Virtually everyone agrees that global warming is a problem, and we in Washington state ought to be a part of the solution.
What few people realize is that there is a simple, pain-free remedy that would also create jobs: taxing carbon-based energy and using the revenues to cut B&O taxes and sales taxes. That simple adjustment would encourage all of us — consumers and businesses alike — to become more energy efficient without increasing the overall amount we spend on taxes. That’s what British Columbia did in 2008 with great success (see page 24). It’s something we should do, too.
As described by Yoram Bauman, an economist at the nonprofit Carbon Washington, here’s how it would work: Fossil fuels like gasoline, coal and natural gas, which account for about 85 percent of all greenhouse gas emissions in the state, would be taxed at a rate of $25 for every ton of carbon dioxide emitted. (The current rate in British Columbia is $30 Canadian per ton.) That tax, which raises product prices to account for the damage their production and use inflict on the planet, would increase gasoline prices by 25 cents a gallon and power generated by natural gas by about 1.2 cents a kilowatt hour to about 10 cents.
Now here’s the good part: The revenue raised by the carbon tax would be used to reduce existing taxes, including cutting the state sales taxes by 11 percent. For most people, the lower sales tax would make up for higher spending on gas and utilities. Those who are more aggressive about reducing their carbon footprints would end up saving money.
Under the proposed carbon tax plan, B&O taxes would be eliminated for manufacturers because their competitiveness would be dramatically affected by higher energy prices. A carbon tax also unfairly affects low-income citizens, so the plan would include a Working Families Rebate for the poor. A study released last year by Regional Economic Models Inc. estimated that such a plan would create as many as 40,000 jobs during the next 20 years, thanks to the proposed cuts in business taxes.
However, politicians say a carbon tax can’t pass the Legislature because Washington residents won’t accept anything called a tax. So most insiders expect Governor Jay Inslee’s Carbon Emissions Reduction Task Force to recommend a more complex alternative called a cap-and-trade system, which involves putting a cap on greenhouse gases and allowing companies to trade allowances to discharge those pollutants.
Of course, cap and trade is just a carbon tax in different garb. Unless accompanied by tax cuts in other areas, cap and trade would raise money that could end up being used to fund every politician’s pet project. We prefer the simpler, more direct approach that doesn’t increase overall taxes yet still creates clear market incentives to shrink our carbon footprint.