A carbon tax would push state’s gasoline prices higher

By John Stang, originally published on Crosscut

If Gov. Jay Inslee pursues a carbon emission tax, Washington's gasoline prices could increase by as much 44 cents by the end of the decade.

At a meeting in Paco on Thursday, Matt Steuerwalt, Inslee's executive director for policy, briefed members of the Washington Senate Environment, Energy & Telecommunications Committee on two possible gas-price scenarios. Those scenarios did not include many of the outside economic influences that could affect how much economic impact a carbon tax would have.

Inslee is expected to introduce legislation on carbon emissions taxes or a cap-and-trade system in the 2015 legislative session, likely against stiff Republican opposition. The Inslee administration is leery about tackling both approaches simultaneously. Inslee has a climate change task force that is supposed to provide feedback for the governor as he designs his legislative package. That task force will present its recommendations to the governor in November, before he designs his proposed legislations.

Carbon emissions have been linked to increasing ocean acidity along Washington's shores, including in Puget Sound. That change in pH levels has begun killing baby oysters and harming other Northwest shellfish. Washington’s shellfish industry is worth about $270 million annually. Carbon emissions are also linked to global warming, which influences how snowpacks form and melt. That, in turn, affects how much water is available for farming and residential consumption. 

Any proposed 2015 plan must include a way to enforce carbon emissions reduction targets set in a 2008 state law. In 2008, Washington's Legislature set a goal of reducing the state's greenhouse emissions to 1990 levels by 2020, with further trimming of emissions to 25 percent below that 1990 level by 2035 and to 50 percent below by 2050. So far, no progress has been made toward those goals. If no new remedial measures are put in place, and if the state's population continues to grow, the state's carbon discharges will blast away all the targeted reductions set back in 2008.

Steuerwalt discussed two scenarios that state economists ran through computer simulations. Neither scenario has been formally proposed. 

The lower simulated tax scenario called for a tax of $12 per metric ton of carbon beginning in 2016, with a 60-cents-per-metric-ton increase annually through 2020. After 2020, the tax would increase annually by $2 per metric ton. The scenario calls for collecting $737 million in 2016 and $839 million in 2020. This scenario will meet the state's 2020 carbon reduction goal, but not the 2035 carbon reduction goal. One metric ton is roughly the amount of carbon that 30 fuel-efficient cars driving average distances produce in a year. Vehicle emissions are the biggest producers of carbon pollution in Washington. Any tax would be imposed on energy producers, not consumers.

This simulation assumed a base gasoline price of $3.25 a gallon in 2020, which Steuerwalt acknowledged is low. This "lower tax" scenario would increase gasoline prices by 13 cents a gallon in 2020 and by 38 cents a gallons by 2035.

The "higher" simulated tax scenario called for a $12 per metric ton tax in 2016, with an $8-per-metric-ton increase annually. It would raise $1.165 billion in 2016 and $2.794 billion in 2020. The scenario would meet — barely — the state's 2020 and 2035 carbon reduction goals. The predicted increase in gasoline production costs was 60 percent by 2035, with natural gas production costs growing by 35 percent in the same period. This scenario would raise gasoline prices by 44 cents a gallon by 2020 and $1.46 a gallon by 2035.

The computer simulation predictions came with several caveats. They do not account for economic forces other than the carbon emissions tax. They do not account for any innovations in reducing carbon emissions. And, as the economists warned, every computer simulation comes with strengths and weaknesses.

The simulations did take account of the fact that almost all of the collected carbon tax revenue would be returned to taxpayers — as either working family tax credits or as rebates on business-and-operations taxes. When Inslee called for exploring taxes on carbon emissions, he wanted all proposals to be "revenue-neutral," meaning ways would be found to trim a corresponding amount of taxes elsewhere.

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