Why Aren’t Environmentalists Supporting a Carbon Tax in Washington State?

I used to live in Washington state. I’m no longer registered to vote there, but if I were, I would vote “Yes” on Nov. 8 for the Washington Carbon Emission Tax and Sales Tax Reduction, also known as Initiative 732, or I-732.

I-732 would make Washington the first U.S. state to have a carbon tax. The tax would be levied on refineries and utilities, who would then pass the tax on to consumers in the form of higher gasoline, electricity and natural gas prices. The tax would start at US$15 per ton of carbon dioxide in July 2017, increase to $25 after one year, then rise with inflation plus 3.5 percent in each subsequent year.

Carbon Tax WashingtonStacks at the Nucor Steel plant – one of the types of manufacturing sites that would be affected by a carbon tax – in front of the Space Needle in Seattle. AP Photo/Elaine Thompson

Similar to British Columbia’s carbon tax, I-732 is designed to be revenue-neutral. That is, all of the tax revenue would be returned to households by lowering other taxes. Specifically, I-732 would decrease Washington’s sales tax by one percentage point, fund a tax credit of up to $1,500 annually for low-income households, and effectively eliminate a business tax on manufacturers.

I-732 addresses one of the major concerns of a carbon tax – that it would hurt low-income households. But it also exposes the difficult and complex politics of environmental policymaking: a number of environmental groups have failed to get behind the measure, potentially derailing an opportunity for Washington to lead on climate.

Economist’s Dream

Like most economists, I’m in favor of a carbon tax. In a survey of top economists, 90 percent said they would prefer a carbon tax over alternative policies for reducing carbon dioxide emissions. “Totally basic economics!” according to Stanford economist Robert Hall. A carbon tax would discourage carbon-intensive activities like producing electricity with fossil fuels and burning gasoline in vehicles, and encourage low-carbon alternatives like renewables and energy efficiency.

Carbon tax revenue from Initiative 732, which needed some 270,000 signatures to get on the ballot in November, would be offset by tax cuts in other areas and be used to finance tax credits for low-income households. Steve Bloom/The Olympian via AP

I also like the plan to make I-732 revenue-neutral. This idea of “revenue recycling” has long been recognized by environmental economists as one of the key benefits from taxing externalities, or side effects of economic activities. Decreasing the sales tax would make Washington state consumers better off and make the Washington state economy more efficient.

Moreover, the low-income tax credits would help prevent I-732 from hurting Washington state’s neediest households. Critics of carbon taxes often argue that they are regressive, pointing to the fact that lower-income Americans spend a high fraction of their income on energy. With these tax credits, however, I-732 would be sharply progressive, making low-income households significantly better off.

This is an important point, not just for I-732, but for carbon policy more generally. In a recent paper, Maryland economist Rob Williams and coauthors examined a national carbon tax for which revenue would be returned in equal, lump-sum payments to all households. They showed that these lump-sum payments would exceed average expenditure on the tax for households earning less than $70,000 per year, so these households would be net winners. I-732 is potentially even more progressive because the tax credits would be targeted to low-income households.

Unlikely Opponents

Environmental groups enthusiastically support I-732, right? Er… no. In fact, neither the Sierra Club, nor the Washington Environmental Council, nor Washington Conservation Voters support the measure. It is baffling to me that an environmental group could stand in the way of a carbon tax. Putting a price on carbon dioxide is the single most efficient way to fight climate change, and it strikes me as irresponsible for these groups to have failed to get behind I-732.

Washington state is well-known for strong environmental groups, yet most of these groups are failing to support I-732. U.S. Fish and Wildlife Service, CC BY

The primary concern seems to be that I-732 doesn’t raise revenue for pro-environmental causes. Washington state has no state income tax and struggles to raise government revenue, so some groups see this as the last good opportunity to raise funds for renewables subsidies, public transportation and the like. For instance, in its official position, the Sierra Club said members “expressed deep concerns that the initiative does not include all that is needed for an equitable climate policy and just transition to a clean energy economy.”

This is conflating two issues, however. I understand why a group would want to see more pro-environmental spending, but there is no economic reason why all this needs to happen in the same piece of legislation.

Critics of I-732 should also be careful what they wish for. Opponents from environmental advocacy groups are intensely concerned about potential impacts on low-income and other vulnerable populations. But in research here at the University of California Berkeley we’ve shown that pro-environmental spending tends to be regressive, benefiting high-income households disproportionately. If your goal is to help low-income households, it is hard to envision a better policy than a $1,500 tax credit.

It is notable that so much of the discussion about I-732 has been about the revenue rather than about the tax itself. This fascinating article details the myriad different points of view in Washington state on how to spend the money. We are seeing this dynamic in California as well, as environmental justice groups argue that more of the revenues from California’s carbon trading system should be used for addressing equity. These fights about revenue are likely to be a central part of carbon politics moving forward.

Bottom Line

I-732 is an opportunity for my former home state, Washington, to lead on climate. By demonstrating that this can be done at scale, Washington state can lead other states, or even the U.S. federal government, to adopt similar policies. It would be fitting that a state so rich in natural beauty would take a stand for preserving the planet for future generations.

Environmental groups are opposing the carbon tax because some feel it doesn’t do enough to promote renewable energy and environmental justice. amitp/flickr, CC BY

It won’t be easy. This is a local solution to a global problem. The costs would be borne locally, while most of the benefits – mitigating climate change – would be experienced globally. But if Washington state can spur others to action, they will have played a key step in moving climate policy forward.

“For me, supporting I-732 is the way I can look my children in the eye,” said Audubon Washington’s Gail Gatton, in a recent Seattle Times op-ed, “and tell them I have done everything possible to ensure a stable climate for their future.” Your move, Washington state.

The Conversation
This blog is available on The Conversation.

About Lucas Davis

Lucas Davis is an Associate Professor of Economic Analysis and Policy at the Haas School of Business at the University of California, Berkeley. His research focuses on energy and environmental markets, and in particular, on electricity and natural gas regulation, pricing in competitive and non-competitive markets, and the economic and business impacts of environmental policy.
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18 Responses to Why Aren’t Environmentalists Supporting a Carbon Tax in Washington State?

  1. David Foster says:

    Thanks for a great article but I suspect that the challenges involved in getting Environmental Groups to support economic incentives may be far greater than you think. In my experience both domestic and international I have found that environmentalists tend to be much more comfortable with prescriptive and proscriptive laws and regulations than they are with economic incentive programs (taxes or marketable permits) even when the incentives are far more cost-effective. In fact, cost-effectiveness itself is rarely even seen as a legitimate goal.

    Possibly this bias may be attributable to the lack of economics courses in the standard environmental curricula but I suspect that it may also relate to the typical mindset (what Jonathan Haidt calls the “Moral Foundation”) of individuals attracted to work in the environmental field.

    • mcubedecon says:

      I think it’s a combination of mindset, as you noted, but also that the field is dominated by lawyers. Attorneys rarely get more than rudimentary training in economics, and they are indoctrinated that prescriptive/proscriptive solutions are preferred. We constantly run into this unfamiliarity with directed choice solutions like incentives. EDF was famous for being virtually alone among environmental groups supporting incentives. There are a number of others that now give lip service to incentives, but I know of economists who have quit working with those groups because those groups really weren’t behind giving choices.

      • John David FOSTER says:

        Thanks for recognizing the contributions from the Environmental Defense Fund (EDF). When I worked on Emission Trading (a precursor to “Cap & Trade” and “Carbon Trading”) EDF was clearly one of the few that took it seriously. More recently, when we sought to employ some of the same concepts on “Nutrient Trading” on the Chesapeake Bay, most Environmental Groups seemed frightened of the whole idea yet few would take the time to understand it.

        • psychohist says:

          Did the EDF explicitly support the Washington carbon tax, and can you link to something that shows that? I quit supporting the EDF some years ago when they abandoned their nonpartisan approach and became what seemed like an arm of the Democratic party. The latest email about thanking Obama, who managed to put in place changes to the fuel economy rules that encourage large SUVs over small cars, doesn’t make me more optimistic. If EDF really started pushing carbon taxes, though, I’d donate again.

          • 247waterworks says:

            All I can say for certain is that, unlike many other environmental organizations, EDF engaged in serious discussions at that time and offered useful comments.

          • psychohist says:

            Further research reveals that EDF opposed the measure, and that the “serious discussion” appears to be rationalization of their opposition to a good environmental measure, just like Sierra Club and other supposed environmental organizations.

  2. Paco D'Exponere says:

    Thank you for this compelling post. It is not often that one can reasonably use the term greed to describe the motivation of an environmental NGO – yet the potential Washington State carbon tax provides such an opportunity. As written, the Washington State proposal seems to reasonably apply an Economics 101 level understanding of Pigouvian taxation, while serving the political need to provide an equitable tax incidence.

    Those who believe in markets could celebrate the increased market value of, and thus increased motivation to invest in, lower emission manufacturing and consumption behavior. Yet for some, this seems to be an untenable result. After all, how can a specific stakeholder group control actions left to the market? The market does not directly control where these investments are made nor does it directly control how and what consumers buy. Rather, what consumers buy influences what the market supplies. And the market may not perfectly apply these incentives to lower GHG actions.

    But, would this not be better than nothing? Or, as another writer suggested, do these NGOs oppose a carbon tax, hoping instead for direct policies which would likely elicit greater direct control over, unfortunately, less efficient and less effective activities? Therein lies the greed.


  3. Rich Sextro says:

    The impression that I have about the WA C tax initiative – gained largely from an article or two in Huffingtonpost and/or Think Progress plus several conversations with close environmentalist relatives living in WA – is that at least part of the problem is nothing more than good old internecine rivalry among some of the players (not to mention egos, I suspect). As I understand the high-level story, the idea of a carbon tax has been floating around the WA environmental community for a while and some serious efforts have gone into various C tax ideas. However, apparently progress got stalled over two issues – one the question of using the C tax to raise money for pushing on clean energy (or perhaps other environmental goals, I’m not sure) instead of making it revenue neutral in a state with no income tax – as Lucas points out in his piece. The second (my understanding about this is more amorphous) was the perception among some that the C-tax advocates hadn’t done enough to reach out to and ‘bring along’ some of the other communities of interest that have been long sought as allies on WA environmental issues – labor unions, tribes, etc.

    I think the strongest pro C-tax folks decided that the time was ripe (and by their lights – long overdue) for getting something on the ballot, in the hopes that some of their reluctant allies would come along; it sounds like they didn’t. Unfortunately it looks like yet another case of the ‘perfect’ being the enemy of the ‘good enough’ (at least as a place to start). Sigh.

    In response to the previous commenters’ glib assertions about lawyers vs economists in the environmental movement – as long-time environmental activist (but neither a lawyer nor economist) those comments are too glib by more than half. Indeed, environmental organizations have often turned to legal remedies – especially when confronted with some sort of ‘imminent’ problem with disastrous environmental consequences – but I don’t know of any that proactively plan on using legal means as a long-term strategy. In terms of economics, at least some of us started as environmentalists fighting the feds (mostly the Bureau of Wreck-creation and the Army Corps) and their dam building exercises – all of which claimed “positive benefit/cost analyses” based, of course, on completely ignoring the dis-benefits – loss of white water recreation, loss of habitat, loss of downstream riparian habitat, impact on fisheries, etc. As I have argued in previous posts, the big problem with claims of cost effectiveness is adequately accounting for the external costs – not to say that it can’t be done, but its often non-trivial because the assignment of an economic ‘value’ is sometimes a WAG (and ‘he who controls the WAG controls the universe’ – with apologies to Chester Gould).

    • mcubedecon says:

      My observation about a preference for legal remedies comes from working directly a number of environmental issues, in air quality, climate change, water supply and quality, and solid waste. One only needs to look at the RPS as a percentage mandate rather than using a carbon tax, and the reaction to using RECs to meet RPS targets as just one example of many. I’ve been in many conversations with environmental and agency lawyers, so I’m not just watching this from afar.

    • John David FOSTER says:

      My apologies if I was “overly glib” or painted with too broad a brush. I simply intended to share my observation that both in the U.S. EPA and in the dozen countries I have worked overseas that most environmentalists seem to be more comfortable with “Command & Control” regulations than with economic incentives even when those incentives can be shown to accomplish the same purpose at less cost. I also want to make sure that the readers are not confusing “Cost/Effectiveness” analysis with “Cost/Benefit” analysis. While it is true that in “Cost/Benefit” analysis that benefits may be overestimated and costs underestimated, this problem is less likely to arise when the ratios are expressed in terms such as tons of carbon reduced per dollar expended.

      • Rich Sextro says:

        You are quite right – I did mistakenly conflate the cost effectiveness issue and the cost/benefit analysis in my response. I would argue that at least in my experience there is still some WAG-ery in doing the former – especially when trying to capture all the costs

  4. Thanks for the great article. I wholeheartedly agree that a carbon tax, on a state, national or even international level, could be the clearest path forward on climate change mitigation.

    I don’t doubt the sincerity of the opponents of a carbon tax. However, we also need to recognize that our approach to climate change to date, relying on regulations, mandates and subsidies, has created a number of institutions vested in the status quo. For example, at a national level, it seems unlikely that the ethanol industry would favor a carbon tax over the current RFS mandates. Similarly, at what level would a carbon tax be more favorable to solar and wind industries than the current renewable mandates and tax credits? Finally, if a carbon tax simplifies the regulatory environment, does it diminish the role of regulators, lobbyists and public advocacy groups?

  5. Kent Smith says:

    Thank you for your thoughtful review. I voted yes on I-732, but not without reservations. You might find this alternative view of interest … “Instead of ceding the outcome to market competition, we need to consciously demand the abolition of fossil fuels on moral and ecological grounds.” … https://www.jacobinmag.com/2016/10/oil-fossil-fuel-climate-cap-trade-tax-renewables/

  6. Nicely summarized, Professor Davis.
    Wish I could quit my Sierra Club membership … again. But I already quit once over its position on trade policy. Instead I just donated to the wa.audubon.org, which seems to be the only big environmental group supporting I-732.

  7. Will Harris says:

    You’re missing a much bigger issue. I-732 was thoroughly polled before it was introduced and its support was in the high 30-low 40% range. Anyone who has worked on ballot initiatives knows that there is zero chance of an initiative with such low support actually passing, especially when it would (if it were close) generate massive push-back from entrenched interests. Measures which invest in things like clean energy, energy efficiency and forest protection consistently poll better than a revenue-neutral carbon tax, CarbonWA knew this and decided to pick the initiative which matched their principles rather than the one which could pass. Unsurprisingly, after months of campaigning and the pro-side outspending opponents by a significant margin, the bill is still mired in the low 40’s. Who do you think makes up that 40%? It’s environmentalists. The problem is that revenue-neutral carbon taxes should, in theory, appeal to economic conservatives, but in practice they just don’t. The modern U.S. political right has abandoned actual principles of conservative economics. Trying to appeal to their economic understanding is, at present, a thoroughly bankrupt theory of change and I-732, which was predicated entirely on this theory of change was therefore doomed to failure from the start. The lack of support for I-732 from environmentalists has far more to do with a desire to not throw good money after bad than it does fundamental antipathy toward the measure.

    The problem isn’t that environmentalists don’t support the measure, it’s that no moderates do because it was written in a way that appeals to people with graduate degrees in economics, but few others.

  8. Ted Wolf says:

    I-732 is polling higher than 50% yes in the lead-up to the election. Not surprisingly, polling is responsive to an effective ground-game campaign. Most of the “opposed” groups are strangers to that kind of old-fashioned politics.

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