Search Results for: border adjustments

No U.S. state has a carbon tax. This fall, carbon tax proponents in the state of Washington are seeking to break through with Initiative-1631, a state tax on carbon emissions, which you can read about here. For a deep dive into the factors that defeated Washington’s 2016 carbon-tax ballot initiative I-732, click here.

Washington and 7 other states (including Washington DC, which we refer to here as a state) were deemed “promising” arenas for enacting state carbon taxes, in a comprehensive 2017 report by the Carbon Tax Center.

Another page, The Other 49 States, looks at state carbon tax organizing in a half-dozen other states.

CTC Report Ranks the States on Carbon Tax Potential

The report was written by Yoram Bauman, who spearheaded a Washington state carbon tax effort in 2016, and Carbon Tax Center director Charles Komanoff. It classifies the 51 states into five categories of carbon tax readiness ranging from “promising” to “very challenging.” (See map.)

Cover page of CTC’s new report rating the states’ carbon tax potential.

As the map shows, the eight most promising states are Connecticut, Hawaii, Illinois, Maryland, Massachusetts, New York, Washington and the District of Columbia. (Follow these links for historical perspective and other information on Massachusetts, New York, and Washington that isn’t in the report.) We rate another 17 states as having “potential” for enacting state carbon taxes, with some having relatively clear paths while others appear to face legal or ideological constraints. (Follow these links for additional information on Oregon, Rhode Island, Vermont, and—as a bonus—the city of Boulder, Colorado.)

The other 26 states are a lot less promising. Our report explains why.

The rankings are just one aspect of the report. Each state gets an overview, a brief analysis of CO2 emissions, summaries of local climate impacts and current climate policies, a sketch of carbon pricing activism, a brief look at climate ideology and politics, recent polling results, and, where applicable, a summary of ballot measures and proposed legislation.

The report is comprehensive in its coverage but concise in each state’s analysis and ranking. It clocks in at 120 pages, making it huge (a 14 MB pdf), but it’s well worth perusing for info on your state and how it stacks up with others. Click here to download. (A reduced-size pdf under 2 MB is available for those with slower connections, click here.)

Further below is extensive coverage of the Washington state I-732 campaign and its aftermath, along with info on carbon tax organizing in five other states as well as Boulder, CO’s carbon tax on electricity generation. Click on those links and read our introduction for context.

Also see our August 2016 post reporting on the new Brookings Institution report, State-Level Carbon Taxes: Options And Opportunities For Policymakers. It’s essential reading for people seeking to advance carbon taxes at the state level and anyone who wants to understand the nuts and bolts of designing and implementing actual carbon taxes.

State Carbon Taxes: Overview

“It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” — Justice Louis D. Brandeis (New State Ice Co. v. Liebmann, dissenting opinion, 1932)

This page covers organizing campaigns for U.S. carbon taxing at the state level, with sections on Washington State, Oregon, New York, Massachusetts, Rhode Island and Vermont.

With a national carbon tax blocked by the denialist Republican majority in Congress and a carbon-besotted White House, a growing number of climate advocates are heeding Justice Brandeis’s advice and are organizing at the state level. “Retail” politics, it is thought, might assuage concerns over outside-the-box ideas like carbon taxing, perhaps as occurred in the successful push for marriage equality (the right to same-sex marriage) which began and spread as state-level campaigns.

Moreover, progressive and popular options for distributing carbon tax revenues can be made more tangible at the state level than the federal. This point was underscored by a Jan. 2015 study by the Institute for Taxation and Economic Policy ranking the 50 states on their tax incidence that established that states are more regressive taxers than the federal government. In particular, sales taxes could be swapped out for carbon taxes, as advocates in Washington State proposed in their I-732 ballot initiative in 2016 (full discussion further below).

Not all states are riven by ideological resistance. While America’s geographical diversity can impede national unity, it has left some states less beholden to fossil fuel interests. Naturally, advocates are focusing on those states. (In March 2016, Resources for the Future posted two superb summaries of proposals in six states to adopt carbon taxes; the first focused on the tax rates (see graphic below), while the second addressed revenue treatment and household “incidence.”)

Graph courtesy of RFF. See link in adjoining paragraph.

States have also pushed the envelope on issues like minimum wage and fuel-efficiency standards, moving the national discussion as they did so. In a 2016 op-ed in the New York Times, Georgetown University law professor David Cole ascribed the National Rifle Association’s success at strangling national gun-control regulations to a decades-long campaign that changed state constitutions and laws to protect the right to possess and carry guns. Less far afield is the fact that gasoline taxes first took root in a handful of Western states to fund road construction, before spreading to the rest of the country. State carbon taxes could, it is hoped, create a similar template leading eventually to federal enactment.

The EPA Clean Power Plan may have provided an opening for state carbon taxes through a provision allowing states to submit projected emission reductions from carbon taxes applied to power generation (unfortunately, reductions from carbon-taxing non-electric sectors such as transportation would not receive credit). A June 2015 report from the Niskanen Center concluded that even small state carbon taxes could effectuate the required emissions reductions in most cases, mirroring our own modeling results on the national level.

Still, state carbon taxing raises issues that don’t apply to a federal tax. State policy makers and advocates need to address these concerns:

• Competitiveness: It would be hard for any one state to push its carbon tax too high, due to concerns over competitive advantage and inter-state “leakage” (e.g. driving out-of-state to fill up with untaxed gasoline).

Yet using some carbon tax revenues to reduce business taxes (as was proposed in Washington State) may soften concerns over economic impact. The cross-border issue may be less salient in larger Western states than in smaller East Coast states.

Jeff Renfro, a key member of a team at Northwest Economic Research Center that modeled a possible Oregon carbon tax, said:

We tried [in our modeling] to wreck the economy. We modeled a big tax – $100 a ton – with a relatively short phase-in period, and we assumed the government put the revenues toward non-productive reserves. Even in that scenario, we were surprised by how small the effects on employment were relative to the overall economy. (Interview with CTC researcher Matt Gordon, July 10, 2015)

• Efficiency: Energy policy is largely determined at the federal level. Administrative costs could be disproportionately higher for state taxes, due to greater cross-border movements of electricity and fuels among states than between the U.S. and other nations. In some states, utility sector regulation may complicate efforts to tax fossil fuels sufficiently upstream.

Many states already have taxes on gas and electricity, however, and it shouldn’t be difficult to piggyback a carbon tax on those taxes without significantly increasing administrative burdens. British Columbia’s carbon tax program uses this technique, and reports the administrative burden as negligible.

• Coverage: Only a national carbon tax will enable the U.S. to impose Border Adjustment Taxes to induce China and other countries to adopt their own taxes, which is a key benefit of pursuing carbon taxing. States cannot pursue a similar strategy without violating the commerce clause of the Constitution.

Although states may not tax imported goods, that prohibition shouldn’t be construed to mean they can’t tax imported electricity or fossil fuels that are then used within the state. In fact, some advocates see this as an opportunity for economic development; carbon-taxing out-of-state fossil-based electricity and fuels could stimulate growth in local renewables and energy-efficiency industries.

• Local Policy: Every state has idiosyncracies. In Oregon, the constitution mandates that all revenues from taxing gasoline must be deposited in the Highway Trust Fund. In Washington, state law precluded carbon tax revenues from being used for dividends to the public. Yet this patchwork of state policies may be a motivating factor in driving a national policy. The complications of doing business in jurisdictions with varying policies have even driven some oil companies to demand more unified action on climate change.

That said, the 2016 elections further cemented the Denier (Republican) Party’s hold on state governments, as the New York Times graphic below illustrates.

Republicans hold control of the governor’s office and the legislature in 24 states, while Democrats have that status in only six, according to this New York Times graphic.

On the other hand, red states tend to be fossil fuel-dominated states already out of reach of state carbon-tax campaigns. Two states with past or present carbon tax organizing, WA and OR, have Democratic governors and legislatures. Two others, NY and CO, have Democratic governors but divided or uncertain legislatures. Massachusetts and Vermont have Democratic legislatures but Republican governors.

No U.S. state has a carbon tax. An attempt to break through with a tax on carbon emissions in the state of Washington was defeated at the ballot in Nov. 2016, as we recount below. Nevertheless, Washington and 7 other states (including Washington DC, which for linguistic simplicity we are calling a state) are considered “promising” arenas for enacting state carbon taxes, in a comprehensive 2017 report by the Carbon Tax Center.

This page is sprawling, reflecting the intensity and breadth of state carbon tax organizing. These links can help you navigate:

• CTC report on state carbon tax potential
• Introduction to state carbon taxing
• The 2016 Washington state carbon tax referendum: what happened
• Carbon tax organizing in Oregon
• Carbon tax organizing in New York State
• Carbon tax organizing in Massachusetts
• Carbon tax organizing in Rhode Island
• Carbon tax organizing in Vermont

Also of interest: Minnesota state auditor Rebecca Otto has promised that her ambitious proposal for a revenue-neutral carbon fee will be a big issue in the 2018 campaign to succeed Mark Dayton as governor in 2018. Read our post, Minnesota state auditor stakes campaign for governor on carbon dividend.

CTC Report Ranks the States on Carbon Tax Potential

The report was written by Yoram Bauman, who spearheaded the Washington state carbon tax effort, and Carbon Tax Center director Charles Komanoff. It classifies the 51 states into five categories of carbon tax readiness ranging from “promising” to “very challenging.” (See map.)

Cover page of CTC’s new report rating the states’ carbon tax potential.

As the map shows, the eight most promising states are Connecticut, Hawaii, Illinois, Maryland, Massachusetts, New York, Washington and the District of Columbia. (Follow these links for historical perspective and other information on Massachusetts, New York, and Washington that isn’t in our new report.) We rate another 17 states as having “potential” for enacting state carbon taxes, with some having relatively clear paths while others appear to face legal or ideological constraints. (Follow these links for additional information on Oregon, Rhode Island, Vermont, and—as a bonus—the city of Boulder, Colorado.)

The other 26 states are a lot less promising. Our report explains why.

The rankings are just one aspect of the report. Each state gets an overview, a brief analysis of CO2 emissions, summaries of local climate impacts and current climate policies, a sketch of carbon pricing activism, a brief look at climate ideology and politics, recent polling results, and, where applicable, a summary of ballot measures and proposed legislation.

The report is comprehensive in its coverage but concise in each state’s analysis and ranking. It clocks in at 120 pages, making it huge (a 14 MB pdf), but it’s well worth perusing for info on your state and how it stacks up with others. Click here to download. (A reduced-size pdf under 2 MB is available for those with slower connections, click here.)

Further below is extensive coverage of the Washington state I-732 campaign and its aftermath, along with info on carbon tax organizing in five other states as well as Boulder, CO’s carbon tax on electricity generation. Click on those links and read our introduction for context.

Also see our August 2016 post reporting on the new Brookings Institution report, State-Level Carbon Taxes: Options And Opportunities For Policymakers. It’s essential reading for people seeking to advance carbon taxes at the state level and anyone who wants to understand the nuts and bolts of designing and implementing actual carbon taxes.

State Carbon Taxes: An Introduction

“It is one of the happy incidents of the federal system that a single courageous state may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.” — Justice Louis D. Brandeis (New State Ice Co. v. Liebmann, dissenting opinion, 1932)

This page covers organizing campaigns for U.S. carbon taxing at the state level, with sections on Washington State, Oregon, New York, Massachusetts, Rhode Island and Vermont.

With a national carbon tax blocked by the denialist Republican majority in Congress and a carbon-besotted White House, a growing number of climate advocates are heeding Justice Brandeis’s advice and are organizing at the state level. “Retail” politics, it is thought, might assuage concerns over outside-the-box ideas like carbon taxing, perhaps as occurred in the successful push for marriage equality (the right to same-sex marriage) which began and spread as state-level campaigns.

Moreover, progressive and popular options for distributing carbon tax revenues can be made more tangible at the state level than the federal. This point was underscored by a Jan. 2015 study by the Institute for Taxation and Economic Policy ranking the 50 states on their tax incidence that established that states are more regressive taxers than the federal government. In particular, sales taxes could be swapped out for carbon taxes, as advocates in Washington State proposed in their I-732 ballot initiative in 2016 (full discussion further below).

Not all states are riven by ideological resistance. While America’s geographical diversity can impede national unity, it has left some states less beholden to fossil fuel interests. Naturally, advocates are focusing on those states. (In March 2016, Resources for the Future posted two superb summaries of proposals in six states to adopt carbon taxes; the first focused on the tax rates (see graphic below), while the second addressed revenue treatment and household “incidence.”)

Graph courtesy of RFF. See link in adjoining paragraph.

States have also pushed the envelope on issues like minimum wage and fuel-efficiency standards, moving the national discussion as they did so. In a 2016 op-ed in the New York Times, Georgetown University law professor David Cole ascribed the National Rifle Association’s success at strangling national gun-control regulations to a decades-long campaign that changed state constitutions and laws to protect the right to possess and carry guns. Less far afield is the fact that gasoline taxes first took root in a handful of Western states to fund road construction, before spreading to the rest of the country. State carbon taxes could, it is hoped, create a similar template leading eventually to federal enactment.

The EPA Clean Power Plan may have provided an opening for state carbon taxes through a provision allowing states to submit projected emission reductions from carbon taxes applied to power generation (unfortunately, reductions from carbon-taxing non-electric sectors such as transportation would not receive credit). A June 2015 report from the Niskanen Center concluded that even small state carbon taxes could effectuate the required emissions reductions in most cases, mirroring our own modeling results on the national level.

Still, state carbon taxing raises issues that don’t apply to a federal tax. State policy makers and advocates need to address these concerns:

• Competitiveness: It would be hard for any one state to push its carbon tax too high, due to concerns over competitive advantage and inter-state “leakage” (e.g. driving out-of-state to fill up with untaxed gasoline).

Yet using some carbon tax revenues to reduce business taxes (as was proposed in Washington State) may soften concerns over economic impact. The cross-border issue may be less salient in larger Western states than in smaller East Coast states.

Jeff Renfro, a key member of a team at Northwest Economic Research Center that modeled a possible Oregon carbon tax, said:

We tried [in our modeling] to wreck the economy. We modeled a big tax – $100 a ton – with a relatively short phase-in period, and we assumed the government put the revenues toward non-productive reserves. Even in that scenario, we were surprised by how small the effects on employment were relative to the overall economy. (Interview with CTC researcher Matt Gordon, July 10, 2015)

• Efficiency: Energy policy is largely determined at the federal level. Administrative costs could be disproportionately higher for state taxes, due to greater cross-border movements of electricity and fuels among states than between the U.S. and other nations. In some states, utility sector regulation may complicate efforts to tax fossil fuels sufficiently upstream.

Many states already have taxes on gas and electricity, however, and it shouldn’t be difficult to piggyback a carbon tax on those taxes without significantly increasing administrative burdens. British Columbia’s carbon tax program uses this technique, and reports the administrative burden as negligible.

• Coverage: Only a national carbon tax will enable the U.S. to impose Border Adjustment Taxes to induce China and other countries to adopt their own taxes, which is a key benefit of pursuing carbon taxing. States cannot pursue a similar strategy without violating the commerce clause of the Constitution.

Although states may not tax imported goods, that prohibition shouldn’t be construed to mean they can’t tax imported electricity or fossil fuels that are then used within the state. In fact, some advocates see this as an opportunity for economic development; carbon-taxing out-of-state fossil-based electricity and fuels could stimulate growth in local renewables and energy-efficiency industries.

• Local Policy: Every state has idiosyncracies. In Oregon, the constitution mandates that all revenues from taxing gasoline must be deposited in the Highway Trust Fund. In Washington, state law precluded carbon tax revenues from being used for dividends to the public. Yet this patchwork of state policies may be a motivating factor in driving a national policy. The complications of doing business in jurisdictions with varying policies have even driven some oil companies to demand more unified action on climate change.

That said, the 2016 elections further cemented the Denier (Republican) Party’s hold on state governments, as the New York Times graphic below illustrates.

Republicans hold control of the governor’s office and the legislature in 24 states, while Democrats have that status in only six, according to this New York Times graphic.

On the other hand, red states tend to be fossil fuel-dominated states already out of reach of state carbon-tax campaigns. Two states with past or present carbon tax organizing, WA and OR, have Democratic governors and legislatures. Two others, NY and CO, have Democratic governors but divided or uncertain legislatures. Massachusetts and Vermont have Democratic legislatures but Republican governors.

The 2016 Washington state carbon tax referendum: what happened

In 2015, grassroots advocates in Washington crafted a carbon tax ballot measure that, they hoped, would make theirs the first U.S. state with a carbon tax. Their Initiative 732 would have established a comprehensive statewide carbon tax reaching $25 per metric ton of CO2 in 2018 and rising thereafter at 3.5% faster than the general inflation rate. The initiative was decisively defeated, however, by a vote of 59% to 41%. We discuss I-732 and the divisiveness it spawned, directly below.

Washington Gov. Inslee’s just-proposed (Dec. 2016) carbon tax would dedicate a majority of revenue to funding education.

Five weeks after that vote, Washington Gov. Jay Inslee proposed a carbon tax whose level — starting in May 2018 at $25 per metric ton of CO2 and increasing thereafter at 3.5% a year faster than inflation — would be identical to that in I-732. The Seattle Times first reported the proposal, which is a key part of the governor’s fiscal plan, on Dec. 13. Inslee’s office has issued an informative 3-page policy brief outlining the intended uses of the carbon tax revenues; unlike I-732, which was designed to be nearly 100 percent revenue-neutral, the governor’s proposal, which requires legislative approval, is intended to patch big holes in the state budget. We hope to report on the progress of Gov. Inslee’s proposal shortly.

On Nov. 12 Carbon Washington, the grassroots advocacy group that gathered 360,000 signatures to put Measure I-732 on the November ballot, and then fought for its passage with a high-energy organizing campaign, issued a statement, Carbon tax friends, be proud of what we’ve accomplished. Here’s the opening paragraph:

Together, we accomplished something historic by putting the nation’s first statewide carbon tax before the voters. We showed that there is a strong desire for common-sense climate action in Washington State, and we influenced the national conversation on climate policy. We ran an honest, transparent, and positive campaign focused on addressing the climate and equity problems facing our society. We did all of that thanks to you.

CarbonWA says it is thinking through next steps and want[s] to hear supporters’ “thoughts on the election and where this movement that you helped build should go next.” The group invites feedback via email. Their terrific Web site, Yes on 732, is still up.

Seattle Times graphic, downloaded Nov. 11. Earlier reports had the vote slightly closer. Official Nov. 13 update (see text) has same percentages.

As of Nov. 13, Washington’s Secretary of State was reporting 1,571,080 No votes vs. 1,091,626 Yes, a nearly 3-to-2 margin. Only King County, the state’s largest, which includes Seattle, voted majority Yes; all other 38 counties voted No to Measure 732.

In the aftermath of the election, the Alliance for Jobs and Clean Energy — the Washington confederation that became the locus of “green” opposition to I-732 — posted a five-page draft clean energy plan intended to fulfill its commitment to fashion an alternative policy to Carbon WA’s revenue-neutral carbon tax. The plan’s carbon tax, just $15 per ton of CO2 and with no increase beyond inflation unless as-yet-unspecified reduction targets are met, would be around half of the tax level specified in I-732; most emission reductions would come from investments in efficiency and renewables outlined but not specified in the draft. Alliance leaders pledged to push their plan to the legislature and vowed to put it on the ballot in 2017, if necessary, the Seattle Times reported on Nov. 12.

Top reads on the ballot battle (newest listed first):

The I-732 referendum received intense national as well as local coverage in the run-up to the election, in part because the split over the measure within the green movement made for a compelling (and disturbing story).

The best post-mortem we’ve seen is Marianne Lavelle’s Nov 9 story, Washington State Voters Reject Nation’s First Carbon Tax, for Inside Climate News. It’s an excellent overview of the competing perspectives of I-732 proponents and opponents (state purview vs. national, social-justice vs. economic, etc.) and has quotes from Washington social-justice advocates (who opposed the measure) and climate luminary James Hansen and CTC director Charles Komanoff, who supported it. Here, for example, is a quote from KC Golden, senior adviser to the Washington State nonprofit Climate Solutions:”

The people who came up with the idea of ‘revenue-neutral’ did it for a good reason, to defuse the partisan bomb that keeps us from getting everywhere on climate. But we can’t find any political ‘there’ there. To tell labor and communities of color, ‘We’re going to change the incentives and benefits are going to flow’ sounds…a lot like ‘trickle-down’ economics. They justifiably don’t trust that story.”

Draw your own conclusions.

Here are half-a-dozen other (pre-election) articles:

• The left’s opposition to a carbon tax shows there’s something deeply wrong with the left, (Washington Post editorial, Oct 27). Strongly supported I-732 and decried left-greens’ stance that “softening the blow for the poor and middle class is not enough; the government must divert the revenue according to the wishes of specific interest groups.”
• Opposition to Washington’s historic carbon tax initiative is coming from the unlikeliest of sources (Natasha Gelling in Think Progress, Oct 6). Sophisticated and concise examination of the green split over I-732.
  
• Initiative 732: A ‘Carbon Tax Swap’ To Address Climate Change (Seattle NPR affiliate KNKX-FM, Oct 3). Excellent account of both sides’ views on I-732.
  
• The environmental groups killing a carbon tax (“The Hill,” Sept 22). Professor of law and economics Shi-Ling Hsu — a signatory to CTC’s Paris letter last fall — dissected the opposition to I-732 from sectarian green groups.
• Tax carbon polluters, not working families  (“Crosscut,” Sept 20). Three veteran organizers explained why the I-732 carbon tax will be just as well as efficient.
• Washington Carbon Tax Ballot Initiative Picks Up Biggest Corroboration Yet (CTC blog, Aug 5). Our quick guide to Sightline Institute’s in-depth analyses backing Carbon-WA’s claims for Measure 732 demonstrating that the carbon tax will be revenue-neutral, income-progressive and climate-effective.
• There’s a cheap, proven fix to the world’s biggest problem (CNN, April 19). Political writer John Sutter interviewed Carbon-WA founder Yoram Bauman and explained why a victory for Yes on 732 could be key to unlocking carbon taxing in the U.S.
  

Our blog posts on I-732 (newest listed first):

The Carbon Tax Center strongly supported Carbon WA’s initiative and organizing campaign. Our blog posts during the few weeks before the election responded vigorously to attacks on Initiative 732. Earlier-dated posts mostly involved straight reportage about the merits of the initiative and the campaign to pass it.

• Naomi Klein Is Wrong On The Policy That Could Change Everything, Nov. 7, 2016. The policy that could do the most to start changing everything is on the ballot in Washington state, but somehow it’s not quite good enough for the author of “This Changes Everything.”
• To The Left-Green Opponents of I-732: How Does It Feel?, Nov. 4, 2016. The Koch brothers just gave $50K to the “No On 732” forces. If you’re on the left, it’s time to ask yourselves, in Bob Dylan’s words, “Are you having a good time?”
• Fighting in the Trenches Doesn’t Excuse Ignorance on Carbon Taxes, Oct. 28, 2016. We skewer criticisms of I-732 from the advocacy group Food & Water Watch, including their nonsensical claim that “carbon taxes help fossil fuel companies, not the environment.”
  
• Washington State’s I-732: A Climate Measure for the Society We Have, Oct. 18, 2016. Invokes mid-century humanist radical Paul Goodman to critique “old-guard” green-establishment’s stance opposing Carbon Washington’s ballot initiative.
• The Political Meltdown That Could Save The Climate, Oct. 8, 2016. Why the GOP-Trump electoral meltdown opens a path for I-732 to become the template for a U.S. carbon tax.
• Carbon Tax Can Be a Remedy for Toxic Hot Spots (Sept. 13, 2016). Rebuts notion — left over from the 2009 Waxman-Markey bill built around cap-and-trade with offsets — that a carbon tax could perpetuate or exacerbate tosic “hot spots” in communities of color.
• Washington Carbon Tax Ballot Initiative Picks Up Biggest Corroboration Yet, Aug. 5, 2016. Reports on masterly rebuttal to WA state government’s objections to I-732, from Pacific NW think tank extraordinaire Sightline Institute.
• Feeling The Heat: A Carbon Tax Gains Grassroots Momentum in Washington State, July 16, 2015. CTC’s Matt Gordon captures the on-the-ground energy of Carbon WA’s petition-gathering for Initiative 732.

I-732 history and details (This pre-Nov 2016) content has not been updated.)

The Evergreen State is blessed with abundant natural beauty — Mt. Rainier, the North Cascades, Puget Sound, the Olympic Peninsula and the Columbia River basin and gorge — with an outdoor culture to match. It was also wracked by drought and forest fires in 2015. In that year, carbon tax advocates under the banner of Carbon Washington began organizing for a ballot initiative mandating a state carbon tax. Measure I-732 would have taxed carbon emissions at an initial rate of $15 per ton of CO2, rising the following year to $25 per ton, and then increasing annually by 3.5% more than the inflation rate.

Graphic from http://yeson732.org/ highlights the tax benefits.

The tax, gracefully summarized last year by the Christian Science Monitor, would have used the expected $1.7 billion in annual revenue to overhaul Washington’s unusually regressive tax code. Most of the money was earmarked to lower the state sales tax from 6.5% to 5.5%. (While the state sales tax is 6.5%, the average combined local-state sales tax rate is 8.89%, the fifth highest in the country.) The annual increases in the carbon tax would have offset the rising value of the sales tax reduction, ensuring the measure stayed revenue-neutral. Another $200 million a year would have funded the state Working Families Rebate – an extension of the federal Earned Income Tax Credit. The Working Families Rebate was created in 2008 but never funded, and revenue from the carbon tax could have assisted 400,000 low-income working families. These two pieces made I-732 the state’s most progressive tax initiative since groceries were exempted from sales taxes in 1977. The remaining funds would have enabled the state to eliminate the business and occupation tax on manufacturing — a feature designed to win business support.

CTC researcher Matt Gordon visited Washington in June 2015 and met with ballot organizers there. He wrote a blog for us about Measure I-732 last July and another in August about backbiting against Measure I-732 by some veteran state environmental advocates. (The surprising opposition to I-732 was criticized by leading right-of-center economist Greg Mankiw in a New York Times opinion piece in early September, 2015, backing the measure.) Despite the opposition, Carbon Washington collected 360,000 petition signatures — over 100,000 more than the 246,000 required to put Measure I-732 on the November, 2016 ballot for a statewide up-or-down vote.

Keibun Mori, a former economist with the Washington State Energy Office, developed a carbon-tax spreadsheet model to predict revenue generation and CO2 reductions for the state from a carbon tax. Keibun’s model used an elasticity-based approach (as does CTC’s national carbon-tax model), and was used to estimate greenhouse-gas emission reductions for the Oregon study noted above.

The Carbon Washington website has clear and compelling information, arguments and graphics for Measure I-732, including lead organizer Yoram Bauman’s clarion defense of the measure’s provisions to ensure social and economic justice. Yoram’s New Year’s 2016 update was stirring and informative as well. Sign up with Carbon-WA to stay connected and donate.

Carbon tax organizing in Oregon

The Beaver State is the locus of the most detailed examination of a carbon tax for any U.S. state to date.  Oregon’s legislature allocated $200,000 to study the effects of a state-wide carbon tax. The result was Carbon Tax and Shift: How to Make it Work for Oregon’s Economy, by economists at Portland State University’s Northwest Economic Research Center, and released in March 2013. The clearly written and gorgeously designed 36-page report examined a tax based on British Columbia’s carbon tax.

Like BC’s, the carbon tax examined for Oregon would be (largely) revenue-neutral: one scenario applied 70% of the tax revenues to cut corporate taxes, 20% to cut personal income taxes, and 10% to reinvest in industrial energy efficiency programs. The other scenario apportioned 50% of the revenues to cut corporate taxes, 25% to cut personal income taxes, and 25% for industrial and residential energy efficiency and transportation infrastructure.

Oregon carbon tax supporters at “Salmon at the Redd”

The Oregon tax, starting at $10/ton of CO2 and rising by $10 per year to $60/ton, or roughly twice the level of BC’s tax, would, by 2025, reduce the state’s greenhouse gas emissions by 12-13% below baseline projections and generate over $2 billion a year in revenue, according to the report. The carbon tax outlined in the study became the basis of HB 3252, a bill aimed at establishing a state-wide carbon tax. The grassroots movement to advance the tax was led by Oregon Climate, which spread awareness via canvassing, tabling and lobbying. Oregon Climate also sought to bridge art with climate advocacy, culminating in “Salmon at the Redd,” a community project in which residents created tiles for a mosaic illustrating what they loved about their state.

Unfortunately, the carbon tax campaign was effectively pre-empted by Senate Bill 1547, which in 2016 established a Renewable Portfolio Standard mandating that Oregon utilities ramp up wind and solar facilities to supplement the state’s considerable hydro-electric supplies. Oregon Climate has shifted its focus to a national effort to help other localities advocate for carbon pricing.

Carbon tax organizing in New York

New York should be a strong venue for pursuing a state carbon tax. In October 2012, Superstorm Sandy made a climate-change believer of Gov. Andrew Cuomo. who declared, “[C]limate change is a reality, extreme weather is a reality, it is a reality that we are vulnerable,” after the tidal surge from the storm inundated coastal communities and brought unprecedented devastation to hundreds of miles of shoreline. Moreover, not just coastal residents but upstate citizens politicized by fracking have rallied around the Jacobson-Delucchi “100% Wind, Water and Sunlight” global scenario for NY State, as Jacobson and co-authors propounded in their compelling journal article in Energy Policy.

Two Carbon Tax Center officers — director Charles Komanoff and board chair Alex Matthiessen — outlined the rationale for and distributional impacts of a potential $20/ton (of CO2) NY State carbon tax in a 2013 op-ed for the Huffington Post (cross-posted here). Our draft brief envisions applying the lion’s share of carbon tax revenues to reduce the statewide sales tax rate by a full percentage point — paralleling the sales tax cut in Carbon Washington’s Measure I-732, discussed above. “Leftover” revenues could help fortify the state’s infrastructure to withstand future storms and/or expedite and incentivize homeowners’ and business owners’ installation of photovoltaic electricity generating capacity. Comments on this concise (6-page) draft document are welcome

A NY State carbon tax bill with a more aggressive design was introduced in Sept. 2015 by two Democratic legislators, Assemblyman Kevin Cahill of Dutchess County and Sen. Kevin Parker of Brooklyn. Their bill, A8372 Cahil / S6037 Parker, starts taxing CO2 emissions from coal, oil, natural gas and biofuels at $35 per ton and increases the rate annually by $15/ton, to a ceiling of $185 per ton. The bill proposes returning 60% of revenues to low- and moderate-income households, with the remaining funds used to prepare for climate change, invest in renewable energy, and build transportation infrastructure.

Environmental advocates from around New York State including CTC director Charles Komanoff met at the SUNY New Paltz campus in September, 2015 to discuss climate campaigning and carbon tax organizing. One of the participants, New York League of Conservation Voters Member Andrew Ratzkin, previously outlined the case for a NY State carbon tax in this compelling op-ed in Crain’s New York Business, in July, 2015. In mid-2016 Ratzkin published a lengthy article in the Columbia Journal of Environmental Law, You Say You Want a REV Solution, critiquing the state’s “Reforming the Energy Vision” blueprint as inferior policy to a statewide carbon tax.

Carbon tax organizing in Massachusetts

The bay state’s Global Warming Solution Act of 2008 mandated a 25% reduction of CO2 emissions below 1990 levels by 2020 and an 80% reduction by 2050. Befitting its “promising” status in CTC’s report, Opportunities for Carbon Taxing at the State Level, Massachusetts is a hotbed of advocacy for a statewide comprehensive carbon tax to meet and surpass those targets.

The most politically popular bill appears to be S.1821, An Act combating climate change, sponsored by State Senator Mike Barrett (D-Lexington). Barrett’s nearly identical 2016 bill S.1747 had 47 co-sponsors, and this year he has 64, nearly one-third of the legislature,

The Barrett bill specifies an initial carbon fee of $10/ton of CO2, increasing in $5/ton annual increments to $40/ton, after which the legislature will consider increases or decreases. The bill establishes a fee-and-rebate system, with 100 percent of carbon revenues collected from fossil fuel providers returned pro rata to state residents and to employers based on the number of employees.

S.1821 will direct additional rebates to households in car-dependent areas and to energy-intensive businesses. As with the similar Citizen Climate Lobby fee-and-dividend proposals at the federal level, the rebate system is intended to be income-progressive (with low- and moderate-income households being net beneficiaries while wealthier households would be net payees) while preserving all households’ incentives to reduce fossil fuel use in order to pay less in fees.

Supporters of Barrett’s prior bill, S.1747, cited broad support from businesses including financial services, healthcare, hospitality, food services, transportation, design and technology companies touting its potential to incentivize innovation and preserve competitiveness. At an Oct. 2015 legislative hearing, Business Leaders for Climate Action released an endorsement letter backing the Barrett bill, signed by over one hundred state businesses and business leaders.

Reports by the Massachusetts Department of Energy Resources and Regional Economic Model Inc concluded that S.1747 would slash emissions while boosting employment and overall economic activity.

Projected Emissions After Imposition of $5/ton Carbon Fee, rising $5/yr to $40 (Prepared for Massachusetts Department of Energy Resources)

On the House side, State Representative Jennifer Benson (D-37th Middlesex) is sponsoring H.1726, “An Act to promote green infrastructure, reduce greenhouse gas emissions, and create jobs.” The Benson bill adheres to the Barrett bill’s carbon-fee-and-rebate model but dedicates 20 percent of revenues to fund green infrastructure directly, such as public transportation, renewable energy, energy efficiency, and protection against the expected impacts of climate change. With 80 percent of revenues applied to rebates rather than 100 percent, the Benson bill would likely have a somewhat less income-progressive outcome than the Barrett bill, though the difference would be attenuated by the green investments.

Two other energy-related bills also include carbon pricing provisions:

• Senator Marc Pacheco (D-Taunton)’s S.479, An Act relative to 2030 and 2040 emissions benchmarks, would authorize the state to “create, expand, or join market-based compliance mechanisms, including but not limited to greenhouse gas emissions trading and carbon pricing programs,” in order to achieve the greenhouse gas emissions reductions required by the Massachusetts Global Warming Solutions Act.
• Solomon Goldstein-Rose (3^rd Hampshire)’s HD.1948, An Act relative to creating energy jobs, would establish a carbon-fee-and-rebate system similar to those in the Barrett and Benson bills as part of a larger initiative to make Massachusetts “the Silicon Valley of the new energy economy.”

Analysis by the Massachusetts Department of Energy Resources suggests that carbon pricing would deliver the greatest CO2 reductions of any policy while enhancing state and local employment. Advocates are using those findings, along with the potential to cut health care costs through reduced air pollution, to convince Governor Charley Baker to support carbon pricing legislation.

In Jan. 2017, Dave Anderson of the Massachusetts-based Energy & Policy Institute posted a  provocative, well-documented piece, Under Rex Tillerson, ExxonMobil Lobbied Against Carbon Tax Bills. In his article Anderson revealed 2016 lobbying disclosures filed with the Secretary of the Commonwealth of Massachusetts indicating that a lobbyist paid by ExxonMobil opposed the revenue-neutral carbon tax bill S.1747, as well as other climate-related bills.

For more information on carbon pricing in Massachusetts, view this short video on carbon pricing by Business Leaders for Climate Action, or contact info@blcama.org.

Carbon tax organizing in Rhode Island

With its coastline-defined topography, the Ocean State is directly exposed to climate change impacts of rising sea levels, flooding and storms. Rhode Island is also home to U.S. Senator Sheldon Whitehouse, whose 100 weekly “Time to Wake Up” speeches on the Senate floor in 2013-2015 established him as Capitol Hill’s most forceful voice for climate action. The Senator’s American Opportunity Carbon Fee Act of 2014 would establish a national carbon tax.

Detail from REMI study of a Rhode Island carbon tax.

With federal carbon pricing blocked by the GOP, a coalition of RI environmental, faith and business groups formed Energize Rhode Island in 2015 to advocate for state carbon pricing legislation. In January 2016 State Rep. Aaron Regunberg (D-Providence) introduced House Bill 7325, along with 40 co-sponsors. H7325 specifies an initial carbon fee of $15/ton of CO2, increasing in $5/ton annual increments. Seventy percent of the revenue would be refunded via per capita and per employee rebates to Rhode Island families and businesses, with 25% invested in renewable energy and efficiency programs.

The Energize Rhode Island Coalition touts a REMI study finding that H7325 will create over a thousand new jobs in the first year alone — a major economic boost for a state whose 2014 population was just 1.055 million — while emission reductions quickly reach double digits. Job growth will continue apace in subsequent years, according to the study, as Rhode Islanders save much of the nearly $4 billion a year they now spend on fossil fuel energy, all of it imported from outside the state.

Carbon tax organizing in Vermont

The conversation among policymakers in Vermont has begun to shift from whether the state should price carbon pollution to how, reports Tom Hughes of VPIRG, in Feb 2016.

The carbon-pricing campaign is led by Energy Independent Vermont, a coalition comprising the state’s top environmental organizations, the renewable-energy leaders who have made Vermont a solar powerhouse, iconic Vermont businesses like Ben & Jerry’s and Seventh Generation, the state’s low-income weatherization agencies, interfaith religious leaders, and academics at U-Vermont’s Gund Center for Ecological Economics. Non-member allies of Energy Independent Vermont include the Vermont Council on Rural Development and a CERES-supported group of industry leaders including Sugarbush Resort, Burton and King Arthur Flour.

The campaign engaged Regional Economic Models, Inc. (REMI) to conduct an analysis of a pollution tax set at $100 per metric ton of CO2, with 90% of revenues recycled as cuts to the state income tax, corporate taxes and a reduction in the sales tax, and the remaining 10% reserved for low-income weatherization and other energy-saving investments. As modeled, the tax would exempt electric generation, since that is already covered with a carbon pricing regime through RGGI, the Regional Greenhouse Gas Initiative. The REMI study concluded that over the first decade this measure would cut carbon emissions from heating and transportation by 31% while generating 2,400 new jobs, raising gross state domestic product by $100 million, and adding more than $150 million a year to real disposable personal income.

Two bills with similar tax rates and revenue treatment were introduced in the Vermont General Assembly in early 2015, according to Hughes. Energy Independent Vermont delivered 25,000 petitions in favor of carbon pricing to Vermont legislators in November 2015, he reports. In January 2016 Gov. Peter Shumlin’s administration called for the state to “investigate and pursue options for market-based greenhouse gas emission policies.” A May 26 piece by Energy Independent Vermont activist Luc Reid in the Williston (VT) Observer, The unsuspected upsides of a carbon pollution tax, did a nice job of laying out the “income progressivity” of EIV’s carbon tax proposal.

The November election win of Republican Lieutenant Governor Phil Scott to the governor’s office will set back efforts to enact a Vermont carbon tax, Seven Days political columnist Terri Hallenbeck reported in early December.

Boulder (Colorado)

2015 Revenue distribution from Boulder’s carbon tax

The municipality implemented the United States’ first tax on carbon emissions from electricity, on April 1, 2007, at a level of approximately $7 per ton of carbon dioxide. According to the City of Boulder, the tax was costing the average household about $1.30 per month, with households that use renewable energy receiving an offsetting discount. The city expected the tax to generate about $1 million annually until its expiration in 2012, with the revenues used to fund Boulder’s climate action plan to further reduce energy use. In June 2009, the City Council voted unanimously to raise the tax level. Although the new rate was not originally specified, the expected increase in revenues, some $810,000 annually,  suggests that the increase is on the order of 80%, or perhaps $5-$6 per ton of CO2 (on top of the original $7/ton). In 2012, residents voted to continue the tax at the 2009 rate for another five years.

Other States?

Please send us (info@carbontax.org) your reports, or even just ideas, on state-level carbon taxes, so we can post them here.

(coming soon: Utah, drawing on this link and that link)

It’s now well-established that large-scale U.S. production of biofuels such as ethanol from corn has accomplished little or nothing (or even negative) in its stated goals of reducing oil dependence and cutting emissions of greenhouse gases, and has functioned instead as a full-employment program for agribusiness (and a political production racket for Iowa and other corn-growing states).

The most recent confirmation comes in Climate consequences of low-carbon fuels: The United States Renewable Fuel Standard, an article by researchers at the University of Minnesota in the Oct. 2016 peer-reviewed journal Energy Policy. As neatly summarized in Climate Central, they found that the Renewable Fuels Standard has cut U.S. oil demand only slightly since 2006 and has even caused a net increase in our total greenhouse gas emissions. The culprits: ethanol’s low Btu content, its high energy-production inputs, and the “rebound effect” of subsidized gasoline leading to higher consumption. And the researchers deliberately excluded CO2 emissions from burning the ethanol in car engines, making their findings of a net increase in GHG’s even more damning.

This is important context for the thorny question of whether, and how, carbon emissions from burning bioenergy — renewable energy made available from materials derived from biological sources (a category that includes both biofuels like ethanol and biomass like wood used to generate electricity) — should be included in prospective carbon taxes. It may help to break down the issue into a series of questions:

• Would carbon-taxing bioenergy act as a brake on monocrop agriculture for growing biofuels or large-scale forest-cutting for harvesting biomass?
• Should credits or offsets be offered for carbon sequestered by growing crops for biofuel or trees for biomass?
• Or should some or all bioenergy sources be exempted from carbon taxes because they are or might be roughly carbon-neutral?

The remains of an Indonesian rain forest that was cleared to make way for oil palms to supply biofuels for U.S. and European diesel vehicles. Credit: Ashley Gilbertson/VII, for The New York Times. The photo accompanied a NYT Magazine article referenced and linked further below.

The debate over biofuels and economics has tended to focus on mandates and subsidies rather than carbon taxes — unsurprisingly, given the absence of carbon-taxing in the U.S. and the prevalence of large biofuel subsidies, primarily via the Renewable Fuel Standard. Mandates and outright subsidies alike override market price signals in the face of strong evidence, such as the U of Minnesota study noted above, that biofuels’ lifecycle emissions often exceed those of fossil fuels they displace. Analysis of land use changes induced by biofuels mandates has raised additional doubts about net climate benefits as well as concerns that biofuel crops are displacing food crops.

Then there are regulatory or legislative pressures on EPA to categorize biomass burning as carbon-neutral in the regulations that comprise the Clean Power Plan. This prospect has spurred a pushback campaign over lifecycle emissions of biomass.

Let’s start with the fact that combusting biofuel or biomass into bioenergy releases carbon dioxide, just as combustion of fossil fuels does. Unlike fossil fuels, however, the plant sources of bioenergy sequester carbon, through photosynthesis. A “carbon neutral” bioenergy source would be one that sequestered as much carbon in its growth cycle as it released later when burned as fuel, with the sequestering occurring concurrently with the burning, or nearly so, rather than decades hence, when the negative emissions count for less in stabilizing atmospheric CO2 levels.

Even short of that ideal, burning biofuel or biomass that has sequestered a significant part of the CO2 emitted in combustion might seem preferable to burning fossil fuels. On the other hand, combustion of forest biomass emits up to 45% more CO2 than coal when used to generate electricity, according to some estimates, primarily because the fuel’s high moisture content results in poorer combustion efficiency. And given the diversity and complexity of our and other countries’ energy systems, it’s not at all clear that burning biomass or biofuels would substitute for fossil fuels in the first place.

Biofuels – Driven by Mandates and Subsidies

Buckling to pressure from agribusiness and farm-state senators and representatives, but also citing biofuels’ asserted climate and energy-security benefits, Congress included a “Renewable Fuel Standard” in the Energy Policy Act of 2005. The standard mandated annual production of 7.5 billion gallons of biofuel by 2012, a figure raised to 9 billion gallons for 2008 and 36 billion gallons by 2022. (For comparison, autos and light trucks, which account for just under half of U.S. consumption of petroleum products, burned 140 billion gallons of gasoline in 2015.)

In addition to mandates, biofuels are boosted by subsidies, most notably the “Production Tax Credit” for renewable energy. It amounts to a subsidy of roughly one dollar per gallon of ethanol, and an even larger subsidy for biodiesel of roughly two dollars per gallon.

While it takes anywhere from months to decades for plants to sequester carbon through photosynthesis at scale, the combustion and release of carbon’s combustion product, carbon dioxide, happens in seconds. And ramping up production of biofuels and biomass shifts land out of other carbon-sequestering uses, typically forests or food crops. Even under optimistic assumptions about timing and baseline scenarios, it’s clear that little if any large-scale production of biofuels or biomass anywhere in the world even approaches carbon-neutrality.

Cornell biology professor David Pimentel and U-C Berkeley engineering professor Tad W. Patzek concluded in a detailed analysis published in 2005 in Natural Resources Research that production of leading biofuels uses more fossil fuel inputs than they displace, i.e., that their lifecycle emissions exceed those of fossil fuels. While this finding has been challenged by subsequent analysis that assumed more efficient farming and production methods, it sparked much-needed scrutiny of the assumption that biofuels are carbon-neutral.

Sources: Calculated from EIA, Monthly Energy Review, August 2012, Ethanol Consumption, Table 10.3.

The predominant biofuel produced in the U.S. is ethanol derived from corn. Ethanol is now blended into almost all gasoline sold here and accounts for roughly 10% of total U.S. motor fuel. The modern industrial corn production cycle is extremely carbon-intensive; equipment for harvesting corn is fuel-powered, as are fermentation and distillation of corn into ethanol. In addition, corn plants deplete soil nitrogen, which must be replaced by constant doses of fertilizer. A principal fertilizer feedstock, hydrogen, is derived from natural gas. Indeed, the corn-to-ethanol production cycle is so carbon-intensive that a carbon tax applied to its fuel inputs (including natural gas) would internalize much of ethanol’s climate cost, obviating somewhat the need for a tax on the end-product.

Other bioenergy fuels such as wood chips, cellulosic ethanol, methanol, sugar cane and biodiesel have their own distinct lifecycle fuel inputs and carbon emissions, raising the thorny issue of assessing and taxing their lifecycle carbon emissions.

Debate Over Bioenergy’s Net Climate Impacts

Notwithstanding critiques of about biofuels’ net-energy value by Pimentel and a handful of other researchers, bioenergy was favorably viewed in energy circles until recently on account of its being domestic, abundant and non-fossil. That consensus was eventually undermined by Tim Searchinger at Princeton and Joseph Fargione of the Nature Conservancy. Their analyses, first published in 2008 and updated in a 2015 working paper from the World Resources Institute, underscored the importance of accounting for greenhouse gas emissions resulting from:

• converting land to biofuels production, e.g., burning tropical rainforest to clear land for sugarcane production;
• loss of existing carbon sequestration capacity of forests, grasslands and even food crops;
• land use changes to boost food production abroad to replace lost exports when U.S. land is shifted to biofuels.

Searchinger’s and Fargoine’s analyses sparked widespread criticism of biofuels mandates and subsidies. Biofuels interests countered that some crops can yield both food and biofuels and that increased yields can avoid or mitigate the need for additional acreage. The critics responded that removing all biomass from land reduces the carbon sequestration potential of soil; for example, harvesting corn for food and burning the residue (stalks, leaves and cobs) as fuel releases CO2 that would otherwise reside in soil for years or even decades.

Heated debate over biofuel mandates and subsidies continues. A recent controversy centered on EPA’s proposed rule to characterize biomass burning as a carbon-neutral replacement for fossil fuels under the Clean Power Plan — an issue covered in 2016 by the Washington Post and in the same year by New York Times economic columnist Eduardo Porter. In November 2018, the New York Times Magazine published a searing expose of biofuels by ProPublica investigative journalist Abrahm Lustgarten. The long-form story, Palm Oil Was Supposed to Help Save the Planet. Instead It Unleashed a Catastrophe, focused on “industrial-scale deforestation” in Borneo, Indonesia, to clear land for palm oil plantations incentivized by U.S. mandates for biodiesel fuel.

A similar finding about biofuels in general and biodiesel from palm oil in particular was reported by The Guardian in 2016, in EU green transport target ‘may have increased greenhouse gas emissions’:

European Union renewable energy targets may have increased greenhouse gas emissions because the dirtiest biofuels produce three times the emissions of diesel oil, according to the most complete EU analysis yet carried out. Biodiesel made from palm oil emits more than three times as much and soybean oil around twice as much, when the crops’ effects on land use are considered, the research by the Ecofys consultancy for the European commission found. Europe’s aim of sourcing 10% of its transport fuel to “renewables” by 2020 – mostly biodiesel – will foster crop cultivation on 6.7m hectares of forests and grasslands, the paper says. When the loss of trees is factored in, such ‘first generation biofuels’ would generate around nearly 1bn tonnes of CO2 equivalent.”

For comparison purposes, 6.7 million hectares is approximately 26,000 square miles, or an area slightly larger than West Virginia. A billion metric tons of CO2 is approximately 20% of annual U.S. CO2 emissions from fossil fuel combustion.

How Should a Carbon Tax Treat Biofuels and Biomass burning?

Mandates and subsidies for fossil-fuel intensive biofuels such as corn-derived ethanol are so large that eliminating or reducing them would almost certainly do more than a carbon tax to curb these fuels’ artificial price advantage. Similarly, classifying biomass fuels as “carbon neutral” in EPA’s Clean Power Plan regulations would boost that sector more than a well-designed and hefty carbon tax would shrink it.

Nevertheless, a carbon tax shouldn’t compound these perverse incentives by further incentivizing biofuels and biomass to replace fossil fuels. It also shouldn’t dilute the “pull” of a carbon tax toward truly renewable and low-carbon alternatives. Indeed, a carbon tax should, and likely would, encourage production of bioenegy only to the extent it reduces lifecycle CO2 emissions vis-à-vis alternatives that would likely be deployed in their absence.

With these considerations, we outline three options for carbon-taxing bioenergy:

1. We start with a minimal approach that would tax all fossil fuel inputs of bioenergy including those used to manufacture fertilizer for corn grown for ethanol.
2. We then consider adding a simple carbon tax on biofuels’ and biomass’ combustion emissions, regardless of upstream sequestration or emissions.
3. Finally, we sketch a proposal for a carbon tax that would account for lifecycle emissions of bioenergy by category.

1. Leave carbon content of biofuels and biomass untaxed, at least for now, while taxing fossil fuel inputs to biofuel production.

Criticisms of policies that encourage biofuels have appropriately focused on the perverse effects of mandates and subsidies, especially land-use shifts from carbon-sequestering forestry or food production to biofuel crops. These shifts generally cause significant releases of CO2 as forests are cleared (often burned) and their carbon sequestration potential reduced, and as food cropland is converted, necessitating conversion of other land to replace food production. Biofuels can provide net carbon reduction benefits only if they overcome these emissions, amortized over some reasonable time frame.

A meta-analysis in 2011 by World Bank economists concluded that even a global carbon tax of $100 per tonne of CO2 would raise the fraction of global fuel derived from biofuels only minimally, from 5.5% at present to 6.1%. This suggests that current biofuel mandates and subsidies overwhelm whatever effects even a strong carbon tax would have on biofuels in the near to medium term.

This option would emulate British Columbia, Sweden and Demark, which simply exclude biofuels from the realm of fuels whose carbon “content” is taxed. (This should not foreclose possible future taxing of biofuels’ carbon content, once a carbon tax has been enacted and been incremented upward. For example, British Columbia extended its carbon tax to include ethanol and biodiesel in 2010.)

This option also avoids or at least defers the politically-fraught battle over which biofuels are truly beneficial to climate and avoids the complexity of calibrating a carbon tax to fit the estimated lifecycle emissions of different biofuels, as discussed in option 3, below. Note, however, that the substantial fossil fuel inputs to biofuels would be taxed under this option, causing prices of fossil fuel-intensive biofuels to rise in proportion to a carbon tax.

For example, natural gas (methane) used to manufacture fertilizer accounts for roughly 40% of the fossil fuel energy used to produce ethanol from corn. Because using natural gas to make fertilizer results in the same CO2 emissions as combustion, it would be taxed, along with fuel used to process (primarily distill) ethanol.

Under this option, biomass burned for electricity would also remain outside the purview of a carbon tax, with the exception of inputs of fossil fuels used in harvesting and processing biomass for fuel. While this option does not attempt to assess or internalize the lifecycle or land use effects of biofuels and biomass burning, it does avoid the complexities of estimating carbon content and lifecycle emissions that would be required for a carbon tax to withstand WTO scrutiny.

2. Tax approximate CO2 emissions from final combustion of biofuels and biomass based strictly on product type without attempting to account for carbon sequestered during growth cycles or emitted during harvesting, distillation or other chemical processing or land-use impacts.

One obstacle to subjecting combustion and/or production of biofuels and biomass to carbon taxation is the complexity of estimating carbon emissions from each fuel stream. Tracking each fuel’s source and manufacturing process (not just the final commodity), and developing unimpeachable estimates for each, is obviously a daunting challenge — if not a fool’s errand altogether. Attempts to devise such a system would inevitably devolve into litigation and political struggle with differing results in various jurisdictions, impeding the important work of building broad, global political support for carbon taxes.

An alternative is to apply a simple surrogate for the carbon “content” of each biofuel and for each type of biomass. Rather than taking into account lifecycle carbon sequestration and emissions for the various fuel streams, this approach would simply tax them based on the CO2 emissions rates from their final combustion. Although this option would exclude land use and lifecycle emissions that Searchinger and others have suggested can predominate, it would at least preclude the perverse incentive of leaving bioenergy completely untaxed. On the other hand, this option would also exclude the sequestration benefits provided by plant photosynthesis in growing biofuel and biomass crops.

This option would require development of an agreed “schedule” of typical carbon content from various bioenergy products (independent of growing conditions or process). For example, oak pellets would be assigned a particular emissions factor and would be taxed accordingly, regardless of source. Similarly emissions factors would be developed for wood chips, cellulosic ethanol, methanol, sugar cane and biodiesel.

3. Develop a carbon tax framework that estimates net lifecycle CO2 emissions of each biofuel and biomass product while complying with WTO “non-discrimination” provisions.

In addition to taxing emissions from final combustion, this option would tax emissions from production and land use changes, minus credit for the biofuel crop’s estimated carbon sequestration. As in option 2, this would require development of a “schedule” of emissions to reflect typical net emissions from each category of bioenergy. This option would minimize the complexity of assessing the lifecycle carbon of each fuel by source and process by taxing identical biofuel and biomass products within each category at the same rate. It would thus qualify for WTO-sanctioned border tax adjustments because it would not discriminate between identical products based on process or source despite differences in lifecycle emissions.

Conclusion

In some cases, bioenergy appears to offer net climate benefits compared to fossil fuels because of carbon sequestration by plants grown for biofuel and biomass. Nevertheless, the net benefits are severely compromised by bioenergy’s lifecycle emissions from production, processing, land use changes and reduced soil sequestration.

Indeed, mandates and subsidies triggering shifts toward bioenergy have negative side-effects including diverting resources from truly renewable energy sources and efficiency-improvement efforts. Scheduled increases in the Renewable Fuel Standard mandating a tripling of U.S. biofuels production in the next decade would precipitate a massive shift of resources toward biofuels, devastating vast lands, disrupting food markets and jacking up CO2 emissions — as documented so searingly in the NY Times – ProPublica expose of rainforest destruction in Indonesia noted above. EPA currently treats biomass energy (direct combustion of plant material) as carbon-neutral, though the agency was be reconsidering that assumption — at least prior to the advent of the Trump administration. If EPA extends its presumption of carbon-neutrality to its Clean Power Plan rules, some coal burning may shift to biomass, with few or no climate benefits, greater emissions of conventional pollutants and damaging impacts on forests.

As noted earlier, eliminating biofuel mandates and subsidies while uprooting the false assumption of carbon-neutrality from EPA’s Clean Power Plan would do more to reduce the unfair advantages of bioenergy than even the most inclusively-designed carbon tax. Nevertheless, to avoid compounding these perverse incentives, carbon tax policy should attempt to at least roughly account for greenhouse gas emissions from production and combustion of bioenergy.

A minimal first step would be to ensure that all fossil fuel inputs to biofuels are carbon-taxed, including natural gas used as feedstock for ammonia-based fertilizers of corn grown for ethanol. A second, additive step would be to tax the carbon “content” of bioenergy products in the same way their fossil fuel counterparts would be taxed. This would exclude credit for carbon sequestered during plant growth while also excluding taxes on upstream production-related emissions.

A further step would be to develop a product-based approach that accounts for typical carbon sequestration during the growing phase, carbon emissions from processing, and implicit emissions from land use changes as well as combustion emissions for each biofuel and biomass type. This would require both a major analytical effort and a big political push, and it would have to be carefully tailored to meet WTO standards for non-discrimination and, thus, not impede global participation in carbon taxation.

We welcome reader comments and suggestions on this important, complex and politically-fraught topic.

Additional Resources

Climate Central: “Pulp Fiction, The European Accounting Error that’s Warming the Planet” (2015).

Congressional Budget Office: “The Renewable Fuel Standard, Issues for 2014 and Beyond” (2014).

Brookings: Ten years of the Renewable Fuel Standard: What’s been the impact on energy and the environment? (Video of panel discussion featuring Tim Searchinger, 10/16/15).

• Environmental Taxation and the Double Dividend (Lawrence Goulder, Stanford, 1994).  Seminal articulation of the dual benefits of replacing taxes on income and work with taxes to discourage pollution.
• When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets (Ian Parry, Roberton Williams & Lawrence Goulder, Resources for the Future, 1998). General equilibrium modeling demonstrates economic efficiency benefits of pollution taxes with revenue “recycling” to reduce marginal rates of pre-existing distortionary taxes.
• Clean Energy And Jobs: A comprehensive approach to climate change and energy policy (James P. Barrett & J. Andrew Hoerner, Economic Policy Institute, 2002).
• A Proposal for a U.S. Carbon Tax Swap (Gilbert Metcalf, Brookings, 2007).
• Caps vs. Taxes (Kevin Hassett, Steven Hayward, Ken Green, AEI, 2007).
• U.S. Federal Climate Policy and Competitiveness Concerns: The Limits and Options of International Trade Law, Joost Pauwelyn, Duke U., 2007). WTO rules permit “border tax adjustments” (import tariffs) to harmonize domestic carbon taxation. [Updated, March 2012.]
• Smart Taxes: An Open Invitation to Join the Pigou Club (Greg Mankiw, Harvard, 2008).
• Policy Options for Reducing CO2 Emissions (Congressional Budget Office, 2008). “[T]he net benefits (benefits minus costs) of a [carbon] tax could be roughly five times greater than the net benefits of an inflexible cap.”
• CO2 Price Volatility: Consequences and Cures (Brattle Group, January 2009).
• On Modeling and Interpreting the Economics of Catastrophic Climate Change (Martin Weitzman, Harvard, 2009).
• Addressing Climate Change Without Impairing the US Economy (Robert Shapiro, US Climate Task Force, 2008).
• On The Merits of A Carbon Tax (Ted Gayer, Brookings, Testimony to Senate Env’t & Nat’l Res. Committee, 2009).
• The Design of a Carbon Tax (Gilbert Metcalf & David Weisbach, Harvard Envt’l Law Rev, 2009).
• Carbon taxation – a forgotten climate policy tool? (Global Utmaning [Sweden], 2009)
• Carbon Tax and Greenhouse Gas Control: Options for Congress, (Jonathan Ramseur & Larry Parker, Congressional Research Service, 2009).  Options for design and implementation of U.S. carbon tax to match emissions reductions from Lieberman-Warner (cap & trade) bill without price volatility, speculation and offsets.
• How Climate Policy Could Address Fiscal Shortfalls (Adele Morris & Ted Gayer, Brookings, 2010).
• A Balanced Plan to Stabilize Public Debt and Promote Economic Growth (William Galston, Brookings & Maya MacGuineas, Committee for a Responsible Federal Budget, 2010).  Recommendations include a broad-based carbon tax with proceeds to reduce payroll taxes and for deficit reduction.
• Carbon pricing in Washington (Yoram Bauman, Sightline Institute, 2010). Quantitative economic and climate policy “blueprint” for Carbon Washington revenue-neutral carbon tax proposal.
• Moving U.S. Climate Policy Forward: Are Carbon Taxes the Only Good Alternative? (Ian Parry & Roberton Williams, Resources for the Future, 2011).
• Revising the Social Cost of Carbon, (Frank Ackerman & Elizabeth Stanton, E3 Network, 2011).
• Carbon Taxes, An Opportunity for Conservatives (Irwin Stelzer, Hudson Institute, 2011).
• Fiscal Solutions: A Balanced Plan for Fiscal Stability and Economic Growth, Peterson Foundation & American Enterprise Institute, 2011). As part of comprehensive reform, recommends replacing ethanol subsidies and greenhouse gas regulations with a $26/tonne CO2 (and CO2-eq) tax, rising 5.6% annually. (p 25.)
• The Potential Role of a Carbon Tax in U.S. Fiscal Reform (Brookings, 2012)
• Offsetting a Carbon Tax’s Costs on Low-Income Households (CBO, 2012)
• Considering a U.S. Carbon Tax: Frequently Asked Questions (Resources for the Future, 2012)
• Carbon Tax Revenue and the Budget Deficit: A Win-Win-Win Solution? (MIT, August 2012)
• It’s Time for a Carbon Tax (Elizabeth Kolbert, The New Yorker, Dec. 10, 2012)
• Fiscal Policy to Mitigate Climate Change (IMF, 2012)
• The Many Benefits of A Carbon Tax (Adele Morris, Brookings, 2013)
• Carbon Taxes and Corporate Tax Reform (Donald Marron & Eric Toder, Urban-Brookings Tax Policy Center, 2013)
• Reaffirming the Case for a Briskly Rising Carbon Tax (James Handley, Carbon Tax Center, June 2013)
• Changing Climate for Carbon Taxes: Who’s Afraid of the WTO? (Jennifer Hillman, German Marshall Fund, Climate Advisors, American Action Forum, July 2013).
• Can Negotiating a Uniform Carbon Price Help to Internalize the Global Warming Externality? (Martin Weitzman, Harvard Project on Climate Agreements, January 2014).
• Design of Economic Instruments for Reducing U.S. Carbon Emissions, (Carbon Tax Center, submitted to Senate Finance Committee, January 2014).
• Tax Policy Issues in Designing a Carbon Tax (Donald B. Marron and Eric J. Toder, Urban-Brookings Tax Policy Center, May 2014).
• A Carbon Tax in Broader U.S. Fiscal Reform: Design and Distributional Issues, Adele Morris (Brookings) and Aparna Mathur (American Enterprise Institute), C2ES, May 2014.
• Temperature impacts on economic growth warrant stringent mitigation policy, Frances C. Moore, Delavane B. Diaz (Nature Climate Change, January 2015). When climate change is allowed to affect economic growth in the DICE Integrated Assessment Model, its estimate of the Social Cost of Carbon may exceed  $220/T CO2. 
• How to Adopt a Winning Carbon Price — Top Ten Takeaways from Interviews with the Architects of British Columbia’s Carbon Tax (Clean Energy Canada, 2015).
• Putting a Price on Carbon: A Handbook for U.S. Policymakers, Kevin Kennedy, Michael Obeiter, Noah Kaufman (World Resources Institute, April 2015).
• Energy Subsidy Reform, Lessons and Implications (International Monetary Fund, May 2015).
• Taxing Carbon: What, Why, and How, by Donald Marron, Eric Toder, and Lydia Austin, (Tax Policy Center, June 2015).
• Global Carbon Pricing: We Will If You Will (September 2015). E-book compilation of eight papers by David J. C. MacKay, Richard Cooper, Joseph Stiglitz, William Nordhaus, Martin L. Weitzman, Christian Gollier & Jean Tirole, Stéphane Dion & Éloi Laurent, Peter Cramton, Axel Ockenfels & Steven Stoft. The authors, from a variety of viewpoints and disciplines, conclude that negotiating an explicit global price on carbon pollution would help unlock global climate negotiations by aligning national self-interest with the global goal of rapidly reducing greenhouse gas emissions.
• After Paris: Fiscal, Macroeconomic, and Financial Implications of Climate Change (IMF discussion draft,  January 2016).