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Research & Commentary: Washington State Carbon Tax

March 4, 2016

A ballot measure currently being considered by the Washington State Legislature could make the state the first in the nation to impose a direct tax on carbon dioxide emitted from fossil fuels.

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A ballot measure currently being considered by the Washington State Legislature could make the state the first in the nation to impose a direct tax on carbon dioxide emitted from fossil fuels. Initiative 732 was first proposed after advocacy group Carbon Washington gathered 360,000 signatures statewide. Legislators may vote on I 732 or simply pass it along to the voters in the form of a ballot initiative, which would be considered in November. If passed, I 732 will take effect in July 2017.

Modeled after neighboring British Columbia’s carbon dioxide tax, I 732 would introduce a $15 per ton tax on fossil fuel emissions in its first year. The tax jumps to $25 per ton in the second year, and then the tax increases annually by 3.5 percent, in addition to the rate of inflation, until it reaches $100 per ton. In an attempt to offset the carbon dioxide tax, I 732 would drastically reduce the business and occupation tax to 0.001 percent – a manoeuver referred to as a “tax swap.”

I 732 also contains a provision that would make certain lower-income families are eligible for an annual tax rebate worth up to $1,500. While proponents of I 732 insist the measure will be revenue neutral, the state’s Office of Financial Management estimates the tax will cost Washington State $281 million in lost revenue over two years and $915 million over four years.

The tax rebate is necessary because a carbon dioxide tax is inherently regressive and disproportionally harms low-income families. The Congressional Budget Office (CBO) found a $28 per ton carbon 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.”

Even Carbon Washington, which remains a proponent of the proposal, admits I 732 will raise gasoline prices throughout the state by 25 cents per gallon.

Oren Cass, senior fellow at the Manhattan Institute, says the environmental benefits that might come from passage of I 732 would be minimal. “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.”

Instead of adding a new tax, elected officials should set their taxes at low, competitive rates that are applied to a broad base. If state legislators truly want to cut carbon dioxide emissions, they should develop Washington State’s already abundant hydroelectric resources. According to the U.S. Energy Information Administration, the Evergreen State already produces 30 percent of the nation’s net hydroelectricity generation, making it the biggest hydroelectric generator in the country. Expanding this industry will be much more effective at protecting the environment than a burdensome tax, and it could lower unemployment and help improve economic productivity.

The following documents offer additional information on carbon dioxide taxes.

Ten Principles of Energy Policy
http://heartland.org/policy-documents/ten-principles-energy-policy
In this Legislative Principles booklet, Heartland Institute President Joseph Bast identifies the ten most important energy issues facing the nation and outlines the energy policy actions that will lead to the highest, most efficient production at the lowest cost to consumers. 

Dissecting the Carbon Tax
http://www.american.com/archive/2012/july/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. 

Ten State Solutions to Emerging Issues
https://www.heartland.org/policy-documents/ten-state-solutions-emerging-issues
This Heartland Institute booklet explores solutions to the top public policy issues facing the states in 2016 and beyond in the areas of budget and taxes, education, energy and environment, health care, and constitutional reform. The solutions identified are proven reform ideas that have garnered significant support among the states and with legislators.

Five Myths of Cap-and-Trade
https://www.heartland.org/policy-documents/five-myths-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 Carbon Tax Shell Game
https://www.heartland.org/policy-documents/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
https://www.heartland.org/policy-documents/assessing-social-costs-and-benefits-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
https://www.heartland.org/policy-documents/less-carbon-higher-prices-how-californias-climate-policies-affect-lower-income-resi
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.

Three Steps to Reducing Carbon Emissions Effectively
https://www.heartland.org/policy-documents/three-steps-reducing-carbon-emissions-effectively
Todd Myers of the Washington Policy Center says Washington State’s climate policies are the result of a destructive cycle: Exaggerated promises are adopted, and then when they fail, politicians blame opponents. This cycle creates more partisanship and encourages even larger, less workable promises. Instead of trying to force lifestyle changes, as many environmental activists have proposed, Myers says Washington State should utilize technological advancements that have the potential to improve energy efficiency.

Why Scientists Disagree About Global Warming
https://www.heartland.org/policy-documents/why-scientists-disagree-about-global-warming
In this book published by The Heartland Institute, authors Craig Idso, Robert M. Carter, and S. Fred Singer say the most important fact about climate science, which they say is often overlooked, is scientists disagree about the environmental impacts of the combustion of fossil fuels on the global climate. There is no survey or study showing “consensus” on the most important scientific issues, despite frequent claims by advocates to the contrary. Scientists disagree about the causes and consequences of climate for several reasons. The authors say the only “consensus” among climate scientists is human activities can have an effect on local climate and the sum of such local effects could hypothetically rise to the level of an observable global signal. The key questions to be answered, they say, are whether the human global signal is large enough to be measured, and if it is, does it represent or is likely to become a dangerous change outside the range of natural variability? On these questions, an energetic scientific debate is taking place on the pages of peer-reviewed science journals, say the authors.

Climate Change Reconsidered II: Physical Science
https://www.heartland.org/policy-documents/climate-change-reconsidered-ii-physical-science
Climate Change Reconsidered II: Physical Science is an independent, comprehensive, and authoritative report on the current state of climate science, published in October 2013. It is the fourth in a series of scholarly reports produced by the Nongovernmental International Panel on Climate Change, an international network of climate scientists sponsored by three nonprofit organizations: the Center for the Study of Carbon Dioxide and Global Change, the Science and Environmental Policy Project, and The Heartland Institute. (Also see the Climate Change Reconsidered II: Physical Science “Summary for Policymakers”: https://www.heartland.org/media-library/pdfs/CCR-IIb/Summary-for-Policymakers.pdf)

Climate Change Reconsidered II: Biological Impacts
https://www.heartland.org/policy-documents/climate-change-reconsidered-ii-biological-impacts
Released on April 9, 2014, Climate Change Reconsidered II: Biological Impacts is an independent, comprehensive, and authoritative report on the impacts of climate change on plants, terrestrial animals, aquatic life, and human well-being. (Also see the Climate Change Reconsidered II: Biological Impacts “Summary for Policymakers”: https://www.heartland.org/media-library/pdfs/CCR-II/Executive-Summary.pdf)

 

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 and other topics, visit the Environment & Climate News website at http://news.heartland.org/energy-and-environment, The Heartland Institute’s website at http://www.heartland.org, and PolicyBot, Heartland’s free online research database, at http://policybot.enginez.com/

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 Nathan Makla, Heartland’s state government relations manager, at nmakla@heartland.org or 312/377-4000.  

Author
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
TBenson@heartland.org @HeartlandGR