Saturday, February 06, 2016

So much for that - the Washington State's renvenue-neutral carbon tax proposal

Too bad:

The carbon-tax effort has also struggled to attract support from progressives and Democrats, who are concerned that the proposal isn’t really “revenue-neutral.” The latest news from the Evergreen State suggests that this effort may well be doomed: 
 [T]he Washington State Democratic Party [has gone] on record as opposed to CarbonWA’s I-732, joining the Washington State Labor Council and [the Washington Council of Machinists] in the no camp. I-732 is a complex tax swap proposal that would levy a carbon tax while also reducing sales and business & occupation taxes. 
CarbonWA and other I-732 proponents contend that their tax swap is “revenue neutral” (meaning it would not increase or decrease state revenue). Nonpartisan legislative staff and the Department of Revenue don’t agree. According to DOR’s calculations, I-732 would reduce revenue by nearly $1 billion over the next four years.... 
CarbonWA’s endorsements page doesn’t list a single organization affiliated with the Republican Party or active in the conservative movement. And, as even CarbonWA has admitted, polling suggests right-leaning voters in Washington are incredibly hostile to the idea of levying a carbon tax.

I'm no expert in Washington state politics, but the Democratic Party is against it as not being truly revenue neutral, major unions are against, and no Republican leadership is for it. You're not going around these folks and getting a majority of the grassroots.

I think this thing is on the ballot and can't be changed. So support it and maybe some fluke will get it through, and if not then back to the drawing board.

Tom Steyer and friends have an alternate proposal for WA that I've heard about, but I suspect they're not going to get something on the same ballot. Maybe it'll be their turn next.


David Appell said...

I wish someone had the balls to propose Hansen's tax-and-dividend scheme, where all money collected is distributed back on an equal per capita basis.

I suspect people would look forward to their "carbon check" every year, just as Alaskans look forward to their annual oil dividend.

But politicians will probably never be able to stop themselves from handing out the tax's proceeds to favored groups, and making the whole damn think far more complicated than it has to be.

GRLCowan said...

Someone, Ken Caldeira I think, says our target for annual gigatonnage of CO2 added to the atmosphere should be the same as our target for little old lady muggings.

Royalties, severance taxes, green taxes amount to substantial government old-lady-mugging revenue. A proposal to Hansen-divide this out, without first adding to it, would have legs.

It would be revenue-negative. Yes, and?

Tom Gray said...

Vermont is also considering a "carbon pollution tax" (and dividend). More info at

David B. Benson said...

I live in Washington state and we cannot afford a billion dollar hit to the state budget.

Try something else. The British Columbia scheme seems to work.

Brian said...

David A - the fact that noone's really made it far with that proposal might say something about its poltical viability.

GRLC - a target of zero emissions would be right eventually, but not in the short term. Not sure what time frame Caldeira wants.

Tom - hope it works!!

David B - I think fighting climate change would be worth $250m annually, and there would be public goods benefits from cleaner air, but it's easy for me to say that, living out of state.

Greg said...

> I live in Washington state and we cannot afford a billion dollar hit to the state budget.

I second this comment. That fighting climate change is worth other costs is an argument for a revenue positive carbon tax, not a revenue negative one!

Mal Adapted said...

I take every opportunity to promote a national Hansen-style tax-and-dividend. I think it's politically nonviable for now mostly because of knee-jerk anti-tax ideology, which also drives much of the AGW-denial still out there (all expertly exploited on behalf of fossil-fuel interests, to be sure). OTOH, as David Appell suggests, you'd think the dividend idea would be an easy sell, at least to people who use less fossil-fuel-derived energy than the national average.

At the state level, producers of energy-intensive goods have a valid argument that consumers will take their custom outside the state. That's more easily addressed at the national level, by a Border Adjustment Tax, especially if some or all the BAT revenues went to increasing the dividend.

It's misleading to claim a carbon tax would have no impact on the economy, but as long as all revenues are returned to consumers, a low enough starting tax should keep the short-term impact minimal. The tax should increase gradually enough to keep macro-economic impact low, while harnessing market forces to drive down the price of carbon-neutral energy to what we're now paying for fossil energy with climate costs externalized. That's not to say the (economically-, much less politically-, and never mind climatically-) optimal rate of increase will be easy to determine.

Fears that revenue-neutrality can't be guaranteed seem easy to allay: the closer to the source (mine, well or port-of-entry) the tax is collected, the easier it ought to be to audit without any new bureaucratic apparatus; and if dividends are in the form of a regular check from a single payer, it should be trivial to show that they add up to the revenue.

The argument that a carbon tax is regressive isn't valid, because the dividend is designed to transfer income from people who use more total fossil carbon per year to people who use less. Lower-income people may spend a larger portion of their income on energy than people with higher incomes, but I'd be surprised (hey, it's been known to happen) to learn that lower-income people use more joules per year. In any case, tax-and-dividend gives everyone a financial incentive to look for ways to cut their fossil carbon use.

A more serious argument against any revenue-neutral carbon tax proposal is that if it works as intended, revenues from the tax will of course dwindle over time. Increasing the carbon tax will generate revenue as long as there's still a market for fossil fuels, but eventually no one will be buying them. Mission accomplished! Except:

1) People who look forward to their annual carbon check will be unhappy. Uh-oh!
2) The lost carbon-tax revenue will have to be made up by increasing other taxes. Good luck!

I still think revenue-neutrality is the only hope for a carbon tax, but no effective mitigation policy of any kind has a chance until enough American voters demand it. It's too bad arguments from enlightened self-interest don't work with the mass of them 8^(.

Comments, criticisms, catcalls all welcome. Take your best shot 8^)!

John Farley said...

The cost should be weighed against the benefits. If the sea rises by 1 meter, what would that do to the 500,000 people in the city limits, or 3.5 million people in the larger Seattle metropolitan area? What it if's 10 meters?

In principal, the way to figure out the maximum possible cost is to add up the cost of all the land and all the buildings in the Seattle metro area + infrastructure. I haven't done that calculation.

But the $1 billion cost, if divided equally among the 3.5M residents, (and if it's an annual cost), amounts to a dollar a day per resident.

How does that cost compare with the cost of flooding the Seattle metro area? It's the 15th largest city in the US.

One undiscussed is that the worst of the consequences won't happen for decades, so we would be paying now to avoid very big problems in the future.

Big problems have started to happen already. NY City and parts of NJ were flooded in 2012 by Superstorm Sandy. Cost? $75 billion.

John McCormick said...

Can someone explain to me how the carbon tax to dividend is going to decrease carbon fuels consumption. Is British Columbia really an example for the U.S.

Mal Adapted said...

John McCormick: "Can someone explain to me how the carbon tax to dividend is going to decrease carbon fuels consumption."

Well, market theory says a carbon tax would internalize (a portion of) the climate change costs of fossil fuels in the price consumers pay for them. If the tax is collected from FF producers on a per-tonne-carbon-equivalent basis, they'll be forced to pass at least some of it on to purchasers of their product. Higher producer costs will trickle down to consumers, who will receive a "price signal" whenever we pump gasoline or pay our electricity bills. To the extent consumer demand for energy is price-sensitive, we'll try to reduce our FF consumption, and carbon-neutral energy will immediately be more price-competitive. That, in turn, should stimulate the development of carbon-neutral energy production and infrastructure; innovation and economies of scale should in turn drive prices lower.

Why won't we all (let's say all federal IRS filers) just use our dividends to pay the higher FF prices, you ask? Some might, but most of us won't for two reasons:

1) The price signal is immediate ("Ouch!"), while the dividend, if it's monthly or annual, is decoupled from it in time ("The check is nice, but I've already paid for the fuel."). The dividend will, however, partially compensate for the increased cost of all goods and services ("whew").

2) With Hansen-style proposals, the size of your dividend is independent of your own FF consumption; in the simplest case, everyone gets a check for the same amount. That means if you already use less FF than the national average, consumers who use more will be paying you, giving everyone (heh) another incentive to keep using less.

How's that 8^)?

Bernard J. said...

Speaking of governments...

Readers of Eli's fine establishment may or may not be aware on the latest and perhaps most egregiously cynical war on Science by the Australian government and its agents. If not, Sou has a summary:

Following on from this is an interview a few hours ago with Nathan Bindoff. As I commented at HotWhopper and Eve Of Disruption:

"Finally some attention in the media. Nathan Bindoff gives Larry Marshall a serve in the quiet and sober way that characterises Nathan’s gentlemanly manner:

Nathan notes the gap that Marshall’s gutting will leave in Australian climate research, and why it will be a gap from a structural perspective. He even notes that Marshall’s interest is entrepeneurial commercialisation, which is at odds with the necessary and completely separate need for fundamental science – as is CSIRO’s traditional mandate.

There’s been a lot of disbelieving chatter in the corridors, offices and laboratories of climatologists. I fervently hope that the Australian public quickly comes to realise how profoundly serious and ideologically hamfisted a travesty is this cynical move of Marshall’s (and by extension of the rabidly conservative LNP).

This is worse that the North American examples where scientists were gagged from speaking in public about That-Which-Must-Not-Be-Named: this is a blatant move to stymie climatologists by simply sacking them and halting their research.

And for anyone who thought that Malcolm Turnbull and the "new" LNP were going to be a welcome prime ministerial and cabinet change from the insanity of the Tony Abbott period... well, they're exactly the same wolves, just in sheep's clothing. Oh, they bleat that it's Marshall's decision and not theirs', but that's merely cyncial culpable deniability.

Countries around the world should be outraged at this manipulation of science.

John McCormick said...

Mal Adapted, believe I am determined to put a price on carbon...period.

Now, give me a parochial moment.

I live in Vermont and rely upon oil heat and burning wood. I have no solar potential. Looked into microhydro and a heat pump but stream flow is too low half the year and up front cost of heat pump is out of my range. My home is a vintage 60s log home.

Vermont housing stock has many older homes a century and older. and beyond. Wages are relatively low, few high paying jobs and living expenses are a very real challenge for us here. Yet, a few brave legislators are pushing for a battle royal next year to enact a carbon tax with dividend running against public sentiment that taxes are driving them out of the State.

I see an alternate approach that can actually benefit low income and elderly living in homes with limited renewable energy potential and limited financial resources. Count me among them.

I am for using the revenue collected to massively increase existing VT renewable energy and efficiency incentives to give more help and reason for homeowner to contract with efficiency and renewables vendors and, for some, to buy an electric car.

One can argue not all Vermonters can take advantage of that approach (renters, bikers, etc.) but all will benefit (in a collective effort to slow global warming, if only by example to other States) as FF demand diminishes along with the State's carbon footprint.

Bottom line: I don't buy the "price signal" and especially when oil prices remain lower than in recent past as a financial motivator to cause average Vermonter to take out a loan to seriously retrofit their home and/or business, install solar or buy that Chevy Volt. The payback is years with interest costs and increased debt for families living paycheck to paycheck.

Give them a bigger financial incentive than VT now offers through taxes collected from all of us.

Again, not all Vermonters are beneficiaries of those incentives but are not protesting by refusing to pay taxes.

Again, bring on a hefty price on carbon and help customers to pay for reducing their consumption of FF.

If the dividend is designed to soften the economic pain at the pump or at their oil furnace, how does that relate to significantly reducing their carbon footprint if they cannot afford to do so.

Just an idea.

Brian said...

Mal - I think John is hinting at situation where some rural poor may have higher than average emissions, so they don't end up better off with the equalized dividend everyone gets. The solution there is to give them a bit more. And as for the problem of driving business out of state, those businesses could get a share of the revenue (that apparently is what Alberta is doing).

Both of those solutions complicate the otherwise simple tax and dividend. I think trying to do something pure is a mistake, though.

Just a clarification for everyone, the analysis in WA is $1B for four years, so just $250M annually.

Mal Adapted said...

I'm not opposed to reserving some of the revenue from a carbon tax to assist lower-income folks myself. My concern is that any non-revenue-neutral proposal has even less chance of gaining support from tax-averse, market-oriented folks than a revenue-neutral one. I suppose I should really be pitching this where more Republicans hang out.

I'm well aware that market mechanisms seldom yield social justice. I'd like a carbon tax to be progressive, and not leave anyone stuck with either paying the extra cost for FFs or paying a high cost to switch to renewables. But it's urgent that as a society we transition to a carbon-neutral energy economy sooner rather than later. Each of us will be willing to accept some compromises and not others, but we all have a strong motivation to agree on something that has a chance to be effective. It's safe to assume that any politically feasible solution will leave no oxen ungored.