Washington Governor Jay Inslee gave his State of the State Address on Tuesday to a delegation of statewide electeds, state legislators, and other distinguished guests. Touching on themes of protecting net neutrality, ending capital punishment, expanding voting rights, reducing gun violence, and building more affordable housing, his vision is undeniably ambitious for the short legislative session. A significant portion of his speech was spent on his desire to pass a carbon tax.

“Now is the time to join in action and put a price on carbon pollution,” he said. “Doing so will allow us to reinvest in all the things that drive down emissions. We can build more solar panels. We can put more electric cars on the road. We can help more Washingtonians purchase energy-saving insulation for their homes and businesses.”

Governor Jay Inslee addresses the Washington State Legislature at the Capitol. (Washington Governor's Office)
Governor Jay Inslee addresses the Washington State Legislature at the Capitol. (Washington Governor’s Office)

Climate change has been a primary focus of the governor during his tenure. He’s proposed measures to implement a clean fuel standard and institute a carbon cap and trade framework. He instituted a clean air rule (though it has been partially halted) and established the United States Climate Alliance in response to a federal plan to pull out of the Paris Accord. In 2007, he also published a book centered on building a green economy entitled Apollo’s Fire: Igniting America’s Clean Energy Economy.

State legislators have already submitted the governor’s recommended bill, though it may look much differently as it moves through the legislative process. Republicans remain in opposition to a carbon tax while some Democrats have said they’re unsure there’s enough time to process the bill this session. Nonetheless, the bill pending in the Senate does have 14 co-sponsors, indicating strong support for carbon tax policy in the caucus.

As drafted, the bill would implement a carbon tax beginning July 1, 2019. The tax would price carbon emissions at $20 per ton initially and then raise 3.5% annually in addition to inflation. In other words, the price of carbon emissions would gradually rise increasingly sending a signal to the economy to consume less carbon-intensive products and services.

The carbon tax would apply to most fossil fuels sold or consumed in the state. However, some industries would be exempt from the tax, such as: Puget Sound Energy’s coal-fired power plant, diesel and biodiesel fuels used in farming, biogas, aircraft fuel, and fossil fuels used on-site for manufacturing by energy-intensive and trade-exposed industries. Power and natural gas companies generally would be eligible for credits against the carbon tax based upon general taxes paid. The carbon tax also would not apply to fossil fuels transported from outside of the state in tanks of vehicles.

In the first two years, the carbon tax is projected to raise $1.5 billion. With inflation and annual rate increases, the tax could generate $3.3 billion in the following four years. Revenue from the tax would be used in several ways:

  • 50% – Energy Transformation Account – Half of proceeds would be directed to a new “Energy Transformation Account” that would promote reduction of greenhouse gases through various programs. This could include funding industrial energy efficiency projects, commute trip reduction programs, electrification of transit, vehicle charging stations, retrofitting buildings for energy efficiency, and transformation of agricultural practices.
  • 35% – Water and Natural Resource Resilience Account – 35% of proceeds would be directed to a new “Water and Natural Resource Resilience Account” that would deal with the effects of climate change and mitigate impacts to the natural environment. Funding from the account could be used to remove fish barriers, reduce stormwater pollution from existing infrastructure and development, reduce risk of flooding, prevent and suppress wildfires, and enhance water supplies.
  • 15% – Transition Assistance Account – 15% of proceeds would be directed to a new “Transition Assistance Account” that would mitigate financial burdens that the tax may have on vulnerable communities in the state. Money could be used to fund affordable housing development, cash assistance programs, low-income weatherization assistance, energy assistance, public health programs, and rural economic development. The account could also provide for wage replacement benefits, job placement support, relocation assistance, and job skills training.

For many environmentalists, the bill checks many boxes: pricing carbon, fast action, and thoughtful programs that can help reduce greenhouse gas emissions, mitigate the effects of climate change, and promote social welfare and equity during transition to a green economy. Policy priorities, however, will likely be divergent with some wanting a revenue-neutral approach or more specific and greater equity built into the carbon tax framework, such as tax credits for low-income families. With luck, some version of the bill could become law this year.

Title image is of a Benton City vineyard in fall, courtesy of the Washington Governor’s Office.

11 COMMENTS

  1. While this is better than nothing, it still sucks compared to the plan that was outlined in I-732. A good carbon tax should be revenue neutral; the purpose isn’t to raise money but to fix a market-failure.

    • Much as I admire the concept of revenue-neutrality, calibrating it to be revenue neutral is very hard. You have to make assumptions about what amount of revenue will be raised at what tax rate, how the market responds and what the resulting impact of those revenue changes are. You then need to try and find an offsetting tax and adjust that down making the same assumptions about the revenue yield of the volume of that taxable event and that rate and its secondary effects. There are lots of places for these assumptions to go wrong. Revenue neutrality is very hard to accomplish in practice.

      This plan proposes to spend the money on things that should have a compounding effect of lowing carbon emissions. If this works, the total amount of revenue generated should slowly decline as the carbon impact of the state economy declines. We should also be using up the best, cheapest investments first. The only real issue is that, no matter what happens to the state’s carbon emissions, the need for adaptation funding will probably stay stable or increase given the carbon impacts already in the atmosphere.

      • This sort of thing is why I’ve come around to the view that a cap/permit-auction system is better than a carbon tax. The thing we actually care about is limiting carbon emissions. So hold that constant and let the market set the price. Trying to control emissions by adjusting the price is like the tail wagging the dog!

        Until we’re ready to implement that on a scale much bigger than the state, a carbon tax where the state isn’t depending on its revenue to replace other essential revenue is better than one where it is. One kind of economist might then suggest dividing the revenue (minus overhead) among each state resident equally (just as “head taxes” are always income/wealth-regressive, “head refunds” are the opposite). Another type of policy expert would say that many types of public investments with broad-based benefits are generally better than cash awards… and it’s hard to think of a broader-based benefit than carbon reduction these days. So as long as the investments are going to be effective (in reducing emissions, or in allowing productivity to hold with reduced emissions), I approve.

        • Here’s an article that compares and contrasts the two: https://www.theguardian.com/environment/2013/jan/31/carbon-tax-cap-and-trade

          Basically it seems that cap and trade gives more certainty about the level of emissions, while a straight tax gives more certainty about the price of permits.

          A hybrid model makes sense to me: cap and trade, but the initial permits are sold at some floor price instead of being grandfathered in, and the permits may never be sold for below that floor price. That floor price rises as the cap shrinks.

  2. Nope. Voted for 732 but would vote against this slush-fund approach. Try again and make it revenue-neutral.

  3. I fail to understand why revenue neutrality is the holy grail? If the price is set right won’t it move the economy off fossil fuels no matter what the revenue is spent on?

    • BTW I’m not disagreeing with the folks asking for revenue neutrality just merely asking for an explanation

      • Revenue neutrality is a reflection of the anti-tax, anti-government mentality that the Koch Bros and other have worked so hard to inject into our shared political consciousness. It reflects the notion that government cannot be trusted and can never be part of a solution to anything. Therefore government must be deprived of resources.

        • rev neutral doesn’t deprive the government of anything. Climate policy is more about reducing carbon than anything else, so if you can reduce carbon w/out government spending then why not do it?

          • The problem is that some up-front capital spending will be required for energy conversion, just as it has been for the introduction of many other technologies (i.e. DOD & ARPA investments in microprocessors, solar cells and the internet). Our state governments are squeezed for resources to invest in education, health, public safety and other priorities. The chance that they (Washington, Oregon or any other state) will find money to prime the energy conversion pump without additional revenue is nil.

    • It helps protect against tax regressivity, which is significant it the price is high. Also, if the price is high, its easy to waste money on carbon reduction efforts b/c they become redundant as the price is actually motivating the change.

      More potential for moderate/Republican support w/ rev neutral too.

      It’s not a holy grail, but its worthy of consideration.

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