Why I’m skeptical that I-732 will be effective

I believe that I-732 will reduce CO2 emissions in Washington State and in reasonably low-cost fashion. I support it and encourage you to support it as well. But will it do enough? Almost certainly not.

Here’s where we get our energy:

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A small (and decreasing) amount of coal. Lots of Hydro, some natural gas and petroleum. There’s a surprisingly large share from biomass and other renewables (solar and wind).

Here’s where we consume our energy
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First, 45% of our emissions (as opposed to energy) are consumed moving people and goods, and the tax is too low to significantly impact how we get around. Gas prices go up and down by $0.21 (the amount of the carbon tax on a gallon of gas in the beginning) and we don’t even notice (economists call this price inelasticity). The carbon tax will reach about $1 a gallon, which is enough to influence behavior, but not for about 30 years. And I-732 does nothing to provide an alternative to burning gas (e.g. funding improved transit, building EV charging stations, and bike lanes).

For electricity generation, as you can see below, coal is already on the way out and natural gas is a moderate contributor (a little less than wind and other non-hydro renewables). In other regions where coal remains a significant player in the electricity market, a carbon tax would help renewables + storage + efficiency beat fossil fuels economically. But here  that’s already happening.  Since we have a renewable portfolio standard (a non-market solution) utilities are already looking to meet their load growth with renewables and conservation even if I-732 doesn’t pass. So I don’t expect I-732 to have a significant impact on the electricity sector. In BC, the analysis assumed the same and excluded electricity from their analysis.

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For buildings, both residential and commercial, the cost of the carbon tax isn’t high enough to get anyone to switch from natural gas to electricity powered heat pumps for heating (even with the carbon tax, the low cost of natural gas will make heating by gas cheaper for the foreseeable future). It might encourage more efficient buildings, but Washington already has very strict energy codes (another non-market solution), so it’s unclear that the tax is high enough to increase the efficiency of new construction. It might encourage some industrial users to switch to a more capital intensive process that emits less CO2, but I’m not aware of any.

Results from British Columbia

We do have a great example to estimate how effective a carbon tax might be. British Columbia has had a revenue neutral carbon tax since 2008 that is widely seen to be effective. The tax is Can $30/ton, about the same as CarbonWA has proposed here, and is believed to have reduced CO2 emissions by 5-15%, excluding electricity generation which is primarily hydro. The breakdown by sector can be seen in the table below from a study at the Carbon Tax Center.

bc-emission-reduction

Two things strike me about this study and it’s applicability to Washington:

  1. The carbon tax was introduced the same year that the great recession, which clobbered manufacturing. If manufacturing recovered less in BC than the rest of Canada, then the largest sector for emissions reduction might not have anything to do with the carbon tax. It might be better to look at manufacturing emission intensity (emissions per GDP in that sector) rather than raw number to account for any loss in industrial output. It’s hard to imagine how a small carbon tax would result in a 35% drop in emissions in just a few years other than decreasing industrial output.
  2. Off-road diesel equipment might also have dropped due to the recession.
  3. Vancouver is a more urban city than Seattle, with higher density and better transit. This might result in BC being more price elastic for transportation than Washington, since there’s an easy option. Also, the SkyTrain opened the 19 km Canada Line in 2009, which would have contributed to the decrease in car and bus emissions

The report is mute on why emissions dropped so much (“Sectoral analysis to determine why these emissions fell so sharply would be helpful.”), but I suspect that the story is more complicated than a simple “the carbon tax worked”. The numbers are too high and the timing too complicated by the recession. I’m not the only one who is skeptical. Digging into the details of the drop and comparing 2004-2008 (pre-crash) to 20012-2016 (post-recovery) will build confidence in the effectiveness of the carbon tax.

Conclusion

If I’m so skeptical that it’s going to make much difference, why do I support it:

  1. Climate change is an all ideas on deck problem.
  2. A carbon tax is a reasonable idea that hasn’t been tried enough to understand its strengths and weaknesses.
  3. It will make our tax system less regressive by putting money in the hands of our poorest households. If this is all it accomplished, I’d support it.
  4. The B&O tax elimination will protect industry and we shouldn’t see the reductions in industrial output that might have happened in BC.

I think that passage of Sound Transit 3 will lead to more carbon reduction than I-732 by increasing electrification of our transportation system, but one doesn’t preclude the other. I’ll be voting for both this November.

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