The Tax that Would Have Taxed Them: Washington State's Defeated Carbon Tax

By: Vincent Gonzales

Amidst all the light and heat generated by this year’s Presidential election, many missed a second revolutionary moment that occurred on November 8th: a vote on what would have been the United States’ first carbon tax, Washington State’s Initiative 732.

I-732, a “revenue-neutral” carbon tax strategy, aimed to redistribute the government revenues accrued from the carbon tax by granting tax credits to low-income families and slashing state sales and occupation taxes. The overarching goal of the proposed legislation was simple: incentivizing the reduction of carbon emissions while simultaneously enhancing the financial well-being of Washington’s citizens.

In the end, I-732 failed – a resounding 59% of Washingtonians opposed the legislation. Despite I-732’s good intentions, its failure was in the best interest of Washington State, and, in a highly federalized nation where policy solutions often “snowball” from state to state, America as a whole. Because revenue neutral carbon taxes have proven largely ineffective, both in theory and in practice, Washington’s adoption of a subpar emissions mitigation technique in I-732 could have quelled cries for climate action without making significant steps towards addressing the problem.

Portugal’s revenue neutral carbon tax is a classic example of failed emissions regulation. Passed by the Portuguese Parliament in November 2014, the legislation had three primary objectives: reduce carbon emissions, promote sustainable employment and GDP growth, and contribute to the balancing of Portugal’s national budget. Though the legislation originally intended to improve energy efficiency by devoting carbon tax revenues to implementing green technology in Portuguese industry, Portugal’s Parliament has instead used carbon tax revenues solely for lowering personal income taxes in a manner similar to Washington’s I-732.

According to William and Mary professor Alfredo M. Pereira, revenue-neutral carbon taxation strategies are only effective when revenues accrued through the tax are reinvested in green technology. Portugal’s inefficient recycling of carbon tax revenues has made it impossible for Portugal to benefit economically (in terms of GDP growth and budget balancing) from its carbon tax scheme.  Had I-732 passed, Washington would have be prone to the same pitfalls.

While environmental groups are right that the United States is in dire need of a concrete policy framework to reduce carbon emissions, Washington State is already a national leader in this respect. In 2006, Washington passed the Energy Independence Act, enacting the Renewable Portfolio Standards (RPS) and large-scale energy conservation measures.

Currently, renewable energy resources comprise 47.1% of Washington’s primary energy consumption. Thanks to the state’s abundance of hydropower, Washington is on pace to accomplish its RPS goal for 2020. Having successfully achieved both 2012’s RPS goal of 3% of electricity generation stemming from renewable sources and 2016’s goal of 9%, the 2020 goal of 15% is quite attainable.

Additionally, carbon dioxide emissions in Washington have steadily decreased over the last decade. From 2007 to 2014, the amount of carbon dioxide emissions within the state diminished from almost 82 million metric tons of CO2 to less than 74 million metric tons. Washington State’s conservation measures are also clearly effective, as the state’s overall energy consumption has decreased.

Data from U.S. Energy Information Administration 

Washington state’s carbon tax was largely unnecessary, and as a revenue-neutral scheme, likely to be generally ineffective. I suggest that if Washington is truly invested in a greener future, legislators in Olympia should turn their attention to the transportation sector, where over 50% of Washington’s carbon emissions originate. I suggest that a hybrid fuel tax – on both a per-mile and per-gallon basis – is the most appropriate instrument for corralling Washington’s carbon emissions.

Data from U.S. Environmental Protection Agency

I suggest Washington look to the UK for policy cues. Britain’s “pay as you go” insurance scheme encourages drivers to drive more efficiently, while London’s famous congestion tax discourages citizens from driving in urban areas, where fuel efficiency is lower. Combined with a higher per-gallon fuel tax (the UK’s is the highest in Europe), Washington State can make meaningful strides towards energy efficiency without the economic inefficiencies of carbon taxation.

Curtailing carbon emissions should be a primary goal of any environmentally-inclined policy. For the Evergreen State to pursue this goal will require a focal shift from carbon taxation to reducing emissions from the transportation sector. Energy efficiency is the answer. Fortunately, the potential of massive improvements in efficiency in the transportation sector has yet to be tapped. It is time to make that change.

Vincent Gonzales is a sophomore from Martel College.