Competing Carbon Tax Initiatives Likely in 2016

A long-awaited Senate hearing on Initiative 732 took place on Tuesday. The initiative filed by Carbon WA, if passed or enacted through a vote, would tax carbon emissions in Washington State starting at $15 per metric ton of CO2 starting in July and rising to a maximum of $100 per metric ton.

Amidst all of the arguments for and against I-732, a lingering question remains: will the legislature pass an I-732 B that will end up on the ballot next to Carbon WA’s proposal? Testimony from key business groups indicated willingness to push for an alternative.

Let’s Back Up for a Minute

Conventional wisdom indicates that having two similar initiatives on the ballot would sabotage both– neither would win because confused voters would simply vote “no.” So, one possible strategy from the perspective of those opposed to a carbon tax is to put forth an I-732 B to simply ensure that nothing gets passed.

However, testimony from lobbyist Amber Carter indicated that Washington’s history may disprove conventional wisdom. For example, she cited that in 1988 voters had the choice between an environmentalist-backed toxic waste tax cleanup initiative (97) and the legislature’s version (97B). The voters chose I-97, which had a slightly higher tax. Another example is the recent minimum wage initiative in Tacoma. In this case the business community rallied around the city council’s more moderate proposal, which passed.

However, even without a competing initiative on the ballot, I-732’s chances of winning at the polls are diminished by opposition from groups with large democratic constituencies. Both the Washington State Labor Council and the Washington State Democrats voiced opposition to I-732 following its fiscal assessment. These politics mean that another possible strategy, again from those who don’t want to see a carbon tax enacted, is to let I-732 stand alone.

Consensus amongst conservatives and business people is that carbon reduction will continue to be an issue in Washington, even if I-732 fails and that it’s time to switch from defense to offense. With a governor who’s made environment a key element of his platform, pressure from neighboring states like California to join the cap & trade system, plus the example of British Columbia’s carbon tax just north, there is a lot of pressure and momentum for Washington to do something about carbon. This thinking is best encapsulated by a remark from Senator John Braun, R-Centralia: “Regardless of how 732 fares at the ballot, and as you know there are a lot of groups opposed regardless of the political spectrum, the issue itself isn’t going away. There does seem to be some openness on both sides to find an agreeable solution. That said, it is very hard to do.”

A World of Possibility

There are a few different options for an I-732 B.

Senator Steve Hobbs, D-Lake Stevens, who is known for his “third way” politics, dropped a bill at the beginning of the session that called for an $8 carbon tax. Although it’s technically dead, having not made it out of committee by the policy cutoff date, Hobbs indicated that his bill can be amended and turned into an I-732 B. In that case, it would magically spring back to life because initiatives don’t have to play by the same cutoff rules as bills in the legislative process.

It’s also rumored that Senator Braun has drafted an I-732 B. In a brief interview he said, “I have been doing a lot of work to understand 732, what’s in it, and what the different concerns are, so we can figure out if there is a better option.”

Aside from these two possible alternatives, testimony indicated that Senator Doug Ericksen’s, R-Ferndale, I-732 B, which is currently a blank slate, will soon be brought to life.

Here Come the Moderates

While they aren’t thrilled about a carbon tax, the consensus that carbon policy is impending is forcing a choice amongst business groups. And, if given the choice, a tax is preferable to a cap.

Testimony from Brandon Housekeeper, Government Affairs Director for environmental issues at the Association of Washington Business, hinted that the group is willing to work on an alternative. During Tuesday’s hearing he said, “From the business community’s perspective, we think we should be part of the solution. We think that moving forward we need to provide better answers and so there are conversations that are taking place whether it’s around a 732 B or whether it’s providing regulatory relief for the broader business community.”

Also leaning towards an alternative to I-732 is new kid on the block, the Washington Business Alliance (WaBA). The testimony focused strongly on the group’s desire to work on an I-732B.  After thanking Carbon WA for their efforts and engaging in ongoing discussion, Government Affairs Director Isaac Kastama said this: “One of the challenges with an initiative is that it is cast in stone, so even though I think we’ve come to some understanding on certain points, we really are unable to change it just within a 732 A, and so today I’m really speaking to our support for the opportunity of pursuing 732.0, 732 B, whatever we do end up calling it.” After a few questions from Ericksen, he said “We’re motivated to pursue an alternative. We do see an opportunity where we can turn this into a win for Washington.”

WaBA worked closely with Senator Ericksen last year on carbon reduction and now, it looks like they will be the ones drafting language for the placeholder I-732 B lying in wait. This year, WaBA’s coalition, called Low Carbon Prosperity, includes Energy Northwest, Inland Power, and Benton & Franklin PUD.

Although Ericksen seems poised to put forth an alternative, it’s unclear how far it will go. He opened Tuesday’s hearing by postulating if Washington’s current regulatory environment amounts to a carbon tax. “We already this summer will have the highest gas tax in the country. We already have the highest refinery taxes in the country. We already have initiative 937 in Washington State, which impacts the price of electricity…So many people could argue that we already have a pretty hefty carbon tax in Washington State currently,” he said.

Tell Me More

An alternative will be revenue neutral to the state. As Senator Kevin Ranker, D-Orcas Island, pointed out, legislators must work off of the fiscal note from OFM when voting and implementing the budget. He said, “We’re going to have to address this issue of the fiscal responsibility of this bill, this initiative… I want to see climate action more than anybody but it also has to be fiscally responsible and I cannot pair an initiative on carbon up against K-12 education funding.”

Another point that surfaced during testimony was the issue of current and future environmental regulation. As Housekeeper said, “We aren’t just looking at Initiative 732, but we’re also looking at the Governor’s carbon rule as it’s moving forward and it’s currently in the public comment phase. We’re looking at the Clean Power Plan…We’re looking at other ballot measures that may come forward.” The Governor’s rule is of primary concern, particularly because it applies to emissions from both stationary sources (such as power plants) and fuels (such as natural gas). An alternative would likely strike the Clean Air Rule completely or limit it to stationary sources. Other regulatory instruments could potentially be scrapped too– I-937 and subsidies/incentives for clean tech could be swapped for a carbon tax.

Additionally, an I-732 B is likely to include exceptions or exemptions for the electrical sector. During Testimony, representatives from public and private utilities objected to I-732 on the basis that most utilities generate low-carbon electricity through hydropower. George Cann of the Washington Public Utility District Association said that the utilities in his organization rely mostly on hydropower but regretted that I-732 would cost them between 8 million and 90 million dollars per year. Others pointed out that utilities are also subject to regulations requiring them to invest in alternative energies for the purpose of reducing carbon under I-937.

I-732 B may also make exceptions for energy-intensive manufacturers, as Carbon WA attempted to do with a reduction in the Business & Occupation tax. Senator Ericksen made it crystal clear that his biggest concern with any carbon policy is the loss of manufacturing jobs. During the hearing he said, “I want to lead. I’m happy for Washington State to lead, but I want to make sure leadership does not mean that we’re going to sacrifice good paying manufacturing jobs and hurt those families in order to send a message or make a point.” Kastama put a slightly different spin on the issue of manufacturing jobs, saying that WaBA also wants to keep manufacturers in the state, rather than risk them moving to states where they would have a higher carbon footprint.

Lastly, an alternative will attempt to satisfy multiple stakeholders by recycling revenue into investment in environmental projects, assisting low-income residents and/or investing in clean technology. Carbon WA addressed low-income residents through a reduction in the sales tax and the Working Families Tax Credit.

The Monkey Wrench

While all the possible 732 B’s might seem like a lot to keep straight, there’s one more thing to add to the mix: an initiative was quietly introduced by one of the subgroups of the Alliance for Jobs and Clean Energy on Jan 25th. Titled the “The Pollution Accountability Act,” Initiative 1437 establishes a cap and trade system for greenhouse gas emissions.

This initiative was filed by NW Progressive, but without the current support of the Alliance for Jobs and Clean Energy, the environmental group that is at odds with Carbon WA over carbon reduction policy.

Some say that this initiative adds a whole new layer to the strategies for getting an I-732 B passed. For instance, if the Alliance does not throw its weight behind I-1437, it’s possible that another subgroup could break away from the pack. This scenario may open the door for another environmental group to hop on board a business-backed alternative.

Whether any part of the environmental community will back an alternative to I-732 is to be determined. Right now all eyes are on the business community. With the session already halfway over, we’ll likely see an I-732 B next week.

 


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