Washington and Oregon find themselves sandwiched between two neighbors that are tackling the problem of greenhouse gas emissions. And the message may be starting to sink in.
To the north, Canada’s province of British Columbia has been taxing carbon since 2008. And to the south, California’s cap and trade system has just rumbled into effect on Jan. 1.
First, let’s look north.
British Columbia collects about $1 billion each year from its carbon tax. The downside? Heating prices went up and gas is up 30 cents per gallon (or about 7 cents per liter). But the government takes the carbon tax revenue and then turns around and puts it towards lowering the income and corporate tax rates, as well as providing targeted rebates for low-income and rural citizens.
“It makes sense, it’s simple, it’s well accepted,” says Terry Lake, the minister of the environment of British Columbia. “And we’ve been waiting for followship, if you want to say that word, on carbon pricing for a long time so we certainly would welcome other jurisdictions coming on board with a carbon pricing mechanism.”
The province has seen its greenhouse gas emissions decrease by 4.5 percent, despite a rise in population and gross domestic product (a measuring stick for economic activity).
Now, looking south - California’s cap and trade system is a bit more complex, and things are just getting underway so it’s too soon to see any measurable reduction in emissions.
Here’s how it works: Instead of a blanket tax, the state sets an overall emissions “cap” for California companies. If they emit more than 25,000 metric tons of carbon dioxide they have to buy allowances. And if they’re below the limit, they can sell their allowances to those that exceed the limit. The idea is to foster a whole market around trading carbon emissions, and over the years the cap will get tighter, allowing for fewer and fewer emissions from each business.
At the first auction all the credits sold out, generating $56 million in state revenue. A credit for a ton of carbon went for a little over $10. That price has already increased since the first auction, and is expected to continue to rise.
Dave Clegern, a spokesman for the California Air Resources Board, which designed California’s cap and trade system, says it’s not just about generating revenue.
“The money’s nice but that’s not what this program was initially about,” he says. “With a tax you have a guaranteed income but you don’t have guaranteed emissions reductions. The cap and trade program gives us a much more precise read on what happens with emissions.”
Proponents of cap and trade say it not only reduces emissions overall, but fosters projects that will sequester carbon — such as planting trees or harnessing methane from land fills. These are also known as carbon offsets. Under the California system, companies can buy a certain amount of certified offsets if they exceed their emissions limit.
Setting up the cap and trade system in California took far more time than did the tax in British Columbia.
“It involved excruciating detail, hours and hours and days and weeks of negotiation,” Clegern adds. “What we do think we’ll have by the end of this program is one that could be pretty easily copied.”
So, whither the Pacific Northwest?
“California has their cap and trade, B.C. has their terrific carbon tax and Oregon and Washington are in the middle,” says Yoram Bauman, an environmental economist and a fellow at the Sightline Institute, “and there are these two possible directions that you could get pulled in”.
Bauman says a carbon tax like B.C.’s could bring in $2.3 billion per year and some of that money could be used to help pay for maintaining and improving roads, ferries and other state transportation infrastructure.
“Money’s not going to fall from the sky, so we need to get it from somewhere,” he says. “Why not deal with the climate problem at the same time that we deal with the transportation problem?”
State Sen. Kevin Ranker, D-Orcas Island, says he’s set to introduce carbon tax legislation in Washington in the next few days.
“The model from B.C. seems to be much better for us than the model from California,” he says.
“One, because of the size of our economy and two because we tried cap and trade and we didn’t have the votes to get it out of committee,” says Ranker, referring to the Western Climate Initiative, which failed to take hold in Washington back in 2010.
Ranker is not expecting a warm reception for his bill, given the recent Republican take-over of the state senate.
The business lobby has traditionally been resistant to a carbon tax because of the added cost, but that’s starting to change on the state and national levels in the face of strapped government budgets.
Don Brunell, the head of the Association of Washington Businesses, acknowledges that state can’t rely on federal funding for transportation costs. The trade association leader says the money could come from a variety of places, like tolls or other fees.
But the icy reception to a carbon tax may be thawing. Somewhat surprisingly, Brunell doesn’t dismiss the possibility of taxing carbon as a means to pay for transportation infrastructure.
“I think you have to look at the whole spectrum and if carbon tax is part of that spectrum you have to look at it,” he says.
There is talk of carbon tax legislation being introduced in Oregon in the upcoming session as well, though it’s too soon to say what form a carbon tax in either state might take.