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Displacement: The Gnawing Injustice at the Heart of Housing Crises

In Seattle and other fast-growing cities across Cascadia and beyond, bitter stories of people priced out of their homes and of affordable buildings torn down for new construction are all too familiar. The sense of injustice we feel about these stories is well justified. Sightline recently assembled focus groups—random samples of long-time Seattle residents—to talk about the housing crunch, and strong feelings about housing costs ran to a fever pitch on the issue of displacement. To see friends and neighbors forced to relocate from their homes and communities stirs everyone’s hearts to indignation.

But the causes and solutions? Our focus groups, like many Northwesterners, were less clear on those.

This article lays out the best evidence on displacement in Seattle—the different types, rates, and causes—and assesses strategies for protecting our communities from it. Unfortunately and perhaps surprisingly, what common sense counsels on this issue—to stop demolition of old buildings and preserve them as low-rent apartments, for example—turns out to backfire in a sequence of unintended consequences.

The root cause of displacement is a shortage of homes, and the only real solution is to build lots more housing of all types, to bolster those efforts with public support for those most vulnerable, and to precisely target preservation efforts in places justified by the protection of cultural communities or the opening of economic opportunities. Seattle and other prospering cities can ensure that working families and people of color can stay in their homes and keep fragile communities together. Displacement does have solutions, in other words. They just may not be what you think.

Overview of displacement and remedies

Displacement comes in two main forms. Physical displacement happens when old buildings give way to new ones. Economic displacement happens when rising rents force tenants to move elsewhere. These two primary causes may also precipitate cultural displacement, when people move because neighbors and culturally related businesses have left the area.

Physical displacement is so conspicuous, it dominates popular thinking. But economic displacement is by far the bigger problem in expensive cities such as Seattle. This misplaced focus on physical displacement leads many to believe that the best remedy is to stop development. But as discussed below, any reduction in physical displacement gained by preventing the construction of new housing is vastly outweighed by increased economic displacement.

To stem economic displacement, advocates often propose another plausible-sounding remedy:  preserve existing low-cost homes, so-called “naturally occurring affordable housing.” But this prescription, too, is destined to fail overall because it doesn’t treat the underlying disease: a shortage of housing.

The closer we get to having enough housing—plenty of housing types and choices—the fewer families will face displacement.
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In booming cities such as Seattle, legal restrictions on housing construction create a situation in which the need for homes increasingly outstrips the supply of homes available to rent or purchase. And this enforced housing shortage creates a preservation paradox: conservation of existing inexpensive private-market housing—whether by halting demolitions or by instituting rent restrictions—does not reduce displacement. It only rearranges where the displacement happens—and can even increase its occurrence.

The simple explanation: because preservation adds no new housing to the city’s stock, it doesn’t relieve the demand for housing. When people hunting for housing outnumber homes, the inevitable results are rising prices and economic displacement of those at the bottom of the economic ladder—people with more money move in, and those with less have to move out. The simple solution: build more housing. The closer we get to having enough homes, the fewer families will face displacement.

To be clear, new housing is not the only means to mitigate displacement. Targeted low cost housing preservation can serve social justice goals for low-income neighborhoods that face acute risks of displacement. Or in wealthier neighborhoods, saving what low cost housing is left may be necessary to retain lower-income residents and preserve economic and racial diversity. Localized public investments can provide support for fragile cultural or economic communities to help weather displacement pressures. Requirements that landlords give ample notice of rent increases can help at-risk tenants plan for alternatives. And when displacement does happen, cities can—and should—be ready to provide robust tenant relocation assistance.

In a bidding war for scarce homes, however, the only way everyone can come out with a place to live is if there are enough new dwellings added for everyone who is bidding. Preservation, when policymakers pursue it, must be matched with citywide housing growth, or else displacement will only shift to other blocks and neighborhoods, protecting certain people from displacement by exposing others to it. Ultimately, no action is more effective at curtailing displacement across an entire city than creating more housing choices for the diverse families and individuals who need them. The following sections provide detailed support for these conclusions.

Data: Physical vs. economic displacement

The figure below shows the number of housing units demolished citywide over the past six years, based on City of Seattle building permit data. While the current situation in Seattle may feel extreme, these six years are typical of the historic trend: over the last 20 years, Seattle averaged about 475 housing unit demolitions per year; 2008 had the most, with 985.

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

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

City authorities track neither the value nor the rent of demolished housing, nor the reasons for its demolition, which is unfortunate. Not all units demolished are low-cost housing, and demolitions stem from varied causes, not just construction of new homes. Construction of commercial buildings precipitates demolitions; fires and other destructive events necessitate others; and nearly all buildings need to be replaced eventually simply due to aging.

Even when a home is demolished, it doesn’t always mean displacement: almost one-third of all demolitions in Seattle over the past five years were of single-family houses, and some of those teardowns were done by affluent owners who simply wanted to build new, bigger houses. Thus the data shown in the figure above demarcate an upper limit of the amount of physical displacement of low-income households caused by housing development, again, because many demolitions happened for reasons other than construction of new housing and not all of the demolished housing was low-cost.

The rate of economic displacement is difficult to assess. The US Census tracks how household incomes change within an area, but it does not isolate specific households—so it’s not possible to know why a household may have left a particular home. No one has conducted a survey of relocating tenants to ascertain where they are going and why.

But anyone with friends who rent in Seattle knows anecdotes of economic displacement. One of my Sightline colleagues recently moved out of her one-bedroom apartment in Seattle’s Capitol Hill neighborhood after the rent rose from $1,300 to $1,800 per month. She, her husband, and their one-year-old child ended up in the Seattle suburb of Lake Forest Park, where they could swing rent for a two-bedroom. Like many others facing a move farther out, their commute got more hectic, and they left behind a community of friends and favorite neighborhood activities—from restaurants to playgroups.

More than ten times as many people lose their homes through economic displacement (priced out) as physical displacement (demolition) in Seattle.
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Still, a good proxy for the scale of economic displacement is the change over time in the stock of low-rent apartments. Also shown in the figure above is the number of all housing units renting for $1,000 per month or less that have been lost from Seattle’s citywide rental pool, based on US Census five-year average survey data. By city standards, $1,000 per month is affordable to a household earning 60 percent of area median income (AMI), or about $38,000 per year for a one-person household. Seattle’s proposed Mandatory Housing Affordability program targets 60% AMI households.

Most of the sub-$1,000-per-month homes disappeared because their rents increased, but demolitions consumed some as well. Accordingly, for the most conservative estimate, subtracting the demolished units yields a net average disappearance of about 3,100 sub-$1,000-per-month homes lost per year to rising rents—over seven times more than all homes lost to demolition that occurred for any reason, not just by new housing.

That ratio of seven to one is conservative, for several reasons. First, as noted, the demolitions include those with causes other than making way for new housing development. Second, rent increases both below and above the $1,000-per-month threshold can drive economic displacement. Consider my colleague, whose $1,300-per-month apartment became an $1,800-per-month apartment, sending her out of her beloved neighborhood. The $1,000 threshold is merely a proxy for a complicated cascade of relocation. If anything, the dwindling pool of sub-$1,000 apartments probably understates the rate of economic displacement because the loss is likely even more pronounced at lower rents levels. Third, the annual data points are five-year averages looking backward in time, resulting in an underestimate because the loss has been rising faster in the last few years. In all likelihood, more than ten times as many people lose their homes through economic displacement (priced out) as physical displacement (demolition) in Seattle.

Data: Density and displacement

The dynamics of displacement are further revealed by comparing how many homes builders have constructed and demolished in different zones of Seattle, as shown in the bar chart below (see notes at the end of article for details on these data). In total, from 2010 to April 2016, Seattle added almost 13 times as many units as it demolished in all zones citywide. In terms of net housing gained versus housing lost, redevelopment is a big win for reversing Seattle’s housing shortage and relieving upward pressure on prices caused by unmet demand. More homes to accommodate more families at lower prices is a simple formula for less displacement overall.

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

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

The highest ratio—58 to 1—occurs in Seattle’s commercial zones, because these zones typically have no existing housing at all. Otherwise, the bar chart illustrates that the higher the density of new development, the higher the ratio of new housing to demolished housing. The second highest ratio—31 to 1—occurs in Seattle’s downtown and highrise zones, which makes perfect sense because taller buildings can fit more homes on a piece of land.

In neighborhood commercial and midrise zones, where building heights are typically limited to six or seven stories, the ratio is almost as high, at 27 to 1. Notably, large multifamily housing projects often replace parking lots or spent commercial buildings and typically displace little to no housing at all. (Several real-world examples of new housing construction projects and their associated demolitions are provided in this companion article.)

Large multifamily housing projects often replace parking lots or spent commercial buildings and typically displace little to no housing at all.
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In Seattle’s lowrise zones, typically located between single-family areas and higher-density zones found in neighborhood commercial centers, single-family houses are often replaced by several townhouses, making the average replacement ratio about five to one. Not surprisingly, single-family zones have the lowest replacement ratio—only three to one—because only one new housing unit can be built on a lot, and in many cases, a new single-family house replaces an old single-family house, adding nothing to the housing supply and therefore doing nothing to relieve displacement.

What to do and what not to do

In short, these data indicate that to minimize overall displacement, Seattle should allow as many kinds of new housing at as high a density as possible. In many cases, this means big apartment buildings, but in others, it means older single-family homes replaced not with new single-family homes but instead with modest triple-family homes or houses with mother-in-law apartments. To support these assertions, I’ll first examine two policy scenarios that are unlikely to stem displacement, after which I’ll dig deeper into the effects of building more housing.

What won’t work: Prohibiting housing redevelopment that would demolish existing housing

In this scenario, the intent is to preserve naturally occurring affordable housing—that is, existing privately owned homes that for whatever reasons remain relatively inexpensive—by prohibiting any new housing development that would require their demolition. Based on the data shown above, the city would lose an average of 13 new housing units for every one existing unit saved.

The demand for housing—the people with fat wallets lining up to fill those 13 new units—would not disappear, however. Those people would still compete for what is available. This unmet need would push up rents in the very housing saved from demolition, as well as rents nearby. Any gains from preserving the existing housing would vanish, as rent inflation accelerated in the neighborhood. In the end, the increase in economic displacement would eclipse the reduction of physical displacement. Recent analysis by the City of San Francisco on a proposed development moratorium in the Mission District reached a similar conclusion:

…New market rate housing tends to lower, rather than raise, the value of nearby properties, and therefore a moratorium on market-rate housing would not protect nearby existing housing from rising prices….

In other words, halting development to save existing housing may provide a short-lived benefit for a lucky few, but only at the expense of many times more families who will see their rents rise faster.

What also won’t work: Restricting rents in naturally occurring affordable housing

In this scenario, the intent is to prevent economic displacement from naturally occurring affordable housing by capping rents. This can be accomplished through building purchase and subsidy by a public or nonprofit agency or through public subsidy provided to a private owner (or through rent control, were it not illegal in Washington State). The rationale is that without such an intervention, rents would rise according to what the market will bear, leading to economic displacement of the building’s lower-income residents.

This is the paradox of preservation: setting aside existing housing for low-income tenants helps those specific people—at the expense of other low-income people displaced elsewhere.
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But again, the catch is that the act of restricting rents in an existing building does nothing to relieve the need for housing. If people cannot rent at a building that only allows low-income tenants, because, say, they make just a little more than permitted, they will find a different building that isn’t rent restricted. The resulting increase in competition for apartments in that building will then drive up the rent there, ultimately causing the displacement of that building’s poorest tenants. This is the paradox of preservation: setting aside existing housing for low-income tenants helps those specific people—at the expense of other low-income people displaced elsewhere.

In some cases, there is a legitimate public interest in preserving naturally occurring affordable housing in specific locations. For example, in fragile, low-income immigrant communities that have established an informal cultural home in a neighborhood, preservation serves a worthy purpose. Similarly, preservation of inexpensive, old buildings in otherwise expensive neighborhoods could create economic diversity and inclusion in areas of high opportunity, including proximity to good schools, transit, and parks.

In weighing these options, policymakers would do well to remember that when there is unmet demand for housing, there is no cheating displacement. Quell it in one place and it will just rear its head somewhere else—potentially even pushing out a family right next door.

What will work: An Rx for the homes we need

Next, let’s play out the scenario in which the primary policy goal is to create more housing choices—much more housing, of all types, throughout the city. New homes directly and immediately reduce displacement by making room for more people. It doesn’t matter whether they are expensive or cheap. Under current conditions in Seattle, any new home with a household living in it means one less household displaced from the city.

New homes directly and immediately reduce displacement by making room for more people.
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Recent research confirms that this dynamic plays out in the real world, and it does so not only across urban regions but also within neighborhoods. Economists with the California Legislative Analyst’s Office found that displacement was more than twice as likely in low-income census tracts with little market-rate housing construction than in tracts with high construction levels. Lots of new housing construction, in other words, slows displacement: more construction may cause more physical displacement, but it compensates many times over through reductions of economic displacement.

In a previous article, I explained the dynamic:

Consider the simplified case of a city with a total of five rentals ranging from cheap to expensive, and five people living in them with corresponding incomes. Along comes a wealthy newcomer who offers more for the most expensive unit, so the landlord raises the rent and the newcomer gets the unit because the current tenant can’t afford to pay that much.

The person who was displaced then offers more for the next cheapest rental, and so that landlord raises the rent, displacing the current tenant, who then bids up the next cheapest rental, and so on. In the end the person left without a place to live is the one with the lowest income of the five original renters.

Now consider how that scenario changes dramatically when there is one simple difference: a newly built expensive rental is available. The wealthy newcomer rents that unit, and that’s it—nothing changes for any of the existing five renters. No rents are raised, and no one is displaced. As counterintuitive as it may seem, the creation of a new expensive rental prevented displacement of the poorest renter.

If, in this scenario, building the one new rental caused the demolition of an existing lower-cost rental, then there would be a net loss of affordability. However, as shown in the Seattle data plotted above, on average, new housing development in Seattle results in at least 13 times as many units added as lost. In other words, on average, the expected result of building new homes is that for every one lower-income household that loses a home to demolition, 13 lower-income households are not displaced from the city elsewhere. The net increase in supply of housing not only reduces displacement by making room for more households, but also exerts downward pressure on housing prices throughout the market, thereby putting the brakes on economic displacement.

Building more new homes creates more affordable homes through filtering

The process by which new market-rate housing reduces economic displacement is called filtering. Filtering has two mechanisms, one fast-acting, one slow. The fast process moves at the pace of a moving van, as new housing allows rich people to trade up, which allows slightly less rich people to trade up, which allows upper-middle-class people to trade up, and for those in the cheapest apartments to trade up—or stay where they are—because there is less competition for housing, up and down the housing market.

When the production of new homes lags behind the need, filtering shuts down as intensified competition from tenants pushes up rents in older apartments.
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In the slower process, as time passes, older housing tends to become less desirable compared to new housing, and that older housing evolves into the next generation’s naturally occurring affordable housing. The more new housing gets built, the faster both filtering mechanisms occur.

Conversely, filtering can run in reverse. When the production of new homes lags behind the need, filtering shuts down as intensified competition from tenants pushes up rents in older apartments. Increasingly, people with more than enough means vie with people of lesser means for the same homes, a battle that the poorest always lose.

The longer the lag in construction of new homes, the worse the shortage of moderately priced housing. San Francisco, for example, has been starving its housing stock of new units for decades (with rent control, mandatory inclusionary zoning, and severe building restrictions), which is why even older, low-quality housing commands astronomical rents.

Of course, new homes are typically more expensive to rent or buy than old ones, just as new cars cost more than used ones. Because homes, unlike cars, typically last a hundred years, new construction tends to favor the high end of the market rather than “economy” models. Inexpensive older housing fills the need for inexpensive homes, just as used cars fill the need for cheap cars.

Throughout history, most new homes have been built for the higher end of the income spectrum. But thanks to filtering, in prosperous cities, even if new housing is more expensive, building more of it still curtails displacement and slows average price inflation in the housing market as a whole.

Building more new subsidized affordable homes doubly reduces displacement

The biggest problem precipitated by the high cost of new housing is loss of community diversity. When a neighborhood gains a lot of new market-rate housing over a short period of time, on average it will become wealthier—and likely less racially and economically diverse—even when no lower-income households are displaced.

But the solution is not to stop market-rate housing development. Rather, it is to also build subsidized below-market-rate housing. Indeed, researchers at University of California Berkeley recently found “the effect of subsidized units in reducing the probability of displacement to be more than double the effect of market-rate units.” Unlike preserving existing homes, building new subsidized homes reduces net displacement because the latter adds to the supply of housing.

When average rents are held lower by ample supply, more people can afford market-rate apartments without public subsidy.
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Compared with most US cities, Seattle has been relatively successful at fostering subsidized affordable housing development throughout the city, including in expensive locations such as downtown and South Lake Union. There are currently about 27,000 subsidized homes in the city, making up about eight percent the city’s total housing stock. The prospects for economic diversity throughout Seattle depend heavily on the continuation and expansion of existing public programs.

At the same time, robust private housing development supports Seattle’s subsidized housing efforts by tackling the root cause of rising rents—the housing shortage—and thereby reducing the number of people who need subsidized housing in the first place. When average rents are held lower by ample supply, more people can afford market-rate apartments without public subsidy.

Private development also contributes directly to Seattle’s stock of subsidized homes through the Multifamily Tax Exemption, which has produced more than 6,000 below-market rate apartments in otherwise market-rate buildings. Seattle’s proposed Mandatory Housing Affordability (MHA) would explicitly link private development to the creation of below-market-rate homes. If the city can correctly balance the program’s zoning changes and affordability mandates, MHA has the potential to ramp up production of both market-rate and subsidized housing.

Furthermore, because the additional homes allowed under MHA would not expand the building footprint , MHA would cause no increase in physical displacement. MHA is designed to make already feasible homebuilding projects slightly bigger and to include some affordable apartments, but not to increase the overall number of profitable homebuilding projects. Repeat: MHA would cause no added increment of physical displacement, even as it doubly reduced economic displacement, because it would increase the number of new homes available, speed filtering, and leverage construction projects to include additional subsidized homes that they wouldn’t otherwise build.

Loosening restrictive zoning is the key to building more housing of all types

The chief roadblock to building the homes Seattle needs is zoning restrictions that limit the number of new units allowed on a given piece of land. It follows that relaxing such limitations—that is, upzoning—is a fundamental anti-displacement strategy in high-demand cities such as Seattle.

If policymakers hope to help those most in need of inexpensive housing, they must carefully weigh the rationale for zoning rules that limit the creation of much-needed new homes against the stark reality: one more low-income household is forced out of the city every time those rules prevent the construction of a new home.

Some advocates, however, argue just the opposite, that upzones accelerate displacement because they increase the financial incentive for redevelopment that replaces existing affordable housing with expensive new housing. A recent Seattle example is the Housing Affordability and Livability Agenda (HALA) recommendation to allow duplexes and triplexes in single-family zones, about which Councilmember Mike O’Brien stated:

I do not support zoning changes that would lead to rapid redevelopment of our single-family zones and the replacement of existing single-family housing with newly constructed multi-family housing. I don’t believe this will help with affordability.

Any time zoning restrictions result in fewer new homes than the private market would otherwise have built, it’s a lost opportunity to reduce displacement at zero cost to the public purse.
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But here’s the flaw in that viewpoint: it ignores the fact that the reason prices are rising and causing economic displacement is that Seattle doesn’t have enough housing! Putting two more homes on a single-family lot with, say, a triplex, most definitely will help affordability simply because it makes room for two more households than could live on that lot before. And that means two low-income households who can stay in Seattle instead of being pushed out because they don’t have to complete with the wealthier triplex newbies for their lower-cost homes.

The single-family zoning that covers over half of Seattle’s land is particularly egregious. It overregulates or outright prohibits a variety of more affordable housing options that could fit well in single-family neighborhoods, such as backyard cottages, duplexes, triplexes, and small-scale apartments. As can be observed in neighborhoods throughout Seattle, these legal limits lead to the lose-lose outcome of higher prices and zero gain in housing supply when existing houses are torn down and replaced with single McMansions that sell for well over $1 million.

But whether we’re talking about a single-family lot or a downtown highrise, the point is this: any time zoning restrictions result in fewer new homes than the private market would otherwise have built, it’s a lost opportunity to reduce displacement at zero cost to the public purse. Moreover, in some cases, upzones may actually reduce not only economic displacement, but also physical displacement of naturally occurring affordable housing.

For example, City of Seattle analysis on a proposed upzone in the University District projected that 40 lower-cost housing units would be demolished if proposed upzones were enacted, compared to 60 housing units demolished if no zoning changes were made, stating that, “the implication of this framework is the need for less land (and the potential demolition of low-cost housing) to meet the target population.”

The root cause of displacement is unmet need for homes, and the act of relaxing zoning to allow larger buildings does not create more need. The ultimate futility of wielding restrictive zoning to thwart displacement is another stubborn facet of the preservation paradox. It’s true that density limits mandated by zoning can kill the financial incentive for redevelopment, potentially staving off the demolition of low-cost housing. But unmet demand will drive up the rents anyway, more than negating any benefit.

Conclusion

The housing market in rapidly growing cities such as Seattle is like a giant game of musical chairs. It has different sizes and styles of chairs, and new ones are replacing or adding to old ones. But as in any game of musical chairs, players outnumber chairs, so round after round, people get knocked out of the game.

In the housing market version of the game, the players excluded are not random, though. Because there aren’t enough chairs (homes), and because players can pay to stay in their chairs or to buy the chairs of others, those with the most money never lose, while the poorest always end up chairless. They move out of their favorite neighborhood to less desirable ones or out of the city entirely.

Displacement is the paramount challenge to creating cities both that prosper and that advance that prosperity for all of their residents—not a rich or lucky few.
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In fact, if you’re poor, your only hope is that chair production will someday catch up with the number of people who want to play. Even if the game-makers preserve certain chairs for certain people (“reserved for veterans” or “special-needs players only”) or stem the addition of expensive new chairs to the game (“no McMansion chairs!”) or give money to some players to help them buy chairs (“Section 8”), as long as people outnumber homes, the game will still keep knocking players out. And it will always, always, always knock out the players with the least financial resources.

The only way to stop displacing poor players is to provide enough chairs, in enough sizes and styles, to meet the needs of everyone. Then—and only then—when the music stops, everyone will have a place to sit down.

Displacement is the paramount challenge to creating cities both that prosper and that advance that prosperity for all of their residents—not a rich or lucky few. Overcoming that challenge hinges on tackling the root cause of displacement in booming cities: a housing shortage.

In Seattle, available evidence suggests that at least ten times more displacement is caused by rising rents than by demolition of low-cost housing. Under such conditions, neither halting development nor preserving low-cost housing can reduce net displacement—these measures can only push the displacement problem someplace else, to someone else, likely someone poor. The absolutely necessary condition for minimizing the very real damage to communities caused by displacement is the construction of lots and lots of new homes, of many sizes and shapes and price points.

Within the complex cultural and economic dynamics of a growing city, however, particular communities will need more than new housing alone to equitably address displacement pressures. Such cases warrant locally targeted preservation of low-cost housing, a concentration of new subsidized housing, or other public investments to stabilize vulnerable communities. If such interventions are to work, though, they must be supplemented with increases in housing construction in other areas of the city. Otherwise, they may save a chair in one neighborhood, only to knock out several across town or even across the street. Tackling displacement requires a “both/and” approach: build lots and lots of new housing, and provide support for communities most vulnerable to change.

 

Notes

City of Seattle data do not associate specific construction permits with their demolition permits. In this companion Sightline article, we matched permits for several new housing construction projects, lot by lot, to reveal the actual number of physical displacements occasioned by new construction of multifamily buildings.

The five-year average census data for sub-$1000-per-month rentals are not adjusted for inflation. Changes in income also factor into housing affordability, and the five-year average census data for Seattle show that households earning less than $35,000 per year declined slightly between 2010 and 2014. Some of this decline may have been caused by economic displacement. Overall, we believe that these data limitations do not compromise our conclusions.

In 2012, the 272-unit McGuire apartment building, located in one of Seattle’s downtown zones, was demolished due to faulty construction. Because the reason for the demolition had nothing to do with new housing development, and because the high number of units lost would significantly skew the data for downtown zones, these 272 units are not included in the bar chart comparing zones.

Based on similarities of typical building scale, the bar chart aggregates downtown with highrise zones, and neighborhood commercial with midrise zones. The “multiple zones + other” category in the bar chart includes projects built on land in multiple zones, in major institutional overlays, or in zones that were for some reason unidentified.

 

Thank you to Ethan Phelps-Goodman who generously shared his data on demolitions and rent increases. Check out Ethan’s excellent work at Seattle in Progress.

 

Seattle’s HALA in the News

It’s a boom time for Jet City, but not everyone in Seattle is booming. Far from it. In one of the nation’s top five fastest-growing cities and home to a rapidly expanding tech sector, housing prices are propping some up and pushing others out.

Community stakeholders are wondering what set of solutions can effectively turn unprecedented growth into opportunities to make sure people of all incomes can share the promise and convenience of the city. How can Seattle ensure enough homes to go around while also protecting the things Seattleites love about their communities? Seattle’s Housing Affordability and Livability Agenda (HALA) is a set of proposals intended to address these questions, but several of its 65 recommendations are controversial, and the public conversation reflects this.

To better understand what’s shaping this conversation, Sightline Institute analyzed mainstream news media coverage of HALA. We asked: What are the dominant narratives? What are missed opportunities? And who is (or who is not) defining the debate?

Read our analysis and complete list of messaging recommendations:

Access the full media audit.

Want the shorter version? Check out our six top messaging takeaways here.

Weekend Reading 8/5/16

Kristin

I’ve been listening to podcasts recently so I can “read” on the go. I love NPR’s TED Radio Hour. This episode, “Becoming Wise,” includes a lovely story told by a guy whose family hosted Nelson Mandela when he was first released from prison. He tells about a herd of elephants that helped a young elephant with a birth defect survive, as a metaphor for how we can only truly exist in the context of other people, and even in the context of the whole living world. And in this episode, “The Fountain of Youth,” I like that they go beyond diet and exercise to talk about the social aspects of longevity and a life well-lived. One speaker talks about how, in a particularly long-lived area in Japan, people don’t define themselves by their job or whether they have retired from their job. Everyone, no matter their age or employment status, has “ikigai,” their reason to get up in the morning.

And NPR has a new podcast, Code Switch, about race and identity. The first episode, about whiteness, is great.

Finally, Becoming Wise had a beautiful episode about Einstein, race, and empathy.

Sarah Kliff at Vox just published this fantastic explanation of the gender wage gap (hint: it is real and it has something to do with babies and inflexible work hours.)

Kelsey

As an almost-daily Pronto user, reading this article on equitable bike-sharing filled my morning commute with hope and excitement today. Now that the City of Seattle has purchased the bike-share and committed to engaging low-income populations and communities of color, I’m eager to see how the future of Pronto will unfold.

I’ve been reading really interesting articles about genes lately. I’m not sure if I’m feeling nostalgic for my days as a biology undergrad student or if it’s because I just finished reading a sci-fi novel, but genes are endlessly fascinating to me. This conversation with author Siddhartha Mukherjee explores his new book The Gene: An Intimate History, and gives a nice overview of the history and possibilities of gene manipulation. Another recent article from National Geographic discussing the process of gene manipulation, with particular emphasis on mosquito-transmitted illnesses, is a good follow-up read. And if you simply cannot get enough, be sure to check out this ear made of cervix that is held together by an apple!

Keiko

Did you know that unmarried women, people of color, and millennials will make up the majority of voters for the first time in the upcoming November election? This “New American Majority,” also called the “Rising American Electorate,” is key to winning progressive change. In the new bestseller, Brown is the New Whiteauthor Steve Phillips explains how America is experiencing a “demographic revolution” that will shift how governing bodies make decisions.

So how can advocates, nonprofits, and elected officials shift their outreach plans to engage the rapidly changing demographic landscape? Sightline Institute is partnering with the Communications Hub at Fuse, Latina Creative Agency, and Washington CAN to present case studies from local experts who have effectively reached and mobilized diverse communities including: people of color, women, LGBTQ communities, and young voters. Register here for this free event in Seattle! Space is limited.

Anna

Freakonomics Radio featured lots of interesting folks singing very Sightline-sounding tunes in their recent episode called Ten Ideas to Make Politics Less Rotten. Olympia Snowe, Rob Richie (Fairvote), Joaquin Castro, Karl Rove, Norman Ornstein (American Enterprise Institute), among others, each offered one thing that they’d get rid of to make US democracy work better. My favorite was Howard Dean talking about doing away with single-vote plurality elections (wha?!):

If I could do a single thing in American politics, it would be to get rid of the single-vote for your favorite candidate. Right now, we vote for one person, and that person either wins or doesn’t win. That is, if there’s ten candidates in a race, you get one vote. There’s a system called ranked-choice voting, where you don’t get just your vote for the top choice that you have, you also get to vote on all the other choices. And you get to rank them. So that if your candidate doesn’t win, your second-choice vote counts. What that does is create as the winner, the person who is best respected and best liked overall in the electorate. It’s just a good system. The other thing about it is that it makes people behave themselves better. San Francisco put in ranked-choice voting a few years ago, and they had the most polite mayor’s campaign that you ever saw, because if you’re hoping to get somebody’s second or third choice vote, if you know you’re not going to get their first, you’re not going to say anything bad about them in the campaign, because you drive those voters away. And those are the voters that eventually get you elected. So ranked-choice voting simply means that you get multiple choices, you can weight your choices, and the candidate that the most people like — and usually the one that’s the most reasonable — becomes the next mayor, the next president, the next senator. And I think that makes voters happy, it makes politicians behave better, and it’s something that’s coming slowly to the United States and where we have it, it works well.

And just so you know: word is that homes in walkable neighborhoods are worth more.

Weighing the Critiques of CarbonWA’s I-732

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. 

Does I-732 Really Have a “Budget Hole”?

UPDATE, AUG 4: We added the first graph, below, to illustrate our analysis.

UPDATE, AUG 3: Friends have suggested that basing some of our analysis on the sum of state tax revenue unfairly biases it in favor of I-732, something we certainly didn’t intend. Our estimated $78 million average annual shortfall is just 0.37 percent of $21 billion in state tax revenue, but it is 3.9 percent of CarbonWA’s $2 billion tax swap. The Department of Revenue’s estimated $200 million average annual shortfall is less than 1 percent of state tax revenue but 10 percent of I-732’s carbon tax revenue. This feedback made us realize we were not clear about the underpinnings and main conclusion of our analysis. We endeavored to determine whether I-732 is as close to revenue neutral as a reasonable forecast can determine. We have added to the article to better frame our assertions and to make clear that our analysis holds whether total tax revenue or carbon-tax revenue is the basis for comparison.

Note from Alan: As I explained last time, Washington’s Initiative 732 has divided climate hawks so deeply that even writing about it is a task we undertake with trepidation. (Please read my full note of introduction to the series here for more background.) We endeavor to remain neutral, supporting action on climate but not siding with one action path over another. We strive, in this short series, to lay out a balanced analysis of the I-732 policy itself and arguments against and for it. We aim to set aside all questions of politics and strategy and just look at the factual arguments. In this article, we examine a major controversy: whether I-732 will create a budget shortfall.

Initiative 732, the carbon tax that will be on Washingtonians’ November ballot, is meant to be a revenue-neutral tax swap. A tax swap doesn’t change net state revenue; it just switches out one bit of revenue for another. I-732 would cut the state sales tax, give tax credits to working families, and cut taxes on manufacturers, replacing them, dollar for dollar, with a tax on pollution.

Despite I-732’s intent to be revenue neutral, the Washington Department of Revenue (we’ll refer to it as “the Department” for the rest of the article) estimates that it will actually be revenue-negative. Its tax cuts will outweigh the new carbon tax revenue, leaving the state with less money overall. The predicted budget deficit is the opposition’s number one complaint about I-732—which is understandable, since one of I-732’s big selling points is its revenue neutrality.

But it’s worth asking: How certain can the Department’s or anyone’s forecasts be about the exact budget impact? Are the Department’s estimates for the first four years accurate? How close to revenue neutral will I-732 be over the course of the decades it is written to last? What would it take to make a tax swap initiative revenue neutral over time?

Below, we weigh the evidence on each of these questions, test the logic of and evidence behind supporters’ and critics’ arguments and counterarguments, and go eyeball deep into the weeds of state budget forecasting. But here’s the upshot, in two paragraphs:

I-732 is revenue neutral, to the best of anyone’s ability to forecast it. The forecast depends on statewide carbon emissions and statewide sales tax revenue that could change by hundreds of millions of dollars a year, depending on how accurate the forecast’s assumptions turn out to be. Whether the revenue balance drifts positive or negative will depend on forces far beyond the drafters’ control: oil prices, growth rates of retail sales, shifts in population and consumer preferences, advances in technology, national energy policies, even the weather. Predicting such things with greater accuracy than a few hundred million dollars per year is impossible. Just as the Department adjusts budget forecasts by hundreds of millions of dollars every few months, and the legislature adjusts its budget every other year, sometimes by more than a billion dollars, the legislature will need to make small adjustments to keep I-732 as close to revenue neutral as possible over time.

In the short term, I-732 is likely to be much closer to revenue neutral than the Department’s forecast suggests. Correcting some errors of fact and logic in the Department’s estimates erases more than half of the Department’s alleged short-term revenue shortfall. We conservatively estimate I-732 will reduce state tax revenue by about $80 million per year in early years, but the limitations of forecasting mean that, for all anyone knows, I-732 could very well generate an $80 million surplus for the state budget. Or some other amount, positive or negative. We simply can’t forecast I-732’s impact with greater precision. But we can say that it is close, and that anyone who claims to know for certain that it will create a budget hole is more certain about the whims of forecasting than forecasting experience warrants. As an argument against I-732, therefore, the “revenue hole” case is a red herring. I-732 has weaknesses, but this isn’t one of them.

How accurately can we forecast revenue neutrality?

Forecasts often convey a false sense of precision. Revenue is difficult to predict and forecasts are really just estimates, based on elaborate sets of assumptions. They can go up or down several percent if assumptions change. I-732 swaps out about $2 billion of the state’s roughly $21 billion in state tax revenue (predicted in fiscal year 2019), which is one piece of the roughly $45 billion yearly state budget. Can anyone predict I-732’s annual impact down to one million dollars? Ten million? One hundred million? Some other digit?

State tax revenue projections fluctuate by hundreds of millions of dollars in just a few months. The Washington State Economic and Revenue Forecast Council updates its state Budget Outlook three times per year. For the past two years, with each new forecast, the Council has adjusted its predictions for the upcoming fiscal year by an average of $440 million, and has adjusted predictions for four years from now by an average of $1 billion.

Looking just at the $2-billion tax swap, rather than the entire state tax revenue stream of $21 billion, the forecast turns largely on how quickly carbon emissions shrink and how briskly state sales tax revenue grows. If we predict that, in the next four years, state tax revenue will grow at the same rate it did during the 4-year period 2011 through 2014, but it turns out revenue changes instead at the 2008-2011 rate, I-732 would generate $500 million per year more than we forecast. On the carbon-revenue side, if we predict carbon emissions will fall in the first four years as the economy responds to the tax, but instead a growing population means emissions stay flat, I-732 would generate $200 million more per year than we predicted.

The Department’s forecast of a $200 million per year shortfall is well within the range of uncertainty: different assumptions erase or increase it. And, as we explain in detail below, we believe the Department made some errors in its revenue forecast. By its own methods, we think the Department should have forecast a shortfall closer to $80 million per year, well within forecast variability. The Department, Sightline, and Carbon WA all predict I-732 will be within a few hundred million dollars of perfect revenue neutrality. So far as we are able to predict the vagaries of statewide emissions and statewide tax revenue, in its first four years, I-732 revenue balance will be within the limits of our ability to forecast.

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

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

Revenue neutrality in the short term

If passed, when fully implemented in 2019, I-732 would cut sales tax and business and occupation (B&O) tax revenue by around $2 billion per year and raise around $2 billion per year in carbon tax revenue, swapping out about 10 percent of the approximately $21 billion in state taxes Washington will likely collect in fiscal year 2019.

The Department estimates I-732’s tax revenue will fall short of the tax cuts by an average of $200 million per year in the first four years, impacting state tax revenue by less than 1 percent. (Another way to put $200 million per year in context: it’s about 4 percent of the additional $5 billion per year that plaintiffs say Washington needs to spend on K-12 education.) Even if the Department’s estimates are correct, I-732 will still be a rounding error, decreasing state tax revenue by less than 1 percent.

However, we conclude that the Department’s estimates are off. Giving the Department the benefit of the doubt on several modeling questions, we predict I-732 will have an impact on state tax revenue in early years of less than $80 million. Forecasts get buffeted by unpredictable forces, so we aren’t saying we know I-732 will have that impact. There’s almost as much chance that I-732 will be revenue positive by a similar amount. What we are saying is that, using the best predictions available, I-732’s divergence from perfect revenue balance is within $100 million, and unpredictable factors could bounce that number up or down. The only thing we or anyone can know for sure is that I-732 is either revenue neutral or close.

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

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

The Department of Revenue’s estimates vs. CarbonWA’s: Refereeing the blow-by-blow

The Department of Revenue has issued three fiscal notes for I-732: in December 2015 the Department estimated a $675 million deficit over 6 years; the following month, in January 2016, it issued an updated fiscal note estimating a $915 million deficit over 6 years; and in April 2016 it issued the fiscal impact statement that will go on the ballot, predicting a $797 million shortfall over six years. We use the most recent estimate and divide by four years instead of six (the six-year analysis runs from fiscal year 2016 through fiscal year 2021, but I-732 will only take effect in fiscal year 2018), for an average annual state tax deficit of $200 million for the first four years.

I-732 backers argue the Department made several errors in its estimates, and that correcting these errors would reveal that I-732 would actually be slightly revenue-positive in its first four years. In public comments filed in January, CarbonWA pointed out a list of errors. In February the Department responded, declining to make any changes to its estimates. The Department made other adjustments to its December estimates in April 2016, adding about $30 million more to its projected average annual deficit in the first four years of the program. (The fact that the Department’s forecasts bounced around by tens of millions of dollars underscores our point that forecasting is not an exact science. The best anyone can say for sure is whether I-732’s fiscal impact is within the margin of error of the forecasts.)

Below are CarbonWA’s claims and Sightline’s analysis of each.

CarbonWA Claim #1: The Washington carbon tax should apply to electricity exported out-of-state.

CarbonWA argued that the carbon tax should apply to electricity generated in Washington but consumed in another state. The Department disagreed, noting that Section 4 of the initiative only refers to electricity “consumed” within Washington, that Section 5 exempts exported fuels, and that the US Constitution forbids a state from taxing an activity, such as consumption of electricity, that occurs outside the state.

Two questions arise:

  1. Is electricity a “fuel”?
  2. Does Washington have the legal authority to tax exported electricity?

I-732 taxes carbon through two avenues: first, the carbon content of “fossil fuels sold or used in this state,” and second, “the carbon content inherent in electricity consumed within this state.” See Section 1(1) and Section 4(1).

To avoid double-counting fossil fuels burned in Washington to generate electricity consumed in Washington, Section 5(4) specifies the tax only applies once, to the fuel burned. Utilities don’t pay the tax for electricity consumed in Washington if they can show they already paid the tax on the fossil fuels burned to generate the power. Utilities will only pay the tax on electricity sold in Washington if the fossil fuel used to generate the electricity was not sold or used in Washington. In short: I-732 taxes all fossil fuels sold or used in Washington, whether to generate electricity or for any other purpose, and it also taxes electricity brought into the state that was generated by burning fossil fuels outside the state.

Section 5 exempts three categories of fuels from the tax: (a) fossil fuels inside the supply tank of a car, ship, train, or airplane; (b) fuels the state is constitutionally prohibited from taxing; and (c) fuel intended for export outside the state.

CarbonWA interprets “fuels” in Section 5(c) to mean “fossil fuels,” defined in Section 3(8) as including petroleum, coal, natural gas, propane, bunker fuel—but not electricity. The Department interprets “fuels” in Section 5(c) as an undefined term that includes electricity.

Unfortunately, the text is ambiguous. To enact CarbonWA’s interpretation, Section 5(c) should have said “fossil fuels” instead of “fuels.” Courts usually assume the drafters knew what they were doing, so if they said “fuels” instead of “fossil fuels,” they must have meant something different than “fossil fuels.” Since “fuels” is not defined in the text, the Department might look to the dictionary to determine how to interpret the term. The Merriam-Webster Dictionary defines “fuel” as “a material (such as coal, oil, or gas) that is burned to produce heat or power.” This suggests the usual interpretation of “fuels” is a material burned to create power, but not the power itself.

We believe the Department could reasonably define the term “fuels” in Section 5(c) as the standard dictionary definition of fuels and thus conclude that Section 5(c) does not exempt exported electricity.

CarbonWA’s interpretation has the added merit of simpler implementation. Under the Department’s interpretation, utilities would need to seek a rebate for the tax paid on fuels burned to generate electricity they ended up exporting. Under CarbonWA’s interpretation, a utility with a gas-fired plant would pay the tax for the natural gas, then submit a report to the Department, per Section 7, showing that it already paid the tax on the natural gas and so doesn’t have to pay it for any electricity its plant generated. Under the Department’s interpretation, the utility would do all that but also prove to the Department that it exported some portion of its electricity and so should get a rebate of the tax already paid on the natural gas burned to generate the portion of electricity it exported.

The Department’s argument about the US Constitution prohibiting a tax on exported electricity is confusing. Presumably the Department is referring to the dormant commerce clause—a legal doctrine prohibiting states from discriminating against interstate commerce by instituting policies to protect in-state industries at the expense of out-of-state competition. A classic example of a state violating the dormant commerce clause is when an Arizona law required all cantaloupes grown in Arizona to be packaged in Arizona as a way of protecting the Arizona packing industry against competition from California fruit packers. A federal court invalidated the protectionist law.

If Washington tried to levy a tax on power imported from other states but not on in-state power, a court might strike down that tax as an attempt to regulate activity outside the state in order to protect in-state power producers against out-of-state competitors. But I-732 imposes a tax on in-state activity—burning fossil fuels to generate electricity. If anything, taxing fossil fuels burned in-state to generate electricity sold out-of-state does the opposite of protecting in-state electricity generators; it makes Washington’s exported power more expensive than the non-Washington-produced power it is competing with in markets outside Washington.

We conclude that the structure of I-732 makes clear it is meant to tax all fuel used or sold in the state, whether to generate electricity for consumption or export or anything else, plus all imported electricity. The Department’s interpretation of the ambiguous term “fuels” conflicts with the dictionary definition and adds implementation complications. Applying the tax to all fuels used or sold in the state, without a carve-out for fuels used to generate electricity that is ultimately exported, would be more reasonable and straightforward. We conclude that I-732 should apply to exported electricity.

CarbonWA estimates that, if its claim that the tax applies to exported electricity is correct, this change would reduce the budget gap by almost half—about $94 million per year. Our interpretation is that the Department should tax exported power and add $94 million per year to its revenue forecast.

Sightline Estimated Average Annual State Tax Revenue Impact: +$94 M

CarbonWA Claim #2: I-732 would tax unspecified power at a higher rate.

CarbonWA claimed that the Department used the wrong tax rate for unspecified power. The Department used the default emissions rate in the Carbon Tax Assessment Model (CTAM), the “Northwest Power Pool Net System Fuel Mix,” which is the average emissions rate of all electricity that is known to be a part of the Northwest Power Pool but is not specifically claimed by a utility. CTAM calculates The Net System Fuel Mix to be 38 percent coal, 14 percent natural gas, and 48 percent non-fossil-fuel resources, or an average of less than half as much carbon pollution as a coal plant.

However, I-732 would tax unspecified power as if it all came from a coal plant. Section 7 of the initiative orders the Department to assign unspecified power an emissions rate of “one metric ton of carbon dioxide per megawatt hour.” One metric ton is 2,205 pounds, or about the same level of emissions as a coal-fired power plant, more than double the Net System Fuel Mix emissions rate in CTAM.

The Department argued that utilities would be motivated to identify the sources of all non-coal unspecified power to avoid paying the carbon tax as if all that power were coal. Because utilities would specify the sources of 100 percent of their previously unspecified non-coal power, CTAM’s Net System Fuel Mix rate is correct.

Unspecified power generally comes from four sources: the spot market, bilateral agreements between utilities, utilities that choose not to specify, and null power (the power that remains when someone else has purchased the power’s renewable attributes). Utilities will be able to specify sources in bilateral agreements and sources of power they simply chose not to specify. They will not be able to specify sources of spot market purchases nor sources of null power. The spot market is an integral part of the Western grid, and unless Washington utilities cease purchasing any power on the spot market, the Department is incorrect to assume that 100 percent of non-coal unspecified power will become specified.

Where the Department assumes 100 percent of non-coal unspecified power will become specified in fiscal year 2018, CarbonWA estimates that 36 percent of non-coal unspecified power will become specified in fiscal years 2018 and 2019 and 73 percent will become specified in fiscal years 2020 and 2021. This change to the Department’s assumptions would increase revenue by about $81 million per year. We adopt a stance halfway between the Department and CarbonWA, assuming that 68 percent and then 86 percent of currently unspecified non-coal power will become specified. Under this assumption, the Department should add $40.5 million per year to its revenue estimates.

Sightline Estimated Average Annual State Tax Revenue Impact: +$40.5 M

CarbonWA Claim #3: The four-year forecast should only include four years of Working Families Tax Credits.

Because the state budget runs on fiscal years (July 1 through June 30) and the Working Families Tax Credit is payable anytime during the calendar year (January 1 through December 31), the Department must choose a method of reconciling timelines in order to issue an estimate of revenue neutrality over any particular period. The Department’s four-year forecast, the one that has been the center of controversy, chooses the method for reconciling timelines that makes I-732 look the worst for the state budget.

The Department’s four-year analysis includes four years of carbon tax revenue and five years of Working Families Tax Credits. The Department assumes that 100 percent of 2021 tax credits will be paid by June 30, 2021, just slipping under the wire for inclusion as a fifth year of credits in the four-year forecast. If the Department had chosen to account for those payments one day later, on July 1, 2021, $65 million per year would have disappeared from the Department’s projected shortfall—more than one-third of the estimated deficit. Alternatively, had the Department allocated its expected 2021 tax credit payments in equal increments across the months of calendar year 2021, $32.5 million per year would have vanished from the shortfall.

We split the difference on this question, assuming the four-year forecast should include four-and-a-half years of tax credits and removing half of the estimated liability for 2021 tax credits from the tally.

Sightline Estimated Average Annual State Tax Revenue Impact: +$32.5 M

CarbonWA Claim #4: The reduced sales tax would increase the sales tax base.

CarbonWA explained that people will respond to sales tax savings by spending slightly more. The Department said its model already accounted for this.

We can’t tell whether the Department’s model properly took demand elasticity into account or not. CarbonWA estimates that, if its claim is correct, this change would reduce the budget gap by about $35 million per year.

We gave the benefit of the doubt to the Department.

Sightline Estimated Average Annual State Tax Revenue Impact: $0

CarbonWA Claim #5: The Department didn’t differentiate Washington from the Pacific Region in the model.

CarbonWA said the Department’s model assumes Washington has a fixed share of the Pacific Region’s emissions (the Pacific Region includes California, Oregon, Washington, Alaska, and Hawaii). But Washington’s share of emissions within the region will actually grow in the near term, for two reasons: first, Washington’s population is growing faster than the regional average; and second, Washington’s baseline emissions will grow faster (or shrink more slowly) than California’s in the next four years because California already has many policies in place to reduce global warming pollution.

On the first point, the Department didn’t make a satisfactory response to the difference in population growth, and we can’t tell whether the Department’s model properly took different population growth rates into account or not. CarbonWA estimates that, if its claim is correct, this change would reduce the budget gap by about $39 million per year.

Regarding the second point, the Department said its model already did account for California’s pollution reduction policies. But here again, we can’t tell whether the Department’s model properly accounted for different pollution reduction policies. CarbonWA estimates that, if its claim is correct, this change alone would add about $235 million per year, reversing the budget gap and making I-732 slightly revenue-positive in its first four years.

We found the Department’s responses unsatisfactory, but still gave it the benefit of the doubt. We hope that any future updates to the Department’s model will address this issue directly.

Sightline Estimated Average Annual State Tax Revenue Impact: $0

Bonus: Phased-in taxes

The Department’s analysis did not account for the fact that Section 5(2)(a) phases in the tax slowly over time for fuel use by farmers and public transit. Fossil fuel use by agricultural equipment and public transit account for roughly 2 percent of Washington’s fossil fuel consumption, or about $40 million per year in revenue. They will be taxed at a rate of 5 percent in 2018 and 2019 and 10 percent in 2020 and 2021, for an average annual tax loss of around $35 million per year in the first four years.

Sightline Estimated Average Annual State Tax Revenue Impact: -$35 M

Adding it up

The table below shows how each of CarbonWA’s claims and Sightline’s evaluation of those claims differ from the Department’s. It also shows the difference from the phase-in of fuels in the agricultural and public transit sectors. To read the table, for example, the first line shows that CarbonWA argues the Department understated revenue from exported electricity by $94 million a year. Sightline concurs.

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

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

Overall, the Department estimates that I-732 will decrease state tax revenue by just under 1 percent in the next four years. CarbonWA estimates that I-732 will increase state tax revenue by 1.1 to 1.6 percent. Correcting for some errors in the Department’s logic and giving the benefit of the doubt to the Department on several modeling questions, Sightline estimates that I-732 would decrease state tax revenue by 0.37 percent in the next four years—an estimate about two-fifths the size of the Department’s.

As we explained above, economic changes or variable carbon emissions can change forecasts by hundreds of millions of dollars per year. Our forecast shows I-732 is as close to revenue neutral as our forecasting tools can predict. It’s a tiny fraction of the normal quarterly variations in revenue forecasts that the state routinely adjusts to as economic trends shift. Certainly we could not point to this forecast as evidence that I-732 creates a “budget hole.”

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

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

Adjusting over time, via state legislature

British Columbia’s revenue neutral carbon tax didn’t promise to have exactly zero budget impact every year with no adjustments. Instead, the BC Carbon Tax Act requires the Minister of Finance to prepare a carbon tax plan every year that reviews the previous two years of carbon tax revenue and tax cuts, forecasts the next three years of revenue and tax cuts, and makes adjustments as necessary to keep the program as close to revenue neutral as possible.

Part 2(2) of the Act defines revenue neutral to mean that the tax revenue is “less than or equal to” the tax cuts, meaning the minister must ensure the carbon tax revenue only funds tax cuts and not any other programs or initiatives. In other words: if the agency can’t adjust tax cuts to make the program perfectly revenue neutral, it should err on the side of being revenue-negative. In its most recent report, the Minister of Finance confirmed that tax cuts would slightly exceed carbon tax revenues.

In Washington, state agencies don’t have the authority to tinker with state taxes; only the legislature does. I-732 would give the legislature the opportunity to make adjustments if the swap gets too far from equal, based on required annual Department reporting about the overall net gain or loss in state revenue due to the tax swap. For example, the legislature could better tailor the tax breaks for manufacturers to ensure they are combatting the competitive impacts of the carbon tax and no more. The Department of Ecology has already been working on identifying the energy intensive, trade-exposed businesses that need assistance to remain competitive with out-of-state companies that don’t pay a carbon price. The legislature could ask Ecology to recommend ways to better tailor the B&O tax breaks and fulfill I-732’s stated intents to remain revenue-neutral and to keep manufacturers in the state.

For most programs, it would be reasonable for a citizens’ initiative to express the will of the people and for agencies to implement the new law in a way that carries out the people’s intent. For example, if Washington voters pass I-732, then the Department of Revenue would implement it in a way that carries out the people’s intent to impose a revenue-neutral carbon tax. However, because Washingtonians only entrust voters and elected legislators with adjusting taxes, it will be up to the legislature to fine-tune tax cuts to maintain revenue neutrality.

Revenue neutrality over the longer term

The analysis above shows how hard it is to know whether a tax swap will perfectly pencil out in the next few years. Extrapolating the same analysis out over decades and expecting it to be accurate within a fraction of a percentage point every year without course corrections is downright Herculean. I-732’s drafters used past sales tax revenue growth to estimate how much of a tax cut the new carbon tax revenue could fund. But will future sales tax revenue follow past patterns? Patterns reaching how far back?

In the analyses below, we assume, for simplicity, that Washington meets its greenhouse gas pollution reduction goals through 2050. The carbon tax alone may not bring Washington all the way to its target of a 50 percent reduction below 1990 levels by 2050, so for this assumption to hold true, Washington will need additional pollution-busting policies.

If Washington over pollutes, the state will bring in more carbon tax revenue than the analysis below assumes. But if the Evergreen State succeeds in meeting its pollution reduction goals, then I-732’s net revenue will be intensely sensitive to changes in sales tax revenue.

If state sales tax revenue increases at the same rate it has increased in the 20 years since 1995—4.0 percent per year, or 1.6 percent in inflation-adjusted terms—then I-732 will leave shortfalls of less than 1 percent of state tax revenue, around $150 million per year, through the early 2030s. The shortfalls will grow to more than 1 percent of state tax revenue, $200 to $300 million per year, in mid-century.

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

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

On the other hand, if state sales tax revenue increases at the same rate it has increased in the 15 years since 2000—3.0 percent per year, or 0.6 percent after inflation—then I-732 will be within a fraction of a percent of revenue neutral during the 2020s and will generate $100 to $150 million in surplus revenue per year in the 2030s and 2040s, adding less than a percent to state tax revenue during those years.

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

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

Again: shortening the baseline from 20 years to 15 years of sales tax revenue growth completely flips the forecast from budget hole to budget surplus. That’s just one of many ways in which the long-term revenue implications of I-732’s provisions are unknowable. A few other ways:

  • If fuel prices rise one year, fuel consumption will decline, as will carbon tax revenue, pushing the balance toward revenue-negative.
  • If a winter is unusually cold, furnaces will burn more fuel, increasing carbon tax revenue, pushing the balance toward revenue-positive.
  • If electric vehicle technology sweeps carbon pollution out of the transportation sector faster than required by the state’s carbon pollution goals, carbon tax revenue will drop, and sales tax revenue (and thus sales tax cuts) will rise: revenue-negative.
  • If the economy runs off the rails, both carbon tax and sales tax revenue will diminish—sales taxes likely faster than carbon taxes, pushing the balance toward revenue-positive.

To keep the tax swap neutral, the legislature will need to take the Department of Revenue’s annual report into account and make adjustments. As mentioned, the legislature could tighten the B&O tax cuts to keep I-732 from being revenue-negative. Or, if I-732 becomes revenue-positive, the legislature could increase the Working Families Tax Credit, rebalancing revenue and putting more money in the pockets of working families.

So the main answer to the question of whether I-732 is revenue neutral is, to the degree that any short-and-simple initiative can balance tax cuts and a carbon pollution tax over decades, yes. It’s revenue neutral. Even by the Department’s estimate, it’s within 1 percent of neutrality in the near term. By Sightline’s estimate, it’s within 0.37 percent. And as time goes on, the legislature could honor the will of voters to keep it neutral.

Conclusions

Balancing a big package of tax cuts with a new and innovative pollution tax with zero impact on the budget is nearly impossible. I-732 gets extremely close, though.

Even if the Department’s four-year analysis is correct, I-732 creates a 0.95 percent budget shortfall. Correcting some errors in the Department’s analysis—taxing exported electricity, assuming 14 to 32 percent of currently unspecified non-coal power remains unspecified, and including just four-and-a-half years of tax credits in the four-year forecast—and subtracting the revenue lost by phasing in taxes that the Department didn’t account for, we estimate that I-732’s likely budget shortfall for the first four years would actually be just 0.37 percent, or $78 million per year, rather than the Department’s most recent estimate of $200 million per year. Despite the seeming precision of these estimates, they just point in the right direction because any number of factors could shift and change them again. But careful analysis suggests that I-732’s net impact on state tax revenue is almost certainly within the margin where all we can say for sure is it is very close to revenue neutral.

As time goes on, the net revenue will depend on how quickly Washington State reduces its pollution and how briskly state sales tax revenue increases in future years. By current estimates, I-732 will likely have less than a 1 percent impact on state tax revenue for decades. If the Department’s annual report shows the swap drifting too far from neutral, it will be the legislature’s job to tweak the tax cuts so as to carry out the people’s intent of a revenue neutral carbon tax.

Weighing CarbonWA’s Tax Swap Ballot Initiative

UPDATE Oct 7: We previously said that I-732 could result in a windfall of up to $200 million to Boeing. However, Boeing’s newly-released tax data suggest that it only pays $19 million to $60 million per year in state business taxes, and therefore would benefit from I-732 in the range of tens of millions per year, not hundreds of millions as we previously concluded. We updated the article below to explain the new estimates.

Note from Alan: In Washington state, climate hawks have divided over CarbonWA’s Initiative 732, a proposal for a BC-style revenue-neutral carbon tax shift that will appear on the November ballot. The divisions—over both policy and political strategy—are agonizing and strongly felt. I-732 is therefore a contentious subject to publish about, but with the public vote nearing, Sightline is launching a short series analyzing I-732 and the arguments commonly offered against and for it.

It’s a task we do not relish. At Sightline we believe that climate policy must be effective and fair, not only cutting climate-warming pollution and putting us on track toward clean air and clean energy, but also building a more just and equitable society. We are committed to passing this kind of policy in Cascadia.

We’ve worked toward those goals with most of the parties in this controversy. The leader of CarbonWA is Yoram Bauman, who has been involved with Sightline on and off since 1997, when he began an internship that culminated in co-authoring the book Tax Shift. We have also worked side by side for years with many of the dedicated groups and individuals in the large coalition of organizations assembled as the Alliance for Jobs and Clean Energy, including close collaboration since 2007 on carbon pricing. When CarbonWA gathered the signatures needed to proceed to the ballot, the Alliance urged CarbonWA to stand down and leave the November 2016 ballot uncluttered for an alternative climate policy to be formulated by a broader coalition, including groups dedicated to social justice for historically marginalized communities. Some Alliance coalition members are leading the opposition to I-732.

Sightline’s own board and staff, interns and fellows, volunteers, contributors, and readers include people at just about every point along the spectrum of views about I-732, and I have personal friends both supporting and opposing the initiative. Almost anything we say could cause hard feelings with someone we respect.

Still, Sightline’s duty is clear. We are a research center. We study issues and propose policy solutions. We examine arguments and stress-test them against logic and empirical evidence. We publish what we learn and let everyone judge for themselves. We try hard to get the facts right (as our research staff will tell you), even when it inconveniences our usual allies (as they will tell you).

Throughout the last year, Sightline has sought to remain deeply engaged, supportive of all responsible efforts to make polluters pay for their carbon pollution, but neutral between efforts. Now, we have studied I-732 and tried our best to put aside everything but the policy itself. What does it do or fail to do? How does it stack up? Sightline’s short series aims to allow Washington voters as impartial and informed a review of it as our analysis can provide.

In general, as we explain in this series, we find I-732 a worthy policy to put Washington on a path to cutting pollution and encouraging clean energy while also helping low-income families by making Washington State taxes less regressive. I-732 has weaknesses, which we enumerate, but putting a strong carbon price in place in Washington would be a big step forward.

This November, Washingtonians will have the chance to vote on a carbon tax: Citizens’ Initiative 732. Enthusiastic grassroots climate activists across the state gathered more than 300,000 signatures to get I-732 on the ballot.

Washington voters who care about the climate may be wondering if the initiative is a well-designed way to cut pollution. When making polluters pay for their climate pollution, these are the three most important policy questions to analyze:

  1. How high is the price?
  2. What is the revenue used for?
  3. Does the policy get the design details right?

Here’s why these three questions are important and how I-732 answers them.

Q. How high is the price?

The price question matters both for pollution-busting and for political feasibility. A higher price results in less pollution but may face greater political hurdles. A lower price will not reduce pollution as much but may be more politically feasible.

To achieve Washington’s state statutory goal of cutting greenhouse gas emissions 50 percent below 1990 levels by 2050, US economic models suggest the pollution price on the transportation and electric sectors probably needs to reach $100 to $150 per ton by 2050. (Throughout this article, we are referring to “real dollars”—dollars adjusted for inflation. That is, $100 in a future year is worth the same as $100 today, though in the future year, the actual price tag, after inflation, would be much more than $100.) Why do we say that? Consider a few modeling results:

  • Stanford’s Energy Modeling Forum study on “US Technology and Climate Policy Strategies” analyzed 324 model runs to show that a price rising to around $100 to $150 by 2050 would likely reduce US emissions 50 percent below 2005 levels.
  • The World Resource Institute recently summed up the literature, showing that a price on carbon rising to $52 per ton in 2030 could cut transportation and electricity sector emissions by up to 31 percent.
  • Synapse Energy estimated that an aggressive national emissions reductions policy might reach a price of $90 per ton by 2040.
  • The US Energy Information Administration’s modeling suggests that around $60 per ton by 2040 would slash electricity sector pollution by two-thirds.
  • Policy think tank Resources for the Future’s modeling predicts that a pollution price on a path to reach $100 by 2050 would cut electricity sector emissions by more than half by 2035.
  • Portland State University estimated that a carbon price rising to $150 per ton would cut Oregon emissions in the transportation, electricity, and industrial sectors by 40 percent below 1990 levels, or more than 50 percent below current levels.

Researchers have also approached the problem of global warming pollution from the other direction, trying to calculate how much each ton of pollution costs us in damaged health, reduced productivity, increased risk of flood and fire, and increased costs for air conditioning. They call this the “social cost of carbon,” and the estimated damages per ton of pollution are remarkably similar to modeling of the price per ton needed to cut pollution: the social cost of carbon rises to about $100 per ton in 2050.

For all these reasons, we think the right price for carbon pollution in Washington is $100 to $150 per ton by 2050.

A. The I-732 price is about right.

I-732 nearly hits the mark. The I-732 tax starts at $15 per ton in 2017, goes up to $25 in 2018, then increases at 3.5 percent plus inflation every year until 2059, when it hits our mid-century target of $100 and flattens out, increasing each year only at the rate of inflation. (Assuming 2 percent annual inflation, the price will be $225 in nominal dollars in 2059.)

A carbon price starting at $15 and steadily rising to $100 in midcentury will put wind in the sails of Washington’s clean energy economy as nothing else possible. It will hasten the decline of coal; level the playing field for clean renewable energy; motivate companies to squeeze pollution out of their processes; encourage more convenient alternatives to driving alone and more efficient vehicles; concentrate urban growth in dense, walkable communities; and spur investment in clean business and technology innovations. The I-732 pollution price would amplify other clean energy policies and speed the Evergreen State toward a thriving clean energy economy.

Moreover, setting the price’s rising trajectory all the way to 2059 would vault Washington to the head of the North American pack on climate leadership. Other North American carbon prices are not yet high enough nor sustained enough to achieve climate-stabilizing pollution reductions: northeastern states’ RGGI price maxes out just above $7 per ton. California and Quebec’s joint price hovers around $13 per ton, and California’s cap-and-trade plan is currently only authorized through 2020 (though the state’s leaders are working to extend it). British Columbia’s price is stalled at Can$30, and although a committee recommended the province resume increasing its carbon tax in 2018, BC’s leaders have said they will not change the carbon price until the Canadian federal government makes a decision about carbon pricing.

I-732 would give Washington the continent’s, if not the world’s, most potent, persistent, and comprehensive incentive to move swiftly beyond dirty fossil fuels and to a carbon-free future.

Q. What is the revenue used for?

Holding polluters accountable for the pollution they heave into our shared atmosphere will encourage private investors—including electricity utilities, auto manufacturers, and entrepreneurs—to shift their money and attention to cleaner products and processes. The price itself nudges the economy towards clean energy by making prices tell the truth about how much pollution really costs us, the public.

And the revenue can be put to good use. Whether invested in public interest projects or reducing other taxes or paying dividends to people, polluters-pay revenue can support economically vulnerable and historically marginalized communities that are hit hard by pollution. It can advance racial and economic justice.

Authorities could spend polluters-pay revenue on public investments that encourage a clean, equitable, and prosperous future. California and RGGI use pollution revenue to invest in transit, affordable housing, energy efficiency, and other projects that help families and communities, create jobs, and keep those states on the cutting edge of the clean energy future. California also dedicates one-quarter of its revenue to projects that benefit the Golden State’s most disadvantaged communities. Public investments can also spur private ones, as California has found, leveraging more than $3 in private capital investments for every $1 of polluters-pay revenue it invested.

Authorities could also use polluters-pay revenue to replace regressive or distortionary taxes and help make the tax code more progressive. Tax the bads (what you want less of), not the goods (what you want to encourage), the Pigouvian thinking goes. British Columbia, Washington’s Cascadian neighbor to the north, taxes carbon and uses the revenue to cut individuals’ income taxes and to cut business taxes. In Washington state, with the most regressive tax system in the United States, this option might be especially appealing.

Finally, authorities could give the revenue back to people. They collect the money from polluters and treat it as a common resource, sending dividend checks to all residents. For decades, Alaska has treated oil revenue as a common resource and sent a dividend check of around $1,000 to $2,000 per year to each Alaskan resident. Charging for pollution and sending a check to everyone benefits low-income households the most, because even though lower-income people spend a greater share of their income on energy, they spend less money in gross terms on energy. Therefore, they pocket more of the dividend check than do higher-income households who spend more on energy.

A. I-732 revenue would reduce the state sales tax, aid low-income working families, and protect manufacturing jobs.

Washington State’s Office of Financial Management estimates the carbon tax will raise about $2 billion in revenue in fiscal year 2019, or about 4 percent of the state’s roughly $47 billion annual budget. (Washington plans its budget per biennium. For example, the July 2015 through June 2017 budget is about $94 billion, and the budget will grow as Washington’s economy and population expand in future years.)

The I-732 proposal aims to be revenue-neutral, meaning the new polluters-pay revenue is intended to replace cuts to other taxes. The state treasury is supposed to receive the same amount of revenue, but now some of it will come from large polluters paying a carbon tax instead of from people and businesses paying sales and other taxes. (How close I-732 will get to revenue neutrality in practice has been the subject of considerable controversy, and we’ll delve into the question in another article.)

1. Cut the state sales tax

The bulk of the carbon revenue from I-732—around $1.5 billion per year in 2019—would finance a one percentage point reduction in the state sales tax, decreasing it from 6.5 percent to 5.5 percent. People and businesses would save about $1.5 billion per year at the cash register, and instead, polluters would contribute about $1.5 billion to the state budget.

The 1 percent decrease in the state sales tax would save low-income households around $70 to $150 per year and higher-income households would save around $400 per year (because they buy more stuff). (If you’re curious about what this means for your wallet, the University of Washington offers a calculator where you can input some information about how much energy you use and see the likely net effect for you.)

2. Fund the Working Families Tax Credit

About $250 million per year in carbon revenue would fund Washington’s Working Families Tax Credit, created in 2008 but never funded. Because Washington relies heavily on the regressive sales tax, Washington has the most regressive state tax system in the United States: the lowest-income families pay nearly 17 percent of their income for state and local taxes, while the richest families pay only 2.4 percent.

By refunding a portion of the state sales tax to 460,000 families in Washington (about 17 percent of Washington’s 2.6 million households) through the Working Families Tax Credit, I-732 would tilt the scales toward a more progressive state tax system. It could also bring additional money into the state by spurring more eligible families to sign up for the federal Earned Income Tax Credit.

For example, a family with two children can currently access up to $5,548 in federal Earned Income Tax Credit (EITC). With I-732 in place, that family would be eligible for an additional $1,387 from Washington in 2018. So while low-income families’ energy costs would rise around $150 to $300 per year due to the carbon tax, I-732’s sales tax break plus Working Families Tax Credit would still put an eligible low-income family with two children ahead by around $1,300 a year.

Notably, the Working Families Tax Credit would reduce the tax burden on this working family with two children from 17 percent to 6.8 percent of income, constituting the biggest improvement in Washington tax progressivity in almost 40 years, at least for working families in the lowest two quartiles of households. About 800,000, or 31%, of Washington’s 2.65 million households are low-income ($39,060 or less for a single parent with two children), and the Credit would reach 460,000 of them.

Some 340,000 households, though, would not qualify for the Credit, including retirees and working people who make too much to qualify, such as a single person making more than $14,820. However, low-income people who don’t qualify for the Working Families Tax Credit would still benefit from I-732’s sales tax reduction, so most of them would come out roughly even, some paying tens of dollars more and some paying tens of dollars less in taxes annually due to I-732, though some of them might end up paying hundreds more.

Unfortunately, the tax benefit or loss for those households depends, to a large extent, on which utility delivers their electricity. Washington’s investor-owned utilities—Avista, Pacific Power, and Puget Sound Energy—get about half their power from coal and natural gas, while publicly owned utilities—like Benton Rural Electric Association and Seattle City Light—get most of their power from hydro. As a result, a single person who makes $15,000 per year and is average in his spending, driving, and home energy use will save $82 in taxes if he gets his electricity from Seattle City Light, but will pay around $28 per year more in taxes if he gets electricity from Puget Sound Energy. For an average home, in other words, living in one utility district versus another may mean a $100 difference in annual electricity bill, because of the carbon tax—an amount comparable to what a typical low-income family will save from I-732’s sales tax reduction.

One of the benefits of I-732 is that it lacks messy specifications and exceptions and is simple to understand and administer, but this same quality makes it difficult to address complex situations. California’s carbon pricing scheme is much more complex—it took six years and thousands of pages of regulations to implement—but it deals with the differences in utility portfolios by sending each household a climate credit calibrated to each utility’s carbon content. Customers of Pacific Power pay a higher carbon price because of Pacific Power’s coal-heavy portfolio, but they get a bigger climate credit to make up for it. I-732 fails to account for the differences among Washington utilities.

3. Cut the B&O tax for manufacturers

Finally, I-732 would cut Washington State business and occupations (B&O) taxes for manufacturers by about $450 million per year in an attempt to prevent manufacturers from relocating outside Washington as a result of the carbon tax.

Manufacturers worry that a carbon price will increase the cost of running their factories so much that they will have to move out of the state, eliminating Washington jobs and not even cutting pollution (because they will simply run the same operations outside Washington). This concern is legitimate when two things are true: (1) the Washington business is energy-intensive, meaning it burns a lot of fuel or uses a lot of electricity to run its equipment, so that when fossil fuel prices go up, its operational costs go up, and it has to raise its prices to cover the cost of the carbon tax; and (2) the business faces out-of-state competition from factories that don’t have to pay a carbon price. When these two conditions are present, a business is called “energy intensive and trade exposed” (EITE) and requires some aid or tax break to ensure it can remain competitive with out-of-state businesses even while paying a state carbon tax.

I-732 provides this aid by eliminating the B&O tax for all manufacturers. However, cutting the B&O tax for all manufacturers, rather than identifying the EITE business and calculating how much of a tax break they need to remain competitive, may be over-generous to some companies and insufficient for others.  Washington Department of Ecology’s proposed Clean Air Rule identifies 23 EITE industries, including cement manufacturers (which could see costs go up by more than 10 percent of revenue as a result of a carbon price), fertilizer manufacturing (which could see prices increase by 5 to 10 percent of revenue), and pulp and paper mills and glass manufacturing (which could see price impacts of 2.5 to 5 percent). Many other manufacturers would see price impacts of less than 2.5 percent and even less than 1 percent and so are not on Ecology’s list of EITE industries, but will nonetheless receive B&O tax cuts under I-732.

I-732’s approach to protecting EITE industries may be blunt and over-generous, but it is simple—extremely simple to understand and to implement. One way in which the initiative may be too simple, though, is in its treatment of aircraft manufacturers. I-732 will unintentionally grant Boeing and other aircraft manufacturers a tax cut on the sale of commercial aircraft that may save the companies more money than they will pay in carbon taxes. Washington’s Multiple Activities Tax Credit, currently in effect, lets aircraft manufacturers choose whether to pay B&O on manufacturing or on sales, enabling Boeing to sell aircraft from inside Washington but only pay B&O on manufacturing, not sales. This disincentivizes manufacturers from moving its aircraft out-of-state before selling them in order to avoid Washington B&O tax on sales. This quirk of he tax code means that I-732 effectively eliminates the B&O tax on both manufacturing and sales because manufacturers can opt to choose the lower of the two. I-732 backers say this was an “error in drafting” and that the initiative should only have eliminated the B&O tax on the manufacturing of aircraft, not on sales.

The Department of Revenue estimates that I-732 tax breaks would save aircraft manufacturers $175 million per year, and likely around $140 million in cuts would go to Boeing. Boeing might pay roughly $7 million in carbon taxes on its 275,000 tons of reported greenhouse gas pollution, meaning I-732 would give it a windfall of $130 million. However, Boeing’s recently released tax data indicate that, due to special state tax breaks from the state legislature, Boeing only paid $60 million in business taxes in 2014 and just $19 million last year. This new data suggest Boeing would benefit from I-732 by about $10 million to $50 million per year, not $130 million as the Department estimated. The legislature might revisit its generous tax breaks for Boeing and find a way to more accurately tailor I-732’s tax breaks to keep aircraft manufacturers in state without providing a windfall. Then again, the legislature might avoid it for fear of driving aircraft manufacturers out-of-state.

Overall, a good use of revenue

Generally, I-732 makes good use of the revenue. It cuts the regressive Washington State sales tax and sends money to low-income households, making the overall state tax system more progressive and ensuring that most low-income households would be at least a few hundred and as much as $1,300 better off as a result of the tax shift, and few low-income households are more than tens of dollars worse off. It protects against manufacturers moving jobs and pollution out of the state. However, it glosses over a few important details. It fails to protect or boost all low-income Washingtonians, it gives more tax breaks than necessary to some manufacturers while shorting others, and it fails to account for differences in utility power mixes over which customers have no control.

Q. Are the design details right?

Broad coverage

A well-designed program covers as many types of greenhouse gas pollution as practicable. Broad coverage means covering most emitting sectors and most greenhouse gas pollutants. A broad program is like a fishing net that is big enough to catch lots of fish with mesh fine enough to catch the small ones, too. A big net covers the major emitting sectors of the economy: industry, natural gas, transportation, and electricity (including electricity generated by power plants outside the state and delivered to houses and offices in-state). Together, these four sectors account for about 85 percent of Washington’s greenhouse gas pollution.

A fine mesh captures not just the big fish, like carbon dioxide, but also the lesser-known but even more powerful climate pollutants, including methane, nitrous oxide, and high-global-warming-potential gases: chlorofluorocarbons, hydrofluorocarbons, hydrochlorofluorocarbons, perfluorocarbons, and sulfur hexafluoride. These greenhouse gases account for less than 15 percent of Washington’s GHG emissions.

Smooth administration

A well-designed program regulates polluters upstream for ease of administration. It is transparent and loophole-free.

Here for the long haul

Finally, a well-designed program sends a steady, long-term price signal. The program is designed for decades rather than years, and it artfully sidesteps potential legal stumbling blocks that could undermine confidence that the price is going to stick around. A price that is designed for the long haul is predictable, too, encouraging businesses to find ways to power their operations with innovative clean energy and making clear to investors that the better business decision is to divest from fossil fuels.

A.  I-732 covers most of the state’s climate pollution and is designed for the long haul.

Broad coverage—Mostly

The I-732 carbon tax casts a wide net, but without the particularly fine mesh discussed above. It covers pollution from burning fossil fuels, including gasoline, diesel, aircraft fuels, refinery and industrial operations, natural gas, and coal or natural gas burned in power plants in-state, and in plants out-of-state when they deliver electricity to Washington homes and businesses. Combustion emissions are mostly carbon dioxide (CO2) but also include small amounts of nitrous oxide and methane. Altogether, the price applies to about 85 percent of Washington’s greenhouse gas pollution.

The tax phases in slowly over 40 years for on-farm diesel and for fuels burned for public transit (about 2 percent of state emissions). It does not cover exported fuels, agriculture and waste emissions, industrial emissions from chemical processes rather than combustion of fossil fuels (for example, about half of cement manufacturing emissions are from burning fossil fuels to heat the kiln, and about half are from a chemical process called calcination; I-732 would only tax the burning of fossil fuels), not un-burned methane (such as from pipeline leaks), nor the five high-global-warming-potential gases mentioned above.

Smooth administration—Yes

The tax applies upstream, to utilities and refineries, and it is administratively elegant, simply adding a line to fuel sellers’ existing tax bills so that it doesn’t create any additional administrative burden. For example, British Columbia used existing tax collection infrastructure and staff to implement their revenue-neutral carbon tax.

Here for the long haul—Double yes

Unlike the British Columbia carbon tax, which froze its price in 2012 pending further legislative action, I-732’s tax would continue increasing by 3.5 percent plus inflation every year until 2059 and by the inflation rate thereafter. This price trajectory sends a clear signal that clean energy is the smart choice in the Evergreen State for the rest of the century.

Conclusion

Scientists and economists agree that the most effective way to free ourselves from fossil fuels is to stop the free lunch for polluters. Initiative 732 does exactly what the scientists and economists prescribe: it sets a science-based, steadily rising price on pollution. The citizens’ initiative covers most of the state’s climate pollution, makes the tax code more progressive, and is administratively elegant.

I-732 is not perfect. It is easy to understand and administer, and it will put money in the pockets of hundreds of thousands of low-income families. But it does not benefit all low-income households, and it means that any given household’s utility provider plays an outsized role in the tax’s impact on that household’s budget, leaving benefits and costs for households to geographic luck. Its protections for energy-intensive, trade-exposed companies are blunt and may give money to businesses that don’t necessarily need it, particularly Boeing.

In policy design, there is always a trade-off between simplicity and nuances. Nuanced policies carve out solutions for a range of situations and outcomes. But with nuance comes complexity that can also collapse under its own weight. I-732 leans toward simplicity and omits subtleties.

In future articles, we will dig into the details of the revenue-neutrality issue and explore criticisms of I-732: specifically, that it does not invest in clean energy, dedicate money to projects benefiting neighborhoods that are home to low-income people and people of color, and that it fails to aid workers in fossil-fuel and other high-pollution industries to transition to new employment.

Weekend Reading 7/29/16

Kristin G.

Last month I joined a work party to help clean up the McCarver Community Garden in my new neighborhood. The payoff? A meaningful connection to my neighbors, two garden plots to fill with vegetables, and enough cherries plucked from their mature fruit tree to make one of my best pies yet!

With a long commute and travel-filled weekends, it’s been tough to do much more than a quick water ‘n’ weed of my own plots. However, this weekend keeps me close to home, which means it’s time to roll up my sleeves and get to work. Community gardens rely on volunteers, and I encourage you to seek out a garden in your neighborhood!

Looking for inspiration? Check out Ron Finley’s work with LA Green Grounds, or listen to his powerful narrative describing his work and passion for growing your own food. In Seattle this weekend? Perhaps you can pop by this Art in the Garden event—a great opportunity to see Ryan Henry Ward transform a retaining wall in one of Ballard’s community gardens.

Serena

I try to practice zero waste in my life in a bunch of different small ways, including:

  • washing and reusing plastic baggies or finding alternatives to them;
  • trying to have a refillable water bottle and coffee mug on me if I’m traveling or going out for the day;
  • making awkwardly extended and pleading eye contact with grocery deli staff until they agree to use my very clean tupperware to package what I’m buying—they have really inconsistent policy on this, so I just keep asking;
  • asking my younger sister with a sewing machine to make as a birthday present (thanks, Celeste!) reusable bulk bags for the grocery store from old t-shirts;
Upcycled t-shirt bulk bags (use the hem as the drawstring slot!), full of CSA produce top right. Happy users pictured bottom right. Photos by Serena Larkin, rights reserved.

Upcycled t-shirt bulk bags (use the hem as the drawstring slot!), full of CSA produce top right. Happy users pictured bottom right. Photos by Serena Larkin, rights reserved.

  • shopping—infrequently—almost totally thrift and consignment (there’s SO much great clothing out there in the world already, without producing more! Side note: just checked out Seattle’s Green Eileen store for the first time on Wednesday evening—good stuff!);
  • and (drum roll, please…) making my own deodorant!

This last one I’m particularly proud of, a) because I am far from one of those dainty women who can forego deodorant; and b) because it actually works. I’ve tried loads of “natural” deodorants, but nothing quite cut it. (No, nothing. I have the super-sweat.) So just last week, I finally tried out the Trash Is for Tossers recipe, using a bit of tea tree oil, which has some anti-bacterial properties, and peppermint oil for a light scent. The stuff is magic, and I just keep it in an old, small jam jar with my toiletries. Voila! Highly recommend. And while the initial ingredients were a touch pricey, I’ll save loads in the longer term—and spare the packaging!

We’ve been talking some more on staff about white privilege. A Seattle Times video and the article “Explaining White Privilege to a Broke White Person” were among our shared reading assignments. A recent New Yorker article on the subject also stood out in my evening reading, providing both a historical context and contemporary interpretation of the idea that were new to me and that show how white privilege is all the more pernicious, from its origins to today. Oh, and are you a white environmentalist in Seattle? Don’t miss this White Ally Assembly cosponsored by Got Green and Sierra Club in a couple of weeks: learn more and RSVP.

Prioritizing Climate Justice in Oregon

Climate hawks and social justice champions are joining forces to bring about a more prosperous and just future in Oregon.
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Climate hawks and social justice champions are joining forces to bring about a more prosperous and just future in Oregon. One way they could accomplish their goals is by making polluters pay for their pollution and investing the resulting revenue in creating more power, more economic opportunities, safer transportation options, and better health for historically marginalized groups of Oregonians.

Sightline’s new report, What Is the Best Way to Ensure Climate Justice in Oregon?, describes how a census tract-based approach to climate justice, like the one California uses, faces difficulties in Oregon due to quirks of Oregon’s constitution and demographics. The report then points the way towards a homegrown Oregon approach to climate justice that electeds and advocates could pursue as part of either a statewide bill limiting climate pollution or a statewide transportation package.

This report shows that sending polluters-pay revenue to the top 25 percent of census tracts with the most people of color, the most poverty, and the most PM 2.5 pollution would send money to neighborhoods where 37 percent of residents are people of color (compared to the state average of 22 percent) and 63 percent are white. A similar approach in California sends money to neighborhoods where 84 percent of residents are people of color (compared to the state average of 62 percent). Due to demographic differences, the same tool that primarily benefits people of color in California would not do the same in Oregon.

The top 25 percent of census tracts with the most people of color, the most poverty, and the most PM 2.5 pollution in Oregon are mostly urban areas along major highway corridors, whereas the top census tracts in California include urban areas in Los Angeles, but also suburban areas in the Inland Empire and rural areas in the Central Valley. Oregon might need to modify its approach to ensure disadvantaged people across the state benefit from polluters-pay revenue.

Perhaps the biggest challenge for climate justice in Oregon is the state constitution, which restricts transportation sector polluters-pay revenue from being spent on priorities important to people of color and low-income communities, like affordable housing, energy efficiency, transit, and electric vehicles. California dedicates its transportation sector revenue to such projects, but in Oregon, all transportation sector revenue would go to the Highway Fund to be spent on highways and roads.

In Oregon, all transportation sector revenue would go to the Highway Fund to be spent on highways and roads.
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However, Oregon could obey the constitution while helping disadvantaged populations by sending the transportation sector polluters-pay money to cities and counties, to be overseen by local boards representing local marginalized groups. These boards would then choose how to direct the funds to constitutionally allowable but socially just projects such as improving street, sidewalk, and intersection safety in the most underserved neighborhoods.

Oregon has an important opportunity in crafting a climate or transportation policy. A homegrown approach, informed by the state’s unique demographic and legal context, could advance its social justice and climate goals and empower historically marginalized residents with the resources to improve their communities.

Read more in the full report.

 

Weekend Reading 7/22/16

Anna

Have you ever tried to draw a picture of a bicycle from memory? If you’re like me—and I’m a bicycle commuter and not a terrible artist—this proves a near impossible task, with the basic geometry of a bike eluding me every time. I’m not alone, it seems. Proof are the real, live bikes an artist built based on peoples’ (hilariously inaccurate) sketches. It’s awesome.

A Make Room survey found that 76 percent of American voters would be more likely to support a candidate who made housing affordability a focus of their campaign and a priority in government. Almost as many—across party lines—would like to see housing affordability as a core component of Democratic and Republican party platforms. A strong majority (63 percent) thinks Congress isn’t doing enough about affordability. It’s no wonder feelings are strong on these questions; it’s a kitchen-table issue. Fully 48 percent say they have struggled to pay rent or make mortgage payments in the past 12 months or know someone who has.

And, here are 5 rules for designing great—and healthy, friendly, and sustainable—cities, from Denmark’s “star urbanist,” Jan Gehl.

Keiko

Do you strive to challenge inequity in the spaces where you work? Check out this great (and free!) webinar on how you can use radical dharma to understand, confront, and counter racism and privilege within your own activism and larger progressive movements.

As housing prices skyrocket, residents are being priced out of communities where they have lived for decades. This recent New York Times article highlights the loneliness of being black in San Francisco, as the black community continues to shrink. Today, one in 20 residents is black in the city, compared to one in seven in 1970. How can we shape growth in order for our cities to not become enclaves for the rich? We have the opportunity to keep communities together by building more housing, requiring affordable housing, and providing help to those who need it.

How Will Seattle Grow?

“That single-family teardown that has turned into a McMansion walking distance to light rail today is a hundred-year lost opportunity,” stated Seattle homeowner and urbanist Sara Maxana at a recent public hearing on amending Seattle’s Comprehensive Plan. Many more eager Seattle residents spoke in support of the plan, recognizing the need to plan for equitable growth that provides opportunities for all. Take a few moments to get to know the faces behind Seattle’s growth below. Want more? Watch the full public hearing here.

Doris Koo, principal consultant at Yesler Community Collaborative

As we grow in density, we must ensure that there’s intentional and balanced land use and zoning policies that protect those marginalized people that have been in the communities for decades.

Bryan Kirschner, Wallingford resident

Opening all Wallingford land and all Seattle land to three-flats and triplexes is a way to offer families who simply can’t afford a single-family house a place in all parts of our city. People desperately need it, so let’s aim to do it.

Sara Maxana, Ballard resident

Planning for transit-oriented development, compact, walkable housing choices within transit station areas, has been an internationally recognized best practice for decades as a necessary strategy for addressing climate change, social inequity, and many other social, environmental, and economic challenges as we grow.