emissions and discourage the use of gasoline burning automobiles at the same time. To protect the poor, those who would be least able to negotiate the new law, an earned tax income credit was offered while the main tax assessed would be offset by a lowering of the state’s sales and B&O tax in a revenue neutral manner. It was an elegant concept.

However, social justice groups led by the Alliance for Jobs and Clean Energy sought to build political power to confront large emitters directly and influence the state legislature instead of aligning around an anonymous economic theory. And, they felt the way to do that was to build a grass roots political machine from the ground up and let the policies emerge later. The result of these different approaches was a feud on the left.

Much of the disagreement revolved around I-732’s ‘revenue neutrality’ feature, a mechanism designed to alleviate opposition from Republicans worried about increasing the budget deficit. The goal behind revenue neutrality is to shift the tax burden but not raise the amount of revenue collected overall. If tax were added in new places in Washington state but reduced in equal amounts in others, the size of government would remain the same. This principal might prove to be extremely useful in other states less liberal than Washington, but the social justice groups opposing I-732 wanted any revenue collected to be invested in the communities they saw as disproportionately affected by climate change.

Had it been successful, I-732’s carbon tax could have sent a single price signal that the entire state’s economy could follow. Economists widely see such a tool as the quickest, most cost effective way to lower carbon emissions.

Which may be why the Alliance is now proposing its own carbon tax. Its version is different in two respects. First, it is a “performance-based” tax, meaning it is assessed based on how the state performs in its carbon emission reduction goals. If the goals are met on time, the tax is does not change; it is simply updated for inflation. However, it rises if its goals are not met on time. The second difference is that it is decidedly not revenue neutral. It establishes priorities for investing in clean energy projects and ameliorating climate change effects such as through healthy forest and clean water initiatives.

This way forward is in keeping with the state’s overall desire to act on climate change. Post-election analysis commissioned by outside groups such as Washington Business for Climate Action, The Nature Conservancy and The Washington Business Alliance, showed very strong support for some form of carbon tax or other policy designed to deal with climate change effects. The electorate wants options. This was particularly so with the business community.

The post-election analysis also showed a key reason I-732 did not pass was that very few people knew about it. Even those who voted for it didn’t have a strong sense of what it sought to accomplish. If I-732 backers and opponents cooperate the second time around, a well-funded public relations campaign could make all the difference. The rest of the nation may be like Washington in this respect. Despite constant worsening news on climate change, choosing an actual policy to deal with its effects is still a very new effort.

Washington state is a west coast liberal state. While being highly educated, international and high-tech in focus, it has a relatively small economy and is not used to being in a leadership position nationally. Nevertheless, I-732 succeeded in raising its awareness that Washington could have an outsized role to play in solving a very tough problem. It continues to move forward and may soon enact the nation’s first carbon tax.