The 2nd half of 2010 may open a window of opportunity for carbon taxes, and the West Coast is in perfect position to play a leading role.
Start with the possible window of opportunity, which depends on the outcomes of three events:
- The fate of federal climate legislation. The House has already passed a climate bill, but the Senate is stuck, and the conventional wisdom is that we’ll get an energy bill but not a climate bill. Different folks in the climate world have different opinions about federal action (my opinion is here), but everyone should be thinking about a Plan B in case federal action doesn’t happen. And in that context it’s especially important to consider…
- The fate of the Congressional elections in November. Everyone seems to think the Republicans will pick up seats, with a decent probability of taking over the House and a smaller (but nonzero) probability of taking over the Senate too. Given the Republican tendency to oppose climate action in general and “cap-and-tax” in particular, the federal dynamics are likely to change significantly in 2011, with a strong likelihood of no action and an increasing interest in alternatives to cap-and-trade. Those alternatives may become even more important in light of…
- The fate of the AB32 roll-back measure in California. In 2006 California passed the Global Warming Solutions Act (AB32), a measure that (among other things) requires the state to launch a carbon cap-and-trade system by 2012. This November, voters in California will be faced with a ballot measure—the California Jobs Initiative—seeking to suspend that effort indefinitely. I have not seen any strong polling about the odds of success for this measure, but if it does succeed in suspending AB32 then it will likely be the final nail in the coffin of the Western Climate Initiative, a regional cap-and-trade system that is already reckoned to be on life support.
In my view the odds are (1) that federal climate legislation will not pass this year, (2) that the Republicans will make significant gains in November, and —I’m going to waffle on this last one—(3) that the California ballot measure has a good chance of rolling back AB32. If I am right on all three, or even just on the first two, then it will be time for new directions in U.S. climate policy. Not a new direction, but new directions, because significant action on climate policy for at least two years is likely to happen not at the federal level but at the state level, in the much-touted “laboratories of democracy”.
In the event that U.S. climate policy moves in new directions, I am excited about the prospects for state-level carbon taxes. These can be implemented in any state, but I am especially keen about the chances for this policy on the West Coast.
One big reason is that we already have a neighborhood example: the province of British Columbia implemented a carbon tax in 2008, and in 2012 it will reach approximately $30 per ton of CO2. (That’s about $0.30 per gallon of gasoline or $0.03 per kWh of coal-fired power.) That’s living proof that carbon taxes can establish economic incentives to reduce emissions without destroying the local economy. It’s also living proof that politicians can push carbon taxes and still get (re)elected.
A second reason is that the West Coast has green-minded voters—there’s a reason Dave Reichert (R-WA) and Mary Bono Mack (R-CA) were 2 of only 8 Republicans in the House of Representatives to vote for the cap-and-trade bill that passed the House last summer—and innovative leaders in the business and non-profit communities who support well-designed carbon tax policies. These include the usual suspects in the environmental world (including Sightline Institute, with whom I worked on this memo on carbon pricing in Washington State), but also folks like Todd Myers, the environmental director of the free-market Washington Policy Center and the co-author of this 2009 op-ed calling for a revenue-neutral carbon tax of $30 or perhaps even $50 per ton CO2; and companies like Puget Sound Energy, whose 2008 WCI comments included a statement to “reaffirm [their] support for a carbon tax program,” a position recently repeated by CEO Steve Reynolds. (I have also been told privately by other major business leaders that they think a carbon tax is a good idea, and PS my examples above mostly come from Washington State but I’m confident that similar examples can be found in Oregon and California.)
A third reason is that we have ballot measures on the West Coast. In parallel with #1 above, state legislatures appear unwilling to tackle climate pricing—California is the exception here, but other states have repeatedly failed to lend legislative support to the Western Climate Initiative—and in parallel with #2 above, state legislatures are likely to see the same right-leaning dynamics that are projected at the federal level. An initiative campaign could go directly to the voters with a proposal to implement a BC-style carbon tax and use most if not all of the proceeds to reduce existing taxes.
And that brings us to the fourth and final reason for favoring the West Coast as a focal point for carbon tax action: State tax systems in the area are ripe for reform. A revenue-neutral carbon tax would appeal not only to green-minded voters but also to those who are fed up with the current tax system and want significant reductions in property taxes, income taxes, and business taxes. (Admittedly, this fourth reason applies to just about all states, and as noted before carbon taxes can be implemented in any state.)
My dream scenario would be a group of coordinated ballot measures in West Coast states in 2011 or 2012, leading to a regional carbon tax comparable to the RGGI cap-and-trade system on the East Coast. (These policies could then engage in a mostly friendly face-off if and when federal climate leadership returns.) As a first step towards this dream, how about making some progress in exploring new directions so we’ll be ready in case the window of opportunity opens?