Little margin for error with carbon tax

Little margin for error with carbon tax
A study by the Low Carbon Prosperity Institute concluded that there is little margin for error when it comes to investing the billions in revenue generated by Initiative 1631 if the state is to meet carbon reduction goals. Created by Jigsawstocker - Freepik.com

If Initiative 1631 is approved by voters next week as part of an effort to reduce Washington’s already low carbon emissions, there would be little margin for error if the state is to meet its target goals for 2035. That is the conclusion of a study released Oct. 17 conducted by the Low Carbon Prosperity Institute, a project of the Washington Business Alliance and its PLAN Washington agenda.

While other analyses have examined the economic impacts of a carbon tax, the latest study presents what its authors argue is the most pragmatic approach to investing the estimated billions the carbon tax is expected to generate, much of which differs in many ways from the initiative. The report also anticipates challenges certain to face the oversight board handling those monies and how that could prevent the state from reaching its emission reduction goals.

“While proponents can point to promising evidence that technology trends and shrewd investment strategies will break in its favor, the initiative leaves little to no room to depart from proposed revenue allocations,” the report concluded.

The report did not examine the probability of whether the state would reach the target goals set by the initiative.

If passed, I-1631 would impose a $15 per metric ton carbon tax on many emitters in the state. That rate would increase by $2 every year, plus inflation. The rate would freeze in 2035 if the state meets its reduction goals of 30 million metric tons. The LCPI report concluded that current trends and policies will alone reduce emissions by 10 million, “plus the price-elasticity effect of the fee if I-1631 is enacted.”

But further reductions all depend on how the revenue collected and deposited into several new accounts would be handled by the oversight board composed primarily of governor-appointees.

“In an ideal scenario, the priorities I-1631 seeks to address are all achieved within the target investment price range, triggering the fee-freeze and accomplishing multiple aims,” the LCPI report states. “In reality, the board is likely to encounter trade-offs and must ably manage tensions if the initiative is to “Clean Up Pollution” to promised levels.”

Either way, the fee rate would have to remain between $15-$45 per metric ton to meet reduction goals, the report concluded. It also found that many of the potential projects included in I-1631 such as tolling, transit and windmills “may be far more expensive than what investments must return on average.”

Instead, the report pointed to other efforts such as smart meters, biomass fuel switches, reforestation and recycling programs.

“To meet its ambitions, investments will need to be managed with the kind of professional high-performance skills seen in commercial investment funds and pursuing co-benefits will need to be carefully considered, if not moderated,” the report stated. “Reality is likely to require a balancing act between greenhouse gas reduction and other priorities, requiring difficult decisions in the face of constraints. Managing these competing priorities may mean resisting the pressure to pursue popular projects with too high of cost, and it may require enacting additional accountability tools to maintain adherence to cost-performance over decades of state budgeting cycles.”

However, critics of I-1631 say this is unrealistic because of how the initiative is set up where the tax rate goes up if efforts don’t pan out.

Washington Policy Center Environmental Director Todd Myers told Lens that “they (oversight board) have an incentive to fail. The more they fail, the more money they get. The assumption is that they want to succeed. Their goal is as much to redesign society as it is anything else.”

It’s a similar argument made by Benjamin Zycher at the American Enterprise Institute. In an Oct. 29 article, he wrote that “I-1631 specifically mandates support of road ‘demand management.’ That means toll lanes and roads, that is, subsidies for transit and construction companies and other interests, the ironic effect of which will be an increase in congestion and emissions. It is likely also to mean various attempts to subsidize urban interests at the expense of suburban, exurban, and rural ones by hampering the ability of motorists to drive their vehicles when and where they see fit.”

Assuming that I-1631 achieved its emission reduction goals by 2050, it would still amount to  0.0003 of a degree temperature change, according to an Environmental Protection Agency climate model.

Zycher writes: “Those temperature effects obviously would be unmeasurable, a reality that explains fully why the proponents studiously have avoided any discussion of the actual climate impacts of I-1631.”

 

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