Three carbon tax bills have been introduced in the 2018 legislative session, as of January 18th. SB 6203 proposed by Governor Inslee is sponsored by Senate Energy, Environment and Technology Chair Reuven Carlyle (D-36th LD) and a large group of Democrats. Senator Ranker (D-40th LD) introduced SB 6096 and Senator Hobbs (D-44th LD) introduced SB 6335.
Our Carbon Tax Matrix (above | download PDF) is designed to provide an overview of the most important differences between these bills. A short discussion of some of the key policy areas follows the table. Of course, there is no substitute for reading through the actual bills if you want to fully understand the different programs and elements of each proposal.
All of these policies focus on taxing the carbon content of fossil fuels and electricity consumed within Washington State. They all exempt fuel brought into the state in vehicle fuel tanks as well as fuels and electricity exported from the state; provide a credit against carbon tax previously paid on the same fuel or electricity in other jurisdictions; and have other technical details in common.
Two of these bills expand on a theme from last session, allowing both electric and gas utilities to retain some or all of the carbon taxes levied on energy they supply to customers and then use those funds to make certain investments related to carbon reduction, energy efficiency improvements, and low-income assistance. Utilities would have to receive regulatory approval for their investment plans before spending the retained tax money, and report back on the results. They would not be able to earn a rate of return for their stockholders on these investments, nor use the money to fund other legal obligations related to conservation and renewables.
There also continues to be an exemption for TransAlta’s Centralia coal plant in two of the bills. This exemption is intended to respect a shutdown agreement that the state, and a set of environmental groups, negotiated with TransAlta. Under that agreement, the facility is required to either cease operations or switch to a cleaner fuel source by 2025.
In recent years, the Centralia plant has been operating at only about one-third of its rated capacity, in part due to the low cost of natural gas. As we have noted before, imposing a carbon tax on power from natural gas facilities, but not the Centralia plant, could cause TransAlta to ramp up production at that plant. If that occurs, the net result be an increase in the state’s utility emissions until the plant stops burning coal.
It is important to protect Energy-Intensive and Trade-Exposed (EITE) businesses, like Aluminum and metal manufacturers, in our state that could be put at a competitive disadvantage by a carbon tax. The Governor’s proposal prescribes a technical approach to decide which businesses qualify for carbon tax exemptions, and those exemptions must be renewed periodically. The other two bills permanently exempt all businesses in specific groups of industries by using a list of North American Industry Classification System (NAIC’s) codes. Carbon Washington believes the risk of job leakage needs to be mitigated in a carbon tax bill, but we encourage the Legislature to focus on special handling only for businesses that are truly emission intensive and trade exposed.
Low Income and Disproportionately Impacted Communities
These three proposals take very different approaches for attempting to offset the impacts of the carbon tax and climate change on low-income and disproportionately impacted communities. Directly offsetting the tax regressivity impacts of the carbon price is not part of any of these proposals but would be an implementation option under both the Governor’s and Ranker’s bills. We support direct low income cash rebates and we encourage the legislature to consult directly with representatives of low-income and disproportionately impacted communities and integrate their ideas into these proposals as they continue to develop them.
Two other related bills worth noting: HB 2839 (Morris D-40th LD) and its companion SB 6424 (Carlyle) These bills are not exactly carbon taxes, but they would apply a $40/ton + 1.25%/year “shadow” carbon price to gas and electric utility decision and planning processes. This approach could produce some of the same effects as a carbon tax on regulated utilities. While not as impactful, it does start at a higher price than the carbon tax’s listed above making it an interesting complement to one of these true carbon taxes.