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Think Global, Tax Local 

Depending on who you ask, I-732 is a sensible first step to solving climate change or will cast uncertainty over the state's economy

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In a conference room at the Davenport Grand Hotel, Yoram Bauman, a stand-up comedian from Seattle, tells the crowd assembled there that he's not going to be funny today. Instead, he has a serious question.

"Do you think climate change is a real issue and is caused by human activity?" asks Bauman, also an economist, requesting that those who agree raise their hands.

Most of the hands in the room shoot up, and Bauman argues that the solution to this vexing problem lies in the tax code.

Bauman was in Spokane last week to speak at a panel sponsored by Greater Spokane Incorporated, the area's chamber of commerce. He made the case for Initiative 732, a November ballot measure that will overhaul the state's tax code, making it more expensive to emit carbon, a pollutant caused by the burning of fossil fuels that's believed to be behind climate change.

Since last year, Bauman and others with Carbon Washington, a statewide group sponsoring I-732, have been meeting with business associations and political organizations trying to drum up support. If it passes, I-732 will add new costs to doing business, which supporters argue will be offset with tax breaks.

"Our analysis is that most folks end up plus or minus a few dollars," says Bauman. "And that's evidence we have a good policy."

If it passes, it would make Washington the first U.S. state to follow Australia and the Canadian province of British Columbia in taxing carbon. Although Carbon Washington acknowledges that Washington emits just a sliver of the world's carbon, the group argues that the state has a moral imperative to take action on climate change, and that the measure is crafted in a way to draw support from conservatives and businesses. However, Carbon Washington has put off many environmental, labor and progressive groups that would be natural allies.

Both sides agree that I-732 will make utilities and gas more expensive, but will give residents and businesses a break elsewhere.

Opponents say that the initiative introduces too much uncertainty to industries that are already becoming more environmentally friendly. And some of the biggest voices opposing I-732 are coming from Eastern Washington.

"It's basically using Washington as a test site with pretty big costs to address a global issue," says Todd Mielke, CEO of Greater Spokane Incorporated, whose endorsement committee recently voted to oppose I-732.

HOW IT WORKS

"Capitalism is a powerful tool, and if you can use it to reduce emissions, you have a powerful ally on your side," says Bauman.

The idea behind a carbon tax is that by making carbon emissions more expensive, businesses will release less carbon.

If passed, I-732 will place a tax on carbon that'll rise to $25 per ton by 2018, then increase every year after that at a rate of 3.5 percent plus inflation.

According to Carbon Washington's analysis, the measure will raise gas taxes by about 25 cents per gallon, and electricity generated by coal or natural gas will cost pennies more per kilowatt hour.

I-732 reduces the state sales tax (which critics say is regressive and disproportionately impacts the poor) by 1 percent and provides a rebate of up to $1,500 a year for low-income households. Businesses get a reduction in the business and occupation tax.

However, opponents say that Carbon Washington understates the measure's costs to businesses and workers.

EASTERN PERSPECTIVE

Of the top five contributors to the No On 732 campaign, two are based in Spokane County. According to filings with the Washington State Public Disclosure Commission, Kaiser Aluminum has donated $50,000 to the campaign and Avista Corp. has donated $25,000.

Kyle England, a senior manager with Kaiser, says I-732 would be a "double whammy" for the company, saddling it with costs it couldn't pass on. He says that Kaiser, which makes aluminum products for aerospace companies and other industries, would be taxed for carbon it produces during the production process and would also pay more for the natural gas used to melt aluminum. The tax reductions included in I-732, he says, wouldn't offset the cost.

Earlier this month, Gov. Jay Inslee introduced a rule requiring carbon-intensive businesses to reduce their emissions. England says that the new rule, coupled with I-732, could cause Kaiser to shut down its aluminum melting operation and potentially lose local family-wage jobs. In 2000, Kaiser had to close its Mead plant over energy costs, and England says he's reminded of the economic hole it left every time he drives by it.

"When you do a wholesale change to a system, you'll have to deal with consequences later," says England. He says that Kaiser has reduced the carbon footprint of its aluminum by 15 percent since 2010. The company's domestic and international competitors, he says, have higher carbon footprints, and I-732 could drive more business to them.

A study commissioned by the No on 732 campaign found that while I-732 would have a "negligible" effect on overall employment, it would still mean thousands of fewer jobs in manufacturing, mining, agriculture and utilities. The study found that these jobs would be offset by growth in construction and government, but these new jobs may not pay as well, and the state would have a trade deficit of nearly $18 billion by 2040. The study also found that Washingtonians (except the poorest) would have less purchasing power.

Although nearly half of Avista's energy portfolio comes from carbon-neutral hydro power, natural gas and coal make up 35 percent and 9 percent, respectively. At a recent forum on I-732 sponsored by GSI, Bruce Howard, director of environmental affairs for Avista, argued that the utility was already one of the greenest in the country, and that I-732 would raise costs for residential customers by about $17 a month, which would continue to increase.

"Our concern is that this will create a real burden on customers," he said.

Bauman argues that utility increases will be overshadowed by improvements to the economy the initiative will bring.

A study from Carbon Washington found that although carbon-heavy industries could be adversely impacted by I-732, other industries would benefit from tax reductions. The study found that I-732 would create 10,000 new jobs by 2020 and boost the state's gross domestic product by $500 million. Another study, from Washington State University, found that agriculture in the state would see a slight overall benefit under I-732 (although agricultural groups, concerned about rising fuel prices, remain opposed).

'COMPLICATED, MESSY ISSUE'

I-732 is designed to be revenue-neutral, meaning that the state will neither gain nor lose tax dollars. Bauman says this feature is meant to appeal to Republicans concerned about climate change but averse to raising taxes. However, the initiative's feature rankles progressive and environmental groups, who argue that the poor and minorities will be most affected by the initiative, and any carbon tax revenue should be used to transition to a clean energy economy that provides jobs for disadvantaged populations.

"It's a very complicated, messy issue with the progressive base," says Collin Jergens, communications director for Fuse Washington, a progressive political organization that opposes I-732 along with environmental, labor and other left-leaning groups.

But I-732 has been endorsed by Audubon Washington, as well as other smaller environmental organizations and nearly 20 Democratic elected officials. The campaign has also received support from five current or retired Republican state legislators, none of whom are from Eastern Washington. Spokane County Democrats rescinded their endorsement of the measure after a state analysis concluded it wouldn't be revenue-neutral (Carbon Washington disputes the analysis).

Bauman says it's notable that the business community has only raised $250,000 for the No campaign, and that the Western States Petroleum Association, a group with deep pockets and a clear interest, has taken a neutral stance on the initiative.

"I think the big challenge is the gulf between what we need to accomplish and what is politically feasible," says Bauman. "What we need to accomplish politically is quite small." ♦

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