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Washington State's Carbon Tax Fight: A Primer

The fight for a carbon tax in Washington state has entered the home stretch. Initiative 1631, which could raise as much as $1 billion from oil companies annually, is up for vote next week and its opponents and proponents have ratcheted up their rhetoric and spending on the measure. This is the third time that the Pacific Northwest state is attempting to pass a carbon tax. Previous initiatives proposed by the government were voted out by citizens. A successful attempt this time around could increase gasoline prices for consumers and set the template to test out similar initiatives across the United States.

Here is a brief primer on the initiative and what’s at stake.

What Is Initiative 1631?

Initiative 1631 is a proposal that aims to tax oil and fossil fuel companies $15 for each ton of carbon emissions, starting 2020. Thereafter the tax is expected to increase by $2 per ton each year until the state’s greenhouse gas reduction goals are met. (Washington State has pledged to reduce its greenhouse gas emissions to 1990 levels by 2020. It plans to reduce them further to 50 percent of 1990 levels by 2050, with an interim goal of reaching 25 percent of 1990 levels by 2025.)

The initiative was written in consultation with a broad variety of stakeholders, including oil companies, renewable energy companies, and worker unions. Washington State refers to the initiative as a fee and not a tax because revenue collected from the initiative will be set aside for programs devoted to climate change and will not be used for government expenses or public programs.

As of now, revenue from initiative 1631 will be split amongst various funds run by the state government. A governor-appointed board that comprises stakeholders from affected industries, such as labor and oil, will decide the payouts for each fund. Seventy percent will be used for a fund for air quality and energy programs and projects. (The original proposal mentions a Clean Up Pollution fund). Twenty five percent will go to a fund for water quality and forest health projects. Five percent is earmarked for community-related investment funds.

Who Is For And Against Initiative 1631?

Initiative 1631 has drawn funding from major oil companies and technologists. So far, the proposal’s opponents are on stronger ground, having raised $26 million in funding. Oil companies have poured money into campaigns against the bill. British Petroleum, which has funded almost $9.5 million, has contributed the maximum while Dutch company Royal Shell is a prominent holdout oil company against the initiative.

Their main argument is that the proposal calls for “carve outs” or exceptions to the proposed fees because the industries or companies are important to the local economy. Aviation firm Boeing and Alcoa’s coal plant are among companies, which will receive the benefit of being exempted from the tax. TransAlta, which owns one of the biggest carbon-emitting coal plants in the state, is also exempt but has agreed to close it by 2025.

On the other side of the ring are technologists and businessmen. They have raised $14.8 million to promote efforts to support the bill. Microsoft cofounder Bill Gates and former New York Mayor Michael Bloomberg have each contributed a million dollars. Chris Stolte, founder of popular data visualization platform Tableau, has given $500,000 to help pass the initiative.  

In an editorial, the Seattle Times wrote readers should vote against the initiative and recommended seeking a national carbon tax. According to the publication, the initiative is “porous, lacks accountability and larded with special-interest payouts.” The carbon board, which will handle revenue from the tax, is structured to be a political juggernaut and might undermine the legislature in making appropriations, the publication writes.  

Will It Pass?

As mentioned earlier, Washington State had tried to pass a similar tax two years ago. But that one was revenue-neutral in that it refunded the tax money back to consumers in the form of monthly checks. The initiative was opposed by labor unions because it did not address the impact on employment at coal plants. This time around, some labor unions are on board. But their opinions are split regarding the proposal. The Washington State Labor Council told press that this was a “bold” bill and could help labor unions become part of the solution to climate change.

But the former director of Washington State Building & Construction Trades Council opposes the proposal and says there is no guarantee on the kind of jobs that will be created as a result of it. Not surprisingly, support for the proposal runs high in urban areas of the state like Seattle and Tacoma. A poll by Seattle firm Crosscut/Elway found that support for the initiative has reached a “tipping point” this time as compared to previous attempts. Fifty percent of 400 registered voters said they would vote for the initiative while thirty-six percent were against it and 14 percent were undecided. “The current initiative is positioned for a more favorable result, but its passage is far from certain. Elway says that ballot initiatives tend to poll favorably in the months preceding a vote only to decline in support as the election date draws near,” the firm wrote on its blog.

Does It Affect Utilities?

According to research released last year, carbon tax increases electricity costs for a household by 19% (or $202 per year, given current electricity rates) and decreases annual consumption by 4.4% (or 552 kWh/year) for traditional meter households and by 4.9% (or 611 kWh per year) for homes equipped with smart meters. The researchers found that it also does not incentivize homes to shift to renewable energy sources. “The consequence of a carbon tax would largely depend on how the proceeds of the tax are used,” the researchers wrote. More research has  uncovered that the electric utility sector is at risk of subtracting up to 90 percent of margins by 2030 due to an increase in carbon pricing.

That said, given the shift towards renewable energy and an increasingly distributed and diverse grid, support for some form of carbon pricing is growing among utilities. According to a survey conducted by online publication Utility Dive, 38% of North American utilities are in favor of carbon tax while 37% want carbon pricing mechanisms to be reinstated or strengthened.

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