Economists know that things without a monetary value — even things as “priceless” as climate stability — often get priced at zero. The fact that households and businesses pay nothing — zero — for emitting carbon pollution is a key factor that tips the scales toward fossil fuels and away from conservation and renewables.
That’s why the holy grail of climate policy is to put a price on carbon, for example, with the carbon tax that is central to Initiative 732.
Gov. Jay Inslee has been a strong supporter of carbon pricing, which makes it all the more disappointing that analysts in his administration have come up with some zeroes of their own when it comes to the fiscal evaluation of Initiative 732.
Some background: I-732 aims to be “revenue-neutral,” meaning that the revenue from the carbon tax is balanced by reductions in existing taxes, mainly a one-cent reduction in the sales tax. But a fiscal note recently released by the Office of Financial Management concludes that tax reductions over the first four years of the policy are actually $900 million greater than the revenue from the carbon tax.
This conclusion comes from misuse of zeroes by OFM and their analysts, who admit that they “are not carbon tax experts.”
The Carbon Washington campaign does include carbon tax experts, and we estimate that more than $300 million in carbon tax revenue will come from taxes on “exported power” — i.e., taxes on fossil fuels burned instate to generate electricity that is sold out-of-state.
But the carbon tax model that OFM uses intentionally ignores exported power, so its revenue estimate is zero.
We also estimate that more than $300 million in carbon tax revenue will come from I-732’s treatment of spot-market purchases of electricity. OFM’s own analysts acknowledge their model “does not reflect” the language in I-732, but once again their revenue estimate is zero.
There are other problems with the OFM analysis as well. I-732 includes a “Working Families” rebate for low-income households. This is a 15 percent match of the federal Earned Income Tax Credit in 2017 and a 25 percent match in 2018 and beyond. But the state operates on fiscal years rather than calendar years, and OFM inappropriately shoehorns two years of rebates into fiscal year 2018. The impact: more than $260 million.
These three issues together essentially fill the $900 million revenue gap. We’ve identified other issues as well, but the bottom line is that the analysis is flawed and should be corrected. In fact, the analysis should be re-corrected: the carbon tax model that the state uses was previously updated after an earlier analysis by Carbon Washington identified hundreds of millions of dollars’ worth of mistakes.
We have a moral responsibility to our children and future generations — and to the over 363,000 signers of Initiative 732 — to do better.
Yoram Bauman is the founder of Carbon Washington. He has a doctorate in economics.