Note from Alan: As I explained previously, Washington’s Initiative 732 has divided climate hawks so deeply that even writing about it is a task we undertake with trepidation. (To get a sense of the landscape, please read the introduction to the first article in this series.) Organizations and individuals we respect and have collaborated with for decades—indeed, many personal friends of mine—are on opposite sides of the controversy.

Sightline has sought to remain deeply engaged but neutral, supportive of all responsible efforts to put a price on carbon pollution while upholding principles of justice and equity. We evaluate competing policy proposals on their own merits and strive, in this short series, to lay out a balanced analysis of the policy itself and of arguments against and for it.

In this article, Kristin and I examine three major policy disagreements between I-732 backers CarbonWA and its critics. We analyze factual arguments about I-732’s policy choices. We also identify, but do not choose among, some differences in philosophy and political strategy that inform these policy differences.

In the state of Washington, disagreements among dedicated climate hawks have been confusing and upsetting to many concerned citizens. I-732, a revenue-neutral carbon tax, is headed to the November ballot with grassroots and  bipartisan support.

But the state’s largest coalition of organizations that support climate action, the Alliance for Jobs and Clean Energy, is sitting out the campaign. Leading members of the coalition—including OneAmerica and other members of Front and Centered (an environmental coalition led by communities of color), Washington Environmental Council, and the Washington State Labor Council—are avowed “non-supporters” or opponents.  Three main categories of policy disagreements divide otherwise aligned climate and social justice friends:

  1. Cap or tax? Should we use a cap or a tax to make polluters pay for each ton of pollution?
  2. Who should have power in the process? Should communities of color and low-income communities have seats at the table when a policy is being formulated and when it is being implemented?
  3. What to do with the revenue? Should we invest polluters-pay revenue in clean energy, disadvantaged and frontline communities, and worker transition? Or should the proceeds flow back to people and businesses as cash?

Cap or tax?

As Sightline has said before, “cap or tax” is a false choice. They are two sides of the same coin. A cap and a tax both hold large polluters accountable by making them pay for every ton of pollution they emit.

The policies differ in where they place the factor of uncertainty. A cap provides certainty about the exact amount of pollution reductions, and a tax provides certainty about the carbon price. The state can use a cap to enforce pollution quotas by issuing limited, therefore valuable, permits (usually called allowances) that polluters must acquire. The allowance price is uncertain because the market mediates between supply of pollution-slashing opportunities and demand to pollute, sometimes yielding wild price swings. With a tax, the state simply levies a charge on each ton of pollution that large polluters emit. The emissions reductions are uncertain; models predict how much a certain price will motivate polluters to cut back, but the real world doesn’t always play out the way models predict.

Washington Environmental Council faults I-732 because the initiative “relies solely on economic signals to drive down emissions. This does not ensure that we will achieve the pollution reductions that are required in state law, but are currently unenforced.” In other words, I-732 uses a tax and not a cap. The “economic” signal of a tax will drive down emissions but will not guarantee the state will achieve its pollution reduction goals.

Another general difference between a cap and tax is that a tax is simpler, but a cap offers more flexibility. A carbon tax sets a price and collects the revenue from large polluters, often through existing taxation mechanisms, meaning little added administrative overhead and fewer opportunities for loopholes. But a cap offers more flexibility—for example, giving regulators the option to require electric utilities to purchase allowances for their pollution but then give the allowances back to them to use for clean energy investments and bill relief for customers.

The key question is not ‘cap or tax’; it’s ‘how high is the price, and how broad is the coverage?’
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Of course, there are ways to combine the two to get the best of both. For example, a cap can include a price floor and a soft ceiling to give more certainty about the price. A tax can include a self-adjusting mechanism to give more certainty about pollution reductions.

I-732 does not provide certainty about pollution levels, which some people see as a fatal flaw. We do not. We would prefer a cap or a self-adjusting tax, but a rising tax can be extremely effective in driving the transition to clean energy. The key question is not “cap or tax”; it’s “how high is the price, and how broad is the coverage?”

As we have noted, I-732 would ramp up quickly to a higher pollution price and broader coverage than any climate policy in North America, maybe in the world. That’d be a signal achievement, and it is a strong argument in I-732’s favor.

Power in the process

A set of Principles for Climate Justice organized by Front and Centered and signed by 53 groups emphasizes that people of color, people with lower incomes, indigenous communities, and farm workers “must be fully engaged in policy design and implementation to ensure equitable outcomes.” Some of these groups accuse CarbonWA of violating environmental justice principles by not including people of color and low-income communities in the process of formulating the policy nor providing them a role in implementing the policy. Front and Centered says CarbonWA did not create “an inclusive campaign” and that I-732 does not provide ongoing “engagement and oversight by lower income communities and communities of color.” OneAmerica says that I-732 “was formed without meaningful input from communities of color or low-income communities” and as a result is part of an environmental movement “viewed largely as a white, middle class reform.”

At Sightline, we support a just and inclusive climate policy. We agree that the best way to ensure that a policy meets the needs of low-income residents and people of color is for those communities to participate in the design and implementation of those policies. By this test, I-732 fails. We agree that if there is an implementation oversight committee, it should include representatives of communities of color and low-income people. By this test, I-732 neither passes nor fails: I-732 is simple enough that it does not require any kind of advisory or oversight committees.

Does climate justice consist in who participates in making decisions, in the distribution of costs and benefits, or both?
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Where evaluating this critique gets complicated is that participation is not the only principle of climate justice, according to Front and Centered’s creed: “The highest priority for reinvestment must be to mitigate financial costs of implementation to communities with lower incomes.” I-732 hews closely to this principle, yielding the biggest gain in tax fairness in Washington in nearly four decades, with thousand-dollar net benefits for hundreds of thousands of low-income families. I-732 does nothing procedural to increase the influence of low-income families on decision making. It does, however, put most of them ahead financially. Indeed, has any reform in the last decade, aside from the Affordable Care Act, increased many low-income working families’ annual income in Washington by more than $1,000 apiece in a single stroke?

Sightline cannot resolve this dispute through factual analysis. It hinges on a disagreement about principles: does justice consist in who participates in making decisions, in the distribution of costs and benefits, or both? Depending which principle you prioritize, you will reach different conclusions about I-732.

What to do with the revenue?

The divide between I-732 supporters and critics about the best use of the carbon revenue is driven by different policy preferences, political philosophies, and views of the political landscape. Below, we analyze the policy differences and describe the philosophical and political differences.

Policy

I-732 backers and opponents agree on the overarching policy: large polluters should have to pay a steadily increasing price for each ton of pollution. They also agree about two uses of the revenue:

  1. Some money should assist businesses so that jobs and pollution don’t “leak” out of the state. I-732 pursues this goal by giving a tax break to manufacturers, while critics’ draft proposal—subject to change, as it is developed as a legislative bill or citizens’ initiative in 2017 or 2018—would give rebates to energy intensive, trade-exposed (EITE) businesses.
  2. Some money should be used to fund the Working Families Tax Rebate. I-732 would fund it at 25 percent of the federal Earned Income Tax Credit while critics’ draft proposal would fund it at 20 percent, which would amount to hundreds of dollars per year less for each qualifying family.

However, critics argue that I-732 is missing three indispensable uses of the revenue: clean energy, investments in disproportionatey impacted communities, and transition assistance for workers.

1. Clean energy

Washington Environmental Council and Climate Solutions argue that I-732 falls short because it does not invest revenue in clean energy, which is “essential” to “accelerate the transition from fossil fuels.” The Washington Machinists Council resolved that I-732 “ignores the fact that simply making it more expensive to pollute will not magically build the infrastructure necessary to convert to a clean energy economy that allows people to live more sustainably.”

While we agree that the climate crisis is urgent and support the desire to accelerate the transition off fossil fuels, we do not agree that I-732’s lack of direct investment in clean energy makes it an inherently deficient policy. First, investing public funds in clean energy sources such as wind and solar that are not blocked by market barriers would likely be a waste of money: a sufficient carbon price alone will ensure their wider use. Second, although carefully targeted investments and policies are valuable complements to a carbon price, carbon tax revenue need not fund them all. Some complementary measures do not require funding, while others could be funded separately.

Our claim that investing in clean energy is not only non-essential, but may actually be wasteful, may seem counterintuitive. But the weight of our research, over many years (see here, here, and here), informed by research by at MIT and Brookings Institution among others, leads us to conclude that a rising price on carbon is essential. A rising price on pollution is the most efficient and effective way to spur private investment in the infrastructure and innovations we need to transition off of fossil fuels. A sufficient price will drive emission reductions, regardless of how the revenue is used. Pricing carbon is the most economically efficient large-scale way to slash emissions.

Complementary policies can help the price do its work more quickly, more cost-effectively, and with broader benefits. Two particular types of complementary policies work with a price to achieve the fastest, most cost-effective transition: a) policies that overcome market barriers that the price alone can’t overcome and b) policies that target pollution reductions that cost more than the price but that come with additional benefits, such as cleaning the air or developing new technologies. (You can read more about how a price plus the right concurrent policies work together here.)

But investing in clean energy that is not blocked by market barriers is often redundant and more costly than simply raising the price.

As an illustration of how the price drives private investments that make public investments superfluous, consider that reinvesting revenue might direct hundreds of millions of public dollars to subsidizing wind and solar energy. That’s a considerable amount, but I-732’s carbon pollution price will motivate utilities to shift their existing billions of dollars in investments away from fossil fuels and spend it on solar, wind, grid improvements, energy efficiency, and the distribution edge. (US utilities spend about $90 billion per year on capital investments. The Pacific Northwest consumes about 4 percent of the energy in the United States; if Pacific Northwest utilities spend a proportionate share on capital investments, they currently invest about $4 billion per year.) Most of the existing dirty-energy infrastructure was built by private investment; most of the clean-energy infrastructure can be built by private investment, too, if a price on pollution creates the right incentives.

In the transportation sector, market failures prevent private investment from flowing to low-carbon solutions, such as improved land use planning and walkability and accelerated frequency and speed of transit. Accommodating more people in low-carbon neighborhoods and giving people more options for getting around are attractive investments because they also offer many non-carbon benefits, like better access to affordable housing and jobs. Still, a rising price on carbon pollution will spur dramatic and far-reaching progress toward post-carbon transportation, even without additional investment. It will stem fuel consumption and increase demand for transit and other low-carbon choices, including places to live and work that are navigable without a private car.

Sightline would, if we had our druthers, invest some of the proceeds in public transportation, home and building energy efficiency, and other carefully targeted projects that overcome market barriers or provide additional benefits. We would also pursue policies (not uses of revenue) that complement a pollution price, such as improved building codes, ambitious energy efficiency standards, energy labeling and data access, and well designed renewable energy mandates to accelerate the transition away from fossil fuels.

That said, the absence of clean energy investments in I-732 is no reason to oppose the citizens’ initiative. I-732 offers the single most important climate policy: a steadily rising price on pollution. Passage of I-732 does nothing to preclude Washington from investing other public funds in the clean energy transition, just as does British Columbia. Passing a strong pollution price does not preclude Washington from pursuing additional policies to complement the price by pushing the state toward clean energy without public funding (such as strict building codes and appliance standards), just as both British Columbia and California do.

2. Disproportionately impacted communities

Critics argue that I-732 doesn’t dedicate enough revenue to disadvantaged groups and those on the frontlines of climate change impacts. They believe that ensuring “net economic benefits” for communities of color and low-income communities should get higher priority than a sales tax cut for everyone or tax cuts for manufacturers.

Making sure low-income families are not worse off as the carbon price rises should be the highest priority of a just and equitable climate policy.
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A number of leaders of Front and Centered contend that I-732 “fails to equitably reinvest revenue from pricing carbon pollution” because it relies on a flat sales tax cut, thus confusing “equity with treating everyone the same.” They agree that the Working Families Tax Credit is an important step towards equity, but rue “industry giveaways” that get a bigger chunk of the money. Instead, they want to see “people of color and communities with lower incomes receive net-environmental and economic benefits.” Climate justice groups’ highest priority for carbon revenue would be to “mitigate the financial costs of implementation to communities with lower incomes.”

We agree. Making sure low-income families are not worse off as the carbon price rises should be the highest priority of a just and equitable policy. As we explained previously, I-732 would be the biggest improvement in the progressivity of Washington’s state tax system in 40 years—an enormous gain for 460,000 low-income working families. Still, it does have a hole in it: some 340,000 low-income families do not qualify for the Working Families Tax Credit. Some of them, perhaps many of them, will end up worse off by tens of dollars each year because the sales tax cut won’t fully offset their increased carbon costs. Some of them might come out as much as a few hundred dollars a year behind. The Working Families Tax Credits and sales tax cuts are important improvements on the status quo, but we lament I-732’s lack of additional funds to help low-income Washingtonians.

In addition to mitigating financial costs, climate justice groups want to use carbon revenue to create good jobs for lower-income people and people of color and to provide access to clean transportation, an affordable place to live, and clean and secure food sources. OneAmerica holds that “a portion of the revenue generated from a price on carbon [should] be invested directly into front-line communities and workers.” Other social justice advocates explain: “True climate justice looks like transit serving affordable housing, clean energy in low-income neighborhoods, healthy food systems and good locally rooted jobs. It … means investments targeted for communities of color and people of lower incomes.”

We agree with these goals, and I-732 unfortunately fails on these counts. However, the quotes above suggest these advocates have the California approach to climate-justice investments in mind, and Sightline’s recent report about climate justice in Oregon outlines how awkwardly California’s climate-justice approach fits Washington’s southern neighbor, Oregon. Due to far closer demographic distribution parallels between Washington and Oregon than there are between Washington and California, a similar analysis in Washington would likely reveal the same thing: that targeting clean-energy investments geographically, as California does with 25 percent of its state carbon revenue, would actually neglect the neighborhoods of a large majority of low-income families and people of color in Washington.

Furthermore, even within beneficiary neighborhoods, removing I-732’s sales tax reduction and investing in geographically based projects would benefit certain Washington households but leave hundreds of thousands of other low-income Washington households worse off than they would be under I-732, as we will explain further in a future article.

We fault I-732 for not making sure that low-income families excluded from the Working Families Tax Credit also benefit from putting a price on pollution. Some may still come out ahead because of the sales tax cut, but for some, increased carbon costs may outpace sales tax reductions. I-732 does not harm them very much financially, but we believe it should actively help them, either with money or with other assistance. That said, we believe Washington may need to invent a different model for achieving that goal than California’s geographically based approach. One idea for steering investments to help disadvantaged families and communities in making the clean energy transition is called “Green Stamps,” which we will describe in a future article.

3. Just transition for workers

The Washington State Labor Council argues: “No worker or community should be left behind in this economic transformation.” Climate Solutions believes a climate policy should “drive a just transition.” Washington Environmental Council echoes that revenue should be invested ”into an equitable transition for workers.” To “protect workers at refineries, fossil fuel power plants, and other industries with high emissions,” the Alliance’s draft policy outline creates a fund to “provide income, benefit, peer counseling, and retraining support to workers who lose their jobs due to the transition to the clean energy economy.”

We applaud these aims. However, counterintuitive as it may seem, workers in polluting industries may not be the ones most impacted by a carbon price. Modeling done in California suggested that a carbon price could have widely varying outcomes: it could cause the electricity, refinery, and natural gas sectors to shed as many as 33 percent of their jobs over the course of a decade, or, on the other hand, some fossil fuel sectors could gain up to 21 percent of jobs. California modelers concluded that textile, apparel, recreation, and cultural jobs could also diminish, while ground transportation and air conditioner and refrigerator manufacturing jobs could grow. Recent modeling in British Columbia suggests that service sector jobs may be hardest hit, while renewable electricity, electricity construction, and manufacturing jobs would grow. Modeling in Oregon indicated that retail, food services, and real estate jobs would be most negatively impacted by a carbon price, while construction and truck transportation jobs would benefit. In other words, a carbon price will likely be good for some types of jobs, bad for others, and not necessarily the worst for fossil fuel jobs.

  • In Washington, fossil fuel workers fill around 0.1 percent of Washington’s almost 3 million jobs. The state’s five refineries employ around 2,000 full-time workers, and its 14 fossil fuel power plants employ around 340 operators. Washington’s industrial facilities employ a few thousand more—some 450 people work in food processing, 1,260 in chemical plants and operations, and 1,120 in semiconductor processing—but I-732 offers some protection for all these jobs by exempting manufacturers from the state business tax when the carbon tax kicks in.

    We would not argue with the goal of smoothing economic transitions for workers, nor would we begrudge fossil fuel workers a helping hand. But we see I-732’s lack of provision for them as excusable, largely because the clean energy transition will not hit them as hard as one might expect—and it is likely to hit others much harder.

    Many fossil fuel workers are relatively skilled and well paid: Washington Research Council estimates that Washington’s five refineries pay employees an average annual wage of $121,114. According to the US Department of Labor’s Bureau of Labor Statistics, Washington refinery operators earn an average annual salary of $68,490, petroleum engineers  an average of $141,500, and power plant operators about $87,440, compared to the average Washington salary of $54,010. While skilled workers may need help re-tooling, they tend to navigate economic change better than other members of the workforce. If we were to fault I-732 for failing to aid workers, we would fault it more for failing to help African-American and Latino workers who already have higher unemployment rates and who could benefit from job training, including for energy-efficiency retrofitting jobs.

    Other forces already at play in the economy will continue to exacerbate inequality and blunt opportunities for many Washingtonians. In this light, the cry for “just transitions” for fossil fuel workers and communities evolves into a much broader agenda, even a new social contract, including unemployment benefits, job retraining, educational opportunities, and universal, portable employee benefits.

    Creating a more just and prosperous social order is a priority for Sightline. But offering job transition assistance to a few thousand workers, most of them well paid and highly skilled, does not seem an indispensable step. While we’d like to see protections for workers in whatever sectors ultimately are most affected, we do not see I-732’s lack of dedicated revenue to aid fossil fuel workers as a fatal flaw.

    Philosophy

    The different policy preferences above reflect different philosophies about the roles of individuals, businesses, and government. Conservative thinkers, along with many economists and libertarians, tend to put individuals and businesses at the heart of their worldview, and so favor a revenue-neutral carbon tax that gives the money back to people and businesses. Many on the left, including the Washington State Democratic Party and Fuse, believe public institutions and collective decision-making processes are critical to large-scale social change, and so favor a diverse committee overseeing spending on clean energy projects, targeted investments in communities of color, and aid to workers transitioning to new jobs.

    Sightline recognizes these differing philosophies, understands them both, and sympathizes with both. Because we believe that winning a high and rising price on carbon pollution—and soon—is a life-or-death obligation for the future not only of Cascadia but of the world, we are amenable to policies that rest on either philosophical foundation or that successfully blend the two.

    Our concern is with the policy outcomes on balance. If the price is right and the details are well-designed, we can support—and have argued in support of—giving the money back to people and businesses or investing in education and transportation choices or investing in disadvantaged communities, clean energy, and protecting energy intensive, trade exposed industries, or some combination of these.

    Politics

    The best climate policy is not the one that looks best on paper but the one that legislators or voters will actually pass—and uphold. Politically astute use of the revenue can help muster the political will to pass a carbon price and keep it rising over time. But political astuteness is in the eye of the beholder.

    Some commentators, such as David Roberts, believe polling suggests the best way to sell a carbon price to the public is to spend the revenue on popular clean energy technologies. However, some research suggests that people will flip from favoring such environmental earmarking to favoring giving the money back to people if they know how much a price can cut pollution and how much it will impact low-income households.

    Other climate hawks, including I-732’s backers, believe that winning bipartisan support is the best hope for passing and safeguarding a carbon price, and a revenue-neutral approach has the best political chances because it might win more conservative support than other options. Revenue neutrality appeals to a conservative worldview, and conservative think tanks support a revenue-neutral carbon tax. But in practice, I-732 has only attracted tepid conservative support.

    We don’t pretend to judge political strategies, but we note that the split in the climate movement in Washington does not seem to be solely about the policy differences that we are analyzing. It may also reflect divisions over philosophy and political strategy that fall outside our purview.

    Conclusions about disagreements

    I-732 backers and critics agree that Washington should put a price on carbon, but they disagree about how best to design the price and how best to use the resulting revenue.

    • We find the cap vs. tax argument to be a distraction. I-732’s price is high and rising. It is the best in its class, possibly worldwide.
    • By a procedural definition of climate justice, I-732 fails: it was not designed by, nor will it be governed by representatives of historically excluded or disadvantaged communities.
    • By an economic definition of equity, I-732 is a massive improvement over the status quo, aiding 460,000 working families. However, we agree with the critique that I-732 has an equity gap. It makes 460,000 low-income workers’ families better off and holds many other households harmless. But it does not completely shield some hundreds of thousands of ineligible low-income residents from the effects of rising energy prices. We wish I-732 put a higher priority on ensuring that every low-income Washingtonian was better off by ensuring that more benefits went to low-income households not covered by the Working Families Tax Credit.
    • We reject the critique that I-732 is ineffective because it doesn’t invest in clean energy. I-732 would be the most effective carbon reduction policy in North America, maybe in the world, because it would be the highest and most reliably rising price.
    • We sympathize but are not persuaded by the critique of I-732 for failing to help fossil fuel workers transition to a clean economy. Transitional assistance may be needed by other workers more than by fossil fuel workers.

    In sum, three of the criticisms launched against I-732 miss their mark, one hits home, and one is indeterminate—it depends how you define climate justice. Taken on whole, for us at Sightline, and judged exclusively on the basis of policy, not politics or political strategy, the policy’s flaws are cause for concern but are dwarfed by I-732’s potential benefits.

    Conclusions about I-732

    I-732 would launch Washington to a position of global leadership on climate action. By implementing a pollution price, rising steadily for four decades and keeping pace with inflation thereafter, I-732 would reorient Washington’s economy away from fossil fuels and toward low-carbon options. The price would be simple to administer and would cover most of the state’s pollution. By reducing Washington’s regressive state sales tax and funding tax credits for working families, I-732 would make the state tax code more progressive.

    On the other hand, as we previously noted, I-732 would give an unfortunate windfall to Boeing and other aircraft manufacturers. It wouldn’t do enough to protect and boost the interests of all low-income Washingtonians or to help the hardest-hit Washingtonians thrive in a clean energy economy.

     

    UPDATE August 26, 2016: Front and Centered is publishing a series of articles articulating its principles more fully and offering counterarguments to some of our conclusions. It’s worth reading.

    UPDATE October 13, 2016: Plan Washington has published “The Business View on I-732” analyzing how well I-732 will reduce carbon  how it will impact business, and how it could be improved to become more effective.