Research & Commentary: Washington Bill Would Open Up Possibility of Regressive, Harmful Cap-and-Trade Program or Carbon-Dioxide Tax
Cap-And-Trade Programs, Carbon-Dioxide Taxes Do Little To Reduce Emissions, Act As Regressive Tax
A bill introduced in the Washington House of Representatives would give the state Department of Ecology (DOE) the authority to create either a carbon-dioxide tax or cap-and-trade system, or both, in the Evergreen State. If passed, DOE could establish each program without any sort of legislative approval.
“Department of Ecology staff could create rules that covered companies that emit as few as 25,000 metric tons of [carbon dioxide],” writes Todd Myers of the Washington Policy Center (WPC). “In Washington state, that would include food producers like El Oro Cattle Feeders in Moses Lake and Lamb Weston in Quincy. It could include timber mills like SDS Lumber in Bingen and Vaagen Brothers in Colville. It would include semiconductor manufacturers and solar panel manufacturers.”
Washington voters have signaled their opposition to a carbon-dioxide tax multiple times in the past half decade, most recently with their thorough rejection of Initiative 1631 (I-1631) in 2018.
Carbon-dioxide taxes are inherently regressive and disproportionally harm low-income families. The Congressional Budget Office (CBO) found a $28 per ton carbon dioxide tax would result in energy costs being 250 percent higher for the poorest one-fifth of households than the richest one-fifth of households.
CBO reports the reason for cost discrepancy is “a carbon tax would increase the prices of fossil fuels in direct proportion to their carbon content. Higher fuel prices, in turn, would raise production costs and ultimately drive up prices for goods and services throughout the economy … Low-income households spend a larger share of their income on goods and services whose prices would increase the most, such as electricity and transportation.”
WPC estimated the carbon-dioxide tax that would have been established under I-1631 would increase average household costs $234 to $305 in the first year alone, and $672 to $877 per year after 2030. “Taxpayers would feel the tax primarily in three ways. First, the largest impact would be at the gas pump,” WPC states, noting prices at the pump would increase by 14 cents a gallon during the first year and increase by two cents a gallon each following year. “Second,” the report continues, “a smaller portion, on average, would be associated with the cost of natural gas for home heating. Finally, since Washington’s electricity is mostly carbon-free, there would be a smaller impact felt in most utility bills.”
A 2013 study by the National Association of Manufacturers estimates a $20-per-ton carbon-dioxide tax in Washington, a threshold that would be have been met in 2022 under I-1631, would result in a 15 percent increase in household electricity rates. Additionally, the price of natural gas would increase by more than 40 percent in the first year. The study also estimates a carbon-dioxide tax would push gasoline prices up by 20 cents a gallon in the first year alone.
One other substantial problem with the carbon-dioxide tax is that it would produce an insignificant environmental benefit, as Oren Cass, senior fellow at the Manhattan Institute, noted in National Affairs. “The effectiveness of a carbon tax as a matter of environmental policy [depends] not only on how it would directly alter the trajectory of [local] emissions but also on its ability to affect global emissions by driving globally applicable technological innovation or by influencing the behavior of foreign governments,” wrote Cass. “On each of these dimensions, the carbon tax fails.”
Advocates of cap-and-trade schemes point to California and the 10 northeastern states that make up the Regional Greenhouse Gas Initiative (RGGI) as examples of how these programs can be successfully implemented. In reality, cap-and-trade programs do little to reduce carbon dioxide emissions. Even worse, they are akin to regressive taxes. Cap-and-trade programs disproportionally burden low-income households, who are less able to afford higher energy and gasoline costs that these programs are designed to produce.
A Manhattan Institute study estimates the California cap-and-trade program raised residential electricity costs by as much as $540 million in 2013. California’s Legislative Analyst’s Office (LAO) estimates cap-and-trade will increase gasoline prices by 15–63 cents per gallon by 2021, and by 24–73 cents per gallon by 2031. LAO projects Californians spend $2 billion to $8 billion extra on gasoline by 2021. It also estimates the increased gasoline prices will cost $150–$550 per household by 2026. Retail electricity prices in the Golden State are also 58 percent higher than the national average, an 18 percentage point increase over where they were before cap-and-trade was enacted in 2012.
In a Cato Journal article released in 2018, David T. Stevenson of Delaware’s Caesar Rodney Institute writes there are “no added reductions in carbon dioxide emissions, or associated health benefits, from the RGGI program. RGGI emission reductions are consistent with national trend changes caused by new EPA power plant regulations and lower natural gas prices. The comparison requires adjusting for increases in the amount of power imported by the RGGI states, reduced economic growth in RGGI states, and loss of energy-intensive industries in the RGGI states from high electric rates.”
According to the U.S. Energy Information Administration, retail electricity prices in the 10 RGGI states and California are currently 45 percent higher than the U.S. average. Thanks to its copious hydroelectric power sources, however, the Evergreen State currently has some of the lowest retail electricity prices in the United States at 8.0 cents per kilowatt hour. This rate is 23 percent below the U.S. average. Moreover, a 2019 WalletHub study reports that only Colorado has lower total energy costs than Washington.
Evergreen State lawmakers should not enact anything that would give DOE the authority to establish either a cap-and-trade or a carbon-dioxide tax. Both programs would have a minimal effect on carbon-dioxide emissions and both would cause considerable economic harm to all Washingtonians, especially low-income Washington families.
The following documents provide more information on cap-and-trade programs and carbon-dioxide taxes.
Legislating Energy Poverty: A Case Study of How California’s and New York’s Climate Change Policies Are Increasing Energy Costs and Hurting the Economy
This analysis from Wayne Winegarden of the Pacific Research Institute shows the big government approach to fighting climate change taken by California and New York hits working class and minority communities the hardest. The paper reviews the impact of global warming policies adopted in California and New York, such as unrealistic renewable energy goals, strict low carbon fuel standards, and costly subsidies for buying higher-priced electric cars and installing solar panels. The report finds that, collectively, these expensive and burdensome policies are dramatically increasing the energy burdens of their respective state residents.
A Review of the Regional Green Gas Initiative
This Cato Journal article authored by David T. Stevenson of the Caesar Rodney Institute finds the Regional Greenhouse Gas Initiative has not shown any added emissions reductions or associated health benefits, has had minimal impact on energy efficiency and low-income fuel assistance, and has increased regional electric bills.
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.
Five Myths of Cap-and-Trade
Articles supporting cap-and-trade programs rest on a number of fallacies. In this article by Todd Myers of the Washington Policy Center, Myers identifies and explores five persistent myths concerning cap-and-trade, including the belief that a cap on carbon dioxide emissions guarantees emissions reduction.
The Deeply Flawed Conservative Case for a Carbon Tax
In this paper published by 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. Knappenberger examine carbon-dioxide tax programs in place in Australia and British Columbia and consider 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 carbon taxes whose revenues would be devoted to a combination of debt and tax rate reduction would have on the U.S. economy. The results consider the varied economic effects of fossil-fuel cost increases caused by carbon taxes, as well as the positive economic effects of the assumption that carbon tax revenues would be used to reduce government debt and federal taxes.
The Carbon Tax Shell Game
Oren Cass of the Manhattan Institute argues the carbon tax is a shell game. The range of designs, prices, rationales, and claimed benefits varies so widely that assessing the 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.
The U.S. Leads the World in Clean Air: The Case for Environmental Optimism
This paper from the Texas Public Policy Foundation examines how the United States achieved robust economic growth while dramatically reducing emissions of air pollutants. The paper states that these achievements should be celebrated as a public policy success story, but instead the prevailing narrative among political and environmental leaders is one of environmental decline that can only be reversed with a more stringent regulatory approach. Instead, the paper urges for the data to be considered and applied to the narrative.
Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models (IAMs) and cost-benefit analysis (CBA).
The Social Benefits of Fossil Fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.
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