The Case for a Revenue-Neutral Carbon Tax in Washington State

Why taxing carbon may be the best way to address global warming.
 
 

Our region’s success has come in part because we have struck a balance between protecting our natural environment and encouraging economic development. We must seek this balance in any policy that addresses climate change. The vast majority of scientists agree climate change is caused by carbon dioxide (CO2) pollution from burning fossil fuels, and results in ocean acidification, increased wildfires in our forests, reduced stream flows from melting glaciers, and has many other impacts on our natural environment and, consequently, our ability to enjoy it.

Initiative 732 — which was placed on the November ballot through the efforts of grass-roots activists — seeks to strike this balance by placing a price on CO2 emissions to encourage a shift to cleaner energy, and returning these new revenues to businesses and individuals through corresponding reductions in the business and occupation tax on manufacturing and on the sales tax. The goal is to make the carbon “tax” revenue neutral.

Many economists and policy leaders agree a market-based policy like a carbon tax promotes conservation and innovation, and avoids many of the problems associated with state or federal regulatory regimes. While it might not be a surprise that Elon Musk — who founded electric car and solar energy companies — supports this approach, he’s recently been joined by oil industry giant Exxon Mobil, which said last May it believes "a revenue-neutral carbon tax” is the best climate-change policy.

 

Microsoft is one of several hundred companies that have imposed some form of internal carbon tax on their operations, often using the revenue for environmentally sustainable projects (e.g., solar panels, wind farms). A revenue-neutral carbon tax would provide households and businesses with the same clear financial incentive to reduce emissions. Under I-732, the carbon tax phases in to $25 per ton CO2 (about 25 cents a gallon of gasoline, or 2.5 cents per kWh of coal-fired power) and increases slowly over time to maintain revenue-neutrality.

I-732 aims to make our tax system fairer and more sustainable. Most households and businesses will end up paying about the same in state taxes. In addition, a portion of the revenue from I-732 would fund an Earned Income Tax Credit for low-income households.

British Columbia implemented a similar revenue-neutral carbon tax in 2008. There, CO2 emissions are down as much as 16 percent, and a solid majority of B.C. residents now view the policy favorably.

The B.C. carbon tax was initially opposed by the province’s left-of-center party, and a similar dynamic is playing out in Washington state, with some progressive and environmental groups refusing to support I-732. Many of these groups support a carbon tax; they just don’t want it to be revenue neutral. They would like to use the new revenues for social justice, environmental protection and other state needs. 

Some also point to a state analysis showing that I-732 may reduce state revenue by a fraction of 1 percent as an argument to justify their opposition. However, if the Legislature acts responsibly when implementing I-732, even that small revenue imbalance disappears and the budget will be unaffected as intended by the initiative proponents. Sustainability think tank Sightline Institute recently concluded “to the digit that anyone can accurately forecast, the tax swap [in I-732] is revenue neutral.”

Initiative 732 strikes the right balance between protecting our environment while fostering a healthy business climate. It has been endorsed by business leaders like former Starbucks President Howard Behar, environmental leaders like the Washington State Chapter of the National Audubon Society, a bipartisan group of state legislators, Ronald Reagan’s secretary of state, George Shultz (R), and Washington Congressman Jim McDermott (D).

Initiative 732 lets us fulfill our moral responsibility to our children and future generations to address climate change. Its passage will further demonstrate the state’s leadership in finding solutions to environmental challenges while maintaining a healthy business climate.

MIKE VASKA practices law at Foster Pepper and serves on the boards of the Seattle Metropolitan Chamber of Commerce and Mainstream Republicans of Washington. He helped form the coalition of labor, environment and business groups that successfully supported light rail and other transportation investments in the region.

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