The mainstreaming of the carbon tax

Though politics of climate change may seem more divisive than ever, proponents of carbon tax cross party lines.

When rain pounds his roof, Dave Fenn starts to worry.

The 71-year-old Boistfort Valley farmer fears another massive flood like the one in 2007, when an engorged Chehalis River tore through his community, destroying homes, killing cattle and shutting down Interstate 5 for days.

Studies peg the economic cost of that flood at more than $900 million, but there was an emotional toll too. “I still have trouble talking in front of people about what it did to our community,” Fenn said. “A number of people just plain moved away. It’s hard on the psyche.”

Dave Fenn, Boistfort Valley farmer, cutting cedar shakes from timber dumped on his property by the 2007 flood.

Chehalis River floods have become much more destructive over the years, he said, which is why Fenn and others in his community are urging the state to fund projects that would help prevent flooding. Consider it an insurance policy, he said, against economic disaster.

The proposed solutions would take years to put in place and cost several hundred million dollars. Options include buying up riverfront property and building a reservoir upstream to capture stormwater. The sheer magnitude of what’s needed calls for a dedicated source of state funding, said J. Vander Stoep, a Chehalis attorney and former chief of staff for U.S. Sen. Slade Gorton who is calling for action. “The longer we wait,” he said, “the worse the problem gets.”

Fenn and Vander Stoep said it’s up to lawmakers to decide where the money should come from.

Construction dollars squeezed by K-12 — Can carbon tax provide a ‛twofer?’

It won’t be easy, particularly with a state Supreme Court mandate to put billions of dollars into public schools, which is squeezing capacity for other long-term projects such as water infrastructure. However, the idea of a carbon tax is getting more attention as the Legislature mulls a compromise budget. It is the subject of several legislative proposals this year, including one by Gov. Jay Inslee.

The governor’s bill, Senate Bill 5127, would create a $25 per ton tax on carbon emissions. Starting in the second year of the next biennial state budget, the tax would raise about $2 billion annually at the outset and increase over time. Under the governor’s proposal, money would go toward education, clean energy, transportation, forestry and water infrastructure.

Interstate 5 during the 2007 Chehalis River flood. The highway was shut down for four days, causing nearly $1 billion in economic damage. (Photo courtesy WSDOT)

The bill sets aside at least $250 million annually for water projects, such as flood control along the Chehalis River, as well as forest health. Both are impacted by climate change.

The governor says at a time legislators need to find billions of dollars in new education funding, a carbon tax can provide a “twofer” by generating revenue while also helping cover the mitigation costs for damage made worse by climate change.

While heavy rains linked to climate change are causing floods in Western Washington, the eastern side of the state has suffered from severe droughts and increasingly catastrophic forest fires. Inslee’s proposal addresses all three issues.

At the same time, money would pay for clean energy research to take advantage of new technology and create new jobs.

‛Not a fringe idea’

Economists say it makes sense to address these issues by using a carbon tax.

“Taxing a bad, rather than a good, is preferable,” said Robert Stavins, director of the Environmental Economics Program at Harvard University. “Taxing CO2 emissions rather than placing additional taxes on labor and investment is, from an economic perspective, a more efficient approach.”

And among economists, Stavins said, “It’s not a fringe idea. It’s right in the center of the bulls-eye.”

The purpose of a carbon tax is to motivate a move to clean energy by assessing a fee on fuels that release carbon dioxide into the atmosphere and cause climate change. While the idea has been around for decades in academic circles, it’s increasingly becoming a mainstream option.

Several countries, including England, Ireland, Switzerland and Sweden, have adopted carbon taxes. Canada also is moving toward a national carbon tax.

In the United States, a group of national GOP leaders, including James A. Baker and George P. Shultz, recently proposed a national carbon tax as a way to reduce CO2 emissions. Both served as secretary of the Treasury and as secretary of State under Republican presidents.

“For too long, we Republicans and conservatives haven’t occupied a real place at the table during the debate about global climate change,” Baker said at a news conference in February.

While sidestepping the cause of climate change, Baker said that “the risks associated with it … are too great to ignore and we need some sort of insurance policy.”

Like the proposal by Baker and Shultz, Inslee’s proposal would implement a tax at the first point where fossil fuels enter the economy. In Washington’s case, oil refineries would pay the bulk of the tax, which would start out at $25 a ton and gradually increase over time.

Refineries are expected to pass on the cost, with each dollar of carbon tax leading to a one-penny increase in the cost of gasoline at the pump, based on projections by the governor’s budget office. But consumers may not feel it. The statewide cost of gasoline swung considerably in recent years. On average, the price has fluctuated by more than 90 cents per gallon each year since 2012, according to state Department of Commerce data. And federal fuel economy standards mean vehicles are far more efficient than they used to be, which results in lower fuel consumption and, therefore, lower fuel costs.

Inslee’s proposal provides some help to small businesses, increasing the threshold for the state business and occupation tax liability from $24,000 to $100,000 and increasing the small business tax credit to $125 per month for all taxpayers. The governor’s budget office projects the credits could reduce or eliminate any potential impacts of higher energy costs on small businesses due to carbon tax.

British Columbia, Washington’s neighbor and one of its biggest trading partners, instituted a carbon tax in 2008. A conservative government, led by former Premier Gordon Campbell, spearheaded the move. A 2015 study by researchers at the University of Ottawa and Duke University found that the tax has reduced carbon emissions in the province between 5 and 15 percent since implementation. The British Columbia tax is currently set at $30 (Canadian) per ton of emissions.

Its effect on the local economy “has been a wash,” said Jock Finlayson, executive vice president of the Business Council of British Columbia. “It hasn’t had a big impact on the economy either positive or negative.”

Finlayson notes British Columbia’s tax was designed to be revenue neutral. Other taxes were reduced as an offset. The Baker-Shultz proposal is also revenue neutral.

In Washington’s case, the money would be used to pay for public programs. But given the state Supreme Court mandate to put several billion dollars of additional funding into education, the state will have to raise money from somewhere.

The question is where?

Brian Murray, an economist at Duke University, said Inslee’s carbon proposal is essentially a tax swap.

If Washington needs to raise revenue anyway, he said, a carbon tax would offset the need to boost existing taxes.

“I would argue it is better than raising other taxes,” Murray said. “You’re switching from taxing a good thing — like labor and capital — which are productive contributions to the economy, to taxing a bad thing, CO2 emissions.”

Carbon tax as the ‘pragmatic, bipartisan, common-sense solution’?

At a time when the politics of climate change seem more divisive than ever, the carbon tax would seem to be a nonstarter. Yet proponents for the policy cross party lines. In a recent Seattle Times op-ed, Philip Jones and Howard Behar said while they might disagree on other issues, “on climate change we agree: Taxing the sources of carbon pollution is a pragmatic, bipartisan, common-sense solution.”

Jones is a former staffer to Republican U.S. Sen. and Gov. Dan Evans; Behar is a former Starbucks president.

They argue that “enacting a pragmatic carbon tax will attract new industries, including clean-energy startups, and talented younger employees who place a high value on environmental stewardship and intergenerational equity.”

Four legislative carbon tax proposals have been introduced in the Legislature and there’s talk of a new initiative to Washington voters. While state business leaders and Republicans have been staunchly opposed to carbon pricing in the past, there’s been a recent shift indicating some openness to options. Several news stories point out the idea has some surprising persistence in the Legislature.

‛Doesn’t it seem prudent to plan?’

Whatever the source of funding, the state needs to take action to protect people living in the Chehalis River Basin, Vander Stoep said. The projects on the drawing board will takes years to complete and climate scientists predict up to a 90 percent increase in peak river flows.

“The five biggest floods have been since 1986 and they keep getting larger. The storms are getting worse,” Vander Stoep said. “Scientists believe these storms will continue to get worse. Doesn’t it seem prudent to plan for this predicted risk?”

Fenn agrees.

The 2007 flood remains strong in his memory, he said, recalling a neighbor who lost so many cows that TransAlta, a local power company, dug a big hole to bury the carcasses.

The flood took out a bridge in front of Fenn’s house, filled his barn with 6 feet of water and dropped thousands of logs on his property, creating what looked like a giant logjam.

He still has cedar logs from the flood on his property, even though a timber salvage company hauled away 1,000 truckloads of logs and chips.

“I’m cutting cedar and splitting shakes for a new roof for my house. That all came in during the flood,” he said. “In reality, I’m still not done cleaning up completely. We’re still dealing with issues from that flood.”