Why the Carbon Pollution Accountability Act Is a Big, Awesome Deal

In Washington and across the Northwest, we are already seeing devastating impacts of climate change. In Hood Canal and Puget Sound, shellfish are being destroyed by an acidifying ocean, declining snowpack threatens water supply on both sides of the Cascades, and record-setting wildfires have ravaged Eastern Washington communities.

The good news is that we can do something about it. We at Sightline are always saying that a well-designed program can hold polluters accountable while transitioning the Pacific Northwest to a clean and prosperous future. Yesterday, Washington Governor Jay Inslee unveiled a package of climate policies, including the Carbon Pollution Accountability Act. So the big question: Is the Governor’s proposed program well-designed?

Here’s the one-word answer: Yes!

Seriously. It’s killer.

First, there are several aspects of Washington’s proposal that would make it truly first in class:

• 100 percent auctions—no free giveaways to polluters. The Northeast states auction almost 100 percent, but California has some giveaways to industry.
• 80 percent* coverage from outset—the Northeast’s program only covers 22 percent of the states’ pollution, and California’s only covered 45 percent for the first few years. Washington would cover almost all pollution right from the start.
• Fast start—since Washington’s would not be the first program out of the gate, it could be the fastest. Many other jurisdictions have already written the rules for holding polluters accountable, so Washington would jet ahead to actually making them pay within a year and a half.
• Helps low-income people—carbon pollution and carbon fees both disproportionately impact low-income people, and many other programs have not taken that into account in their design. Washington proposes to build in help for those who need it most.
• Invests in Washington—the proposal would keep the money in the state by investing heavily in education and transportation choices.

Who are the polluters?

Large power plants, refineries, and factories that emit more than 25,000 metric tons of greenhouse gas pollution per year will have to pay for their pollution. These are not small mom-and-pop businesses or individuals; there are only about 130 large polluters in Washington.

How will polluters pay?

They will have to buy pollution “allowances” or permits equal to the amount that they pollute. Every ton of pollution they cut by making their operations more efficient is one less allowance they have to pay for. Allowances will be auctioned off every quarter, and polluters can bid in the auction. Many other programs designed to make polluters pay stumble on “allocation” and give away some of the allowances for free. Washington’s proposal is notable for its simplicity and transparency: Polluters pay. Period.

How much will polluters pay?

Prices will probably start around $12 per ton for the state’s biggest polluters and will tick up gradually over time as less pollution is allowed and allowances become scarce. Think of it like a game of musical chairs: In the first year, there will be enough allowances to go around, but each year a few chairs will be removed (the allowed pollution level will go down by 2 percent per year) until Washington reaches the legally allowed level of pollution—44 million metric tons (MMT) in 2050.

How much will we pay?

The oil companies and their political allies are going to start beating the drum and repeating “gas tax.” It happened in British Columbia. It happened in California. They’ll do the same thing again in Washington. But it’s not because they care about consumers’ pocketbooks or because the change in gas price is something most people will notice—the slow and steady price change of perhaps 12 cents per gallon will be swamped by the natural volatility of oil prices that swing up and down by that much and more. In a single week. With no warning.

Oil companies will talk ad nauseam about gas prices and the “gas tax” because they want to protect their profits, not because they are concerned about consumers. If we don’t hold polluters accountable, prices will continue to fluctuate as the oil and coal companies continue to rake in profits from us. But if fossil fuel prices tell the truth about their real costs, there will be predictable accounting for the true costs of dirty fuels, and entrepreneurs, businesses, and individuals will all be looking for better, cheaper, safer, healthier alternatives. We’ll use the revenue to help speed those alternatives.

How much total money are we talking, here?

The plan estimates that polluters will pay $947 million in state fiscal year 2017 (the program starts July 1, 2016). Polluters will probably pay even more in future years as our air becomes cleaner and cleaner, possibly generating $4 billion per year for the Evergreen state in 2030 and beyond.

How will Washington spend the money?

Governor Inslee proposes that Washington invest most of the money in K-12 education ($380 million per year) and on transportation ($400 million per year). About $100 million will help low-income families though the Working Families Tax Rebate —a program that was set up in 2008 but never funded. Another $15 million will go to a Public Housing Trust Fund that helps low-income people, seniors, and farmworkers afford housing. Twenty million dollars will fund forestry and rural investment programs, and $20 million will help Washington manufacturers who might be vulnerable to out-of-state competitors that still spew pollution for free.

Original Sightline Institute graphic, available under our free use policy.

These spending priorities are not the best, but they are pretty good. The best uses of carbon revenue are investments that help spur the transition to a clean energy economy, that help low-income people pay increased energy prices in the short-term, and that grow the middle class.

• The only piece of the pie above that arguably spurs clean energy is the transportation piece, and it is a mixed bag. Some of the money will go toward transit operations, biking and walking infrastructure, and electric vehicles (all fantastic). Some will go toward safety improvements like improved signals and illumination, as well as general maintenance (all good and important things, but not direct contributors to the clean energy transition). The only hitch is: By funding maintenance, the carbon revenue will free up gas tax revenue for urban highway expansions, such as the 520 bridge and I-405 expansion. Highway megaprojects accelerate sprawl, boost pollution, and cost a fortune.

  With driving in Washington flattening out or maybe even declining, building new megaprojects is a big waste of money. I wish the carbon pollution fee did not enable them in any way. That said, the beauty of a hard carbon cap is that highway expansions will not increase greenhouse gas pollution. The cap will see to that. Megaprojects may be ill-conceived and wasteful. They may squander resources better used on other things. But the cap itself will ensure that overall pollution declines. (And, of course, megaprojects have powerful backers in Olympia, so disappointed as I am, I’m not surprised to see them in the plan.)

• Helping low-income people is an important part of the policy, one that other jurisdictions have forgotten—kudos to Washington for making sure the pollution program does not worsen the already bad inequality.
• Helping to fill the big K-12 education hole is an important use of the revenue. It stops sending money to out-of-state fossil fuel companies and instead invests it directly in the people of Washington. That’s a good thing.

Will polluters be able to cheat?

Washington will require polluters to report their pollution and to get an independent audit of their reports. Remember, there are only 130 really big polluters in the whole state, so they won’t be able to hide dodgy math in a pile of paperwork. Washington also plans to use what other pollution-limiting programs in Europe, the Northeast states, and California have learned in order to protect against any potential market manipulation.

Europe learned the hard way that a poorly designed offsets program can open the door for scurrilous companies to manipulate regulators, so Washington will have tight controls on offsets: They must be approved projects, no more than 8 percent of emissions, independently verified, and purchasers of offsets are liable for their integrity.

Making polluters pay sounds good, but does this proposal actually help speed the transition to clean energy?

Governor Inslee is proposing an entire package for transitioning beyond carbon. Right now, Washington has several efforts underway to encourage clean energy, but those efforts are fighting into the headwind of competition from fossil fuels that don’t have to pay the true price for their pollution. Making polluters pay will put wind in the sails of Washington’s clean energy efforts. The Governor’s policy package includes:

• Electric Vehicles: extend tax incentives and create an EV infrastructure bank.
• Zero Emission Vehicles: adopt a Zero Emission Vehicle program.
• Clean Fuel Standard: reduce the average carbon content of fuels.
• Sustainable Transportation Planning: increase transportation efficiencies and enhance multimodal planning.
• Clean Energy Fund: increase funding available for advanced clean energy technology.
• Solar Energy Incentives: improve the incentives for solar energy.
• Get Off Coal: speed the transition away from coal-powered electricity.
• Clean Technology Development: support UW’s efforts in advance clean energy technologies and climate science research.
• Improve Energy Efficiency in Buildings.
• Improve Energy Efficiency in Agriculture.
• Improve Energy Efficiency in Industries.
• Improve Energy Efficiency in State Government Operations.

What’s the bottom line?

Washington is already paying the price for pollution, whether it’s kids’ asthma, dying shellfish and struggling seafood industries, or wildfires. We can’t ignore the cost of climate impacts right in our backyards. And right now the biggest polluters dump as much as they want into our air for free—leaving the rest of us to bear those costs. Washingtonians are all doing their part to keep Cascadia clean and green. It’s time for big fossil fuel polluters to step up and take responsibility too.

* If the program covered all emissions from transportation, electricity, natural gas, and industrial facilities, it would put a price on 90 percent of Washington’s emissions. However, some industrial facilities may be too small to be covered, shaving off a few percent, and if the program does not cover the Centralia coal plant, that takes coverage down another 5 to 7 percent. Total coverage would likely be between 80 to 83 percent.

Update: The Governor has released the full bill’s draft language. It turns out the bill would exempt the Centralia coal plant from the program. Centralia is scheduled to be completely shut down in 2025, but in the meantime, it contributes 5 to 7 percent of Washington’s emissions, depending on the year. Exempting Centralia from the program while including g other power plants could give Centralia a competitive edge, causing it to run more than it otherwise would in the years remaining before it shuts down.