Latest Carbon Fee Initiative May Succeed Where Others Have Failed

Washington state’s latest effort to fight climate change, Initiative 1631 (I-1631), is on the November ballot. With a broad coalition of support from business, environmental, and special interest groups, proponents are optimistic this will be the year Washington enacts a meaningful carbon policy.

The state has a history of failed carbon initiatives, including the unsuccessful I-732, a grassroots referendum that appeared on the ballot in 2016. But there are reasons to believe I-1631 has a decent chance of success, and if voters approve the measure, it could impact energy policy across the Pacific Northwest and accelerate the region’s transition to renewable energy sources.

Economic and Political Realities of Carbon Policy

There are two common approaches to carbon policy: a carbon tax (or fee), and a cap-and-trade approach. I-1631, also known as the Clean Air, Clean Energy Initiative, falls squarely in the carbon tax camp. The measure calls for a carbon fee of $15 per metric ton, increasing the cost of gasoline by 14 cents per gallon. The fee would increase $2 each year until the state achieves its goals for greenhouse gas reduction.

Both the carbon tax and cap-and-trade approaches are designed to send a price signal on carbon. From an environmental perspective, either framework can potentially achieve the same outcomes, but it can be argued that carbon tax policies are more efficient than cap-and-trade policies. Instead of limiting the amount of carbon pollution that will be released and forcing the market to back into a price for carbon (cap and trade), a carbon tax embeds the cost of climate change into the price of energy. The resulting higher cost of consumption, in theory, reduces the carbon-emitting behavior. Proceeds from the tax can be used to advance the low-carbon cause by supporting renewable energy deployment or efficiency projects, or funds can be returned to ratepayers.

That’s where carbon policies get sticky. To have any chance of passage, carbon policies must also be politically expedient—they require the support of a variety of public and private interests, each concerned about how their organization will benefit from the policy.

Bryce Smith

Bryce Smith

Previous attempts to enact carbon policies in Washington have often failed to account for political realities. For example, one of the reasons I-732 fell short in 2016 was because the grassroots environmental group that spearheaded it couldn’t secure enough support from environmental and special interest groups.

I-1631 appears to have the largest coalition of support to date. In addition to Gov. Jay Inslee (D), supporters include the Alliance for Clean Jobs & Clean Energy, the Nature Conservancy, and a diverse range of labor, tribal, faith, health, environmental, and conservation groups.

Not Perfect, but Step in Right Direction

So far, supporters and opponents of I-1631 have raised more than $4.5 million to campaign for or against the initiative. In a sign that the winds may be blowing in the initiative’s favor, proponents of the carbon fee have significantly outperformed critics. The oil and gas industry is the primary opponent of the measure with most of the opposition’s funding from Andeavor, an oil refinery operator in Anacortes.

Support for I-1631 is partly due to the planned distribution of funds generated by the proposed carbon fee. Importantly, I-1631 is revenue positive and allocates 70% of raised revenue for investments in clean energy, 25% to the state’s waters and forests, and the remaining 5% to communities impacted by carbon pollution. By contributing to the funding requirements of various groups affected by climate change, it appears proponents of I-1631 have learned from the mistakes of failed initiatives and achieved the political compromise necessary to secure a broad support.

Like most carbon policy initiatives, I-1631 is far from perfect. Ideally, a carbon tax or fee would be paid by the first jurisdictional deliverer—the actual emitter of the pollution. It’s simply less efficient for entities further down the supply chain (such as energy providers) to pay the tax because it creates opportunities for economic distortion.

In the case of I-1631, the fee will be paid largely by utility companies, not by the electricity generators sending power to the grid. While utilities will pay a fee for the purchase of carbon-produced electricity, they will also receive a percentage of the fees generated by I-1631. Though this offset may be critical to gain political support, it distorts decision-making and weakens the potential impact of the state’s carbon policy.

Despite that, I-1631 is a move in the right direction. Because energy markets in the Pacific Northwest (Washington, Oregon, and California) are linked both physically and ideologically, the passage of I-1631 may affect energy policies across the entire region.

Of course, the carbon fees make carbon-free energy relatively more attractive from an economic perspective. Given the precipitous drop in wind and solar prices over the past decade, I-1631 only hastens the rapid and inevitable transition to a cleaner economy. There already has been a substantial increase in corporate interest in renewable energy procurement, for both financial and environmental reasons, a trend that will surely accelerate should the carbon tax prove successful. ■

Bryce Smith is CEO of LevelTen Energy.