Message for State Climate Policy: Lead with a Vision, Not a Tax

Washington State has continued to try – unsuccessfully – to pass a carbon tax, with the latest effort, Initiative 1631, losing on November 6. The state's effort to control carbon is laudable, but Washington and other states contemplating how to fill the growing federal climate policy void should consider leading with a vision for a clean energy transition rather than a politically challenging "price." An overarching vision for a low-carbon future and a public decision-making process for achieving that future could attract more support than the imposition of a stand-alone fee or tax.

States might take a page from California's book: The central pillar of the state's climate program is its multi-sector planning process for achieving progressively demanding carbon reduction targets. When California set its first legislative targets in AB 32, it set in motion an economy-wide effort to identify and assess emission reduction opportunities in every sector in the state.

State agencies collaborated to explore opportunities in the electricity sector, transportation, buildings, land use, waste management, agriculture, and more. In each of these areas, policymakers considered not only climate reductions, but more comprehensive parameters, including economic and environmental implications, both benefits and risks, with a particular focus on disadvantaged populations. The process was transparent and participatory, with multiple stakeholder meetings and numerous public hearings. The state has now produced three scoping plans; the most recent, approved in December 2017, charts a path to meeting the state's 2030 greenhouse gas reduction target, a 40 percent reduction below 1990 levels.

This is not to say that states should not include carbon pricing as part of their overall climate strategy. California's scoping plans have included a valuable cap-and-trade program. The "cap" provides a backstop to make sure the state reaches its targets, and the cap-and-trade program provides a steady economy-wide price signal to induce reductions. Revenue from the program funds a wide variety of emission-reduction initiatives, and the state has committed to devoting at least 35 percent of the revenue to disadvantaged and low-income communities. 

But in California, the carbon pricing program is not the centerpiece of the state's climate policy. Instead, the cap-and-trade program has complemented the state's more substantive and inspiring strategies for transitioning to cleaner electricity, cleaner transportation, more livable and less polluted communities, and more sustainable agriculture.

Backers of a Washington carbon tax have not ignored the socioeconomic implications of carbon policies. The first effort to pass a carbon tax, in 2016, was designed to give revenue back to citizens, in large part to reduce the indirect impact of the tax on low-income households. I-1631, the 2018 initiative, targeted revenue for numerous good causes. Seventy percent of the funds were allocated to clean air and clean energy initiatives, including measures that would benefit low-income residents and transitional training for fossil fuel workers.

Ultimately, however, a tax – or "fee," as it was called – can't help looking like it costs money.  And, when proposed on its own, that is a hard sell, even if the revenue is earmarked for worthy causes.

Describing market mechanisms as a hard political sell runs counter to conventional political wisdom. Market mechanisms have been viewed as politically attractive – at least to industry – because they are arguably cheaper; those who face high emission control costs can pay the fee or buy allowances rather than having to invest in expensive controls or alternative energy. In addition, market mechanisms leave key decisions to the private sector: Regulated entities decide how much to reduce in light of the carbon price instead of being told what to do by regulators. 

But where has appealing to industries' interest in the cheapest compliance options taken us? In Washington State, large oil companies and industry insiders like Koch Industries opposed the proposed fee, pouring $31 million into the "no" campaign – making this the most expensive ballot campaign in Washington State history. If a carbon fee doesn't bring industry on board or attract voter support, then it's time for a new political strategy.

A comprehensive vision for a clean economy, with a participatory process for developing specific initiatives, might generate a level of public support that could counter vested interests' ongoing efforts to oppose climate and clean air policies. Once that groundwork is laid, state policymakers or citizens may be more willing to recognize the valuable role that a supplementary carbon price can play. I provide an in-depth exploration of the role of carbon pricing in climate policy in Energy, Governance, and Market Mechanisms.