Tax measure flawed but better than no carbon price

The Associated Press file, 2014

A price or tax on carbon dioxide emitted from burning fossil fuels is long past due in the Northwest and the rest of the United States. Washington voters have a chance to break a political gridlock over state climate change policy by adopting Initiative 732 on Nov. 8.

If enacted, the carbon tax would gradually move Washington closer in sync with British Columbia, which adopted such a tax nearly a decade ago to reduce greenhouse gas emissions. It did not harm the B.C. economy.

A carbon tax is different than what other states have done. California has a cap-and-trade system that charges for fossil-fuel pollution permits.

And New England states have a cap-and-trade scheme for electrical power plants which play a much larger role in greenhouse gas production than in our state where so much electricity comes from hydro-electric power.

Among its key features, I-732 imposes a $15 tax per ton of carbon dioxide released by fossil fuels the first year, then raises it to $25 the second year. The tax slowly increases until it reaches as high as $100 in 40 years. A tax across the board for producers means all such products are taxed, leaving it to both producers and users of the fuels to decide how best to reduce, pass on or absorb those costs, or how and when to invest in new technologies.

I-732 has drawn opposition from business interests on one side, who claim the free market can solve global warming, and from environmentalists, labor unions and Gov. Jay Inslee on the other, who hoped for a tougher policy. Unfortunately, critics on the two sides lack a finished plan or even a draft that might bridge the political divide.

Unfortunately, I-732 has flaws. It should have been drafted in a way that left no doubt that it is a revenue-neutral plan.

Revenue neutral means, in theory, that money raised by a tax is returned to taxpayers in equal amounts. For example, I-732 would cut a percentage point from the state’s 6.5 percent sales tax and grant a 25 percent match for an estimated 460,000 working families that qualify for the federal Earned Income Tax Credit. The credit could be worth up to $1,500 a year, making our tax system slightly fairer.

I-732 could add 15 cents to the cost of a gallon of fuel in 2017, and more in future years, while raising home-heating costs and industry energy bills. This may create hardships. But opponents appear to exaggerate the impact on heating costs by three- or four-fold, using a study that made questionable assumptions.

Just as working families get a state match for their federal tax rebate, manufacturers would see their state business and occupation taxes lowered.

The state Office of Financial Management concluded that I-732 could cost the state a net $792 million over six years. This is a worry, and if a tax loss comes to pass it would complicate the Legislature’s challenge to fully fund public schools. But an analysis by the Sightline Institute, which studies sustainability ideas and policies, shows a much smaller shortfall and a possible surplus under some scenarios.

I-732 backers argue the budget-impact calculations failed to account for new revenues that would come from electricity sales from outside the state and from spot sales of power. These two sources alone make up a majority of the gap, and an apparent double-count of the EITC match for the first year covers the rest.

Certainly there is a disagreement about the measure, and opponents are playing on the uncertainty, which is good political strategy. In this case, both sides have dueling experts or economic “studies.” Critics predict cost hikes for families and believe the safeguards for industries are insufficient, particularly for pulp-and-paper and aluminum industries. Labor groups contend workers and others in affected communities need greater help.

These are all fair questions to raise, and adjustments might be needed if voters pass this measure. Admittedly, amending I-732 could be a tall order, but such work has been done before. In this case, backers of the measure say they are open to adjusting the law based on evidence.

There is a larger point to keep in mind. Political gridlock is slowing our state and nation’s responses on climate change.

Our regional economy must shift to cleaner energy faster to meet the state’s own lower targets for emissions in 2020 and 2050. And Washington can help push the country in a better direction on this issue.

In the end, I-732 breaks gridlock, imposes a price on pollution, and forces a political conversation that lawmakers have been incapable of having effectively.