Research & Commentary: Oregon Carbon Tax a Slush Fund for Failing Green Projects
Proposal Is Not Revenue Neutral, Merely Generates Slush Fund For Unreliable Energy Projects
In 2018, Oregon lawmakers are expected to consider imposing a carbon tax, with the goal of capping greenhouse gas emissions while charging some of Oregon’s largest companies for their carbon dioxide output. The carbon tax proposal is likely to mimic the Healthy Climate Act (HCA) that has previously been proposed in the legislature several times over the past three sessions.
Modeled after a cap-and-trade program established in California by the state’s Air Resources Board, Oregon’s “cap and invest” model seeks to cut Oregon’s greenhouse gas emissions to 20 percent below 1990 levels by 2025, 45 percent below 1990 levels by 2035, and 75 percent below 1990 levels by 2050. The cap-and-invest proposal would limit the amount of carbon dioxide or equivalent emissions a business could emit each year; under HCA, this level was set at 25,000 metric tons of carbon dioxide annually.
After exceeding the cap, a business would be required to buy market-priced allowances for any additional emissions. Over time, these allowances would decrease in volume and increase in price. The revenue generated through this system would be invested in programs designed to reduce emissions, assist low-income energy consumers, and encourage economic development in disadvantaged and distressed communities, hence the “cap-and-invest” moniker. The carbon tax proposal is not revenue neutral; it merely generates a slush fund for unreliable energy projects.
According to a memo written by Gov. Kate Brown’s (D) energy advisor, the investments would go to “clean transportation projects, clean energy workforce training, and clean energy projects to ‘de-carbonize’ Oregon’s economy.” The supporters of the tax estimate the competitive auction of those allowances could generate $700 million per year.
One problem with the carbon-dioxide tax is the insignificant environmental benefits it would produce. In a December 2015 speech to the U.N. Framework Convention on Climate Change (UNFCCC), former Secretary of State John Kerry said that “if we somehow eliminated all of our domestic greenhouse gas emissions, guess what—that still wouldn’t be enough to offset the carbon pollution coming from the rest of the world.” A state-based carbon tax would have even less impact on global temperature.
It is likely for these reasons the U.S. public finds the idea of a carbon tax so undesirable. An October 2017 poll conducted by the Associated Press and the NORC Center for Public Affairs Research for the Energy Policy Institute at the University of Chicago revealed 68 percent of respondents said they were unwilling to pay an extra $20 month on their electric bills to combat climate change, although this amount is “roughly equivalent to what the federal government estimates the damages from climate change would be on each household.” Further, almost half the respondents, 42 percent, said they would be unwilling to pay even one extra dollar.
According to a study by NERA Economic Consulting and the National Association of Manufacturers, if a carbon tax is levied, residents of Oregon will pay more for natural gas, electricity, gasoline and other energy commodities, which will affect every home and business in the state. “This is bad news for manufacturers, which consume one-third of our nation’s energy supply, and for families struggling to get by as the national unemployment rate hovers just under 8 percent. To make matters worse, many Oregon companies that compete internationally will be placed at a disadvantage as their foreign competitors operate without similar costs.”
Another major concern is that the tax could potentially be passed without any bipartisan support. Under Oregon law, bills calling for a tax increase must meet a three-fifths supermajority, but the Oregon legislature’s legal office recently ruled the cap-and-invest program would not be subject to the supermajority requirement.
A cap on carbon emissions does not guarantee emissions reductions and hurt poor and middle-class families more than they do the actual “polluters.” California’s cap-and-trade plan, which the Oregon plan is modeled after, has led to increased energy prices and close to a million households living in “energy poverty,” where they spend at least 10 percent of household income on energy costs. In poorer counties, as many as 15 percent of households are classified as energy impoverished.
The following documents provide more information about carbon-dioxide taxes.
The Deeply Flawed Conservative Case for a Carbon Tax
In this paper from the American Enterprise Institute, Benjamin Zycher says the “conservative” Climate Leadership Council’s (CLC) much-hyped carbon-tax proposal is “naïve” and “virtually all of the … assertions in support of its proposal are incorrect or implausible.” The CLC’s plan is “poor conceptually and deeply unserious,” wrote Zycher.
The Case Against a U.S. Carbon Tax
In this paper from the Cato Institute, Robert P. Murphy, Patrick J. Michaels, and Paul C. Kanppenberger examine carbon-dioxide tax programs in place in Australia and British Columbia and whether similar programs would be successful in the United States. They conclude, “In theory and in practice, economic analysis shows that the case for a U.S. carbon tax is weaker than its most vocal supporters have led the public to believe.”
Economic Outcomes of a U.S. Carbon Tax
This report from the National Association of Manufacturers evaluates the potential impacts on the U.S. economy from possible future carbon taxes whose revenues would be devoted to a combination of debt and tax rate reduction. The results take into account the varied economic effects of fossil fuel cost increases due to a carbon tax as well as the positive economic effects of the assumption that carbon tax revenues would be used to reduce government debt and federal taxes.
Renewable Energy in Rhode Island: Big Cost, Little Difference
This paper from the Rhode Island Center for Freedom and Prosperity looks at the Ocean State’s renewable portfolio standards (RPS) and concludes while RPS investments stimulate economic activity, the negative economic impacts associated with higher electricity prices offset the claimed economic advantages of these RPS investments.
Dissecting the Carbon Tax
American Enterprise Institute Resident Scholar Kenneth Greene tells how he was first deceived by the supposed economic benefits of carbon taxes and how his views have evolved in light of the dubious track record of other eco-taxes being raided for general spending.
The Carbon Tax Shell Game
Oren Cass of the Manhattan Institute says the carbon tax is a shell game. The range of designs, prices, rationales, and claimed benefits varies so widely that assessing the actual validity of most proposals is nearly impossible to accomplish. In this article for National Affairs, Cass says the effect of carbon-dioxide taxes on emissions has proven to be insubstantial, a fact he says is ignored by the tax’s proponents when promoting its purported benefits. Cass also says carbon-dioxide taxes’ negative fiscal effects are claimed to be offset by efficiency improvements and by promising the revenues will be spent to offset the costs, but he says the same revenues are often promised to different constituencies to accomplish completely different and largely incompatible goals.
Assessing the Social Costs and Benefits of Regulating Carbon Emissions
The government is required to quantify the costs and benefits of regulations they propose. In the context of regulations pertaining to carbon-dioxide emissions, various agencies have been using differing estimates of the net social cost related to carbon dioxide. In response, an interagency working group (IWG) was created in order to establish a consistent and objective “social cost of carbon.” The range of estimates of the social cost of carbon produced by the IWG is too narrow and almost certainly biased upwards. Using better models and the most recently available evidence on climate sensitivity, this study from the Reason Foundation finds the range of the social cost of carbon should be revised downwards. The study states carbon-dioxide emissions may actually have a net beneficial effect on the environment.
Less Carbon, Higher Prices: How California’s Climate Policies Affect Lower-Income Residents
This study from Jonathan Lesser of the Manhattan Institute argues California’s clean power regulations, including the state’s renewable power mandate, is a regressive tax that harms impoverished Californians more than any other group.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact John Nothdurft, Heartland’s director of government relations, at email@example.com or 312/377-4000.