Initiative 1631, which would have created a carbon tax in Washington State, lost by almost 12% of the vote this week. Commentators on all sides have interpreted this as a decisive defeat for carbon pricing, making more indirect policies like subsidies to renewables the only politically feasible option.*
I don’t have time for a lengthy analysis, but in a few words I want to suggest that this conclusion is premature. I live in Washington State and saw the battle unfold first hand in real time. Voters were not asked by opponents of 1631 to reject carbon pricing; on the contrary. And it was the failure to draft and promote a straight-ahead carbon pricing law that doomed it.
While supporters of 1631 point to money from fossil fuel interests as the “cause” of their defeat, the actual propaganda of the No side did not belittle the threat of climate change, nor did it even argue against the need for action to reduce emissions. It hammered on these points:
1. 1631 was weak. It excluded too much of the state’s emissions and wouldn’t have a meaningful impact on them.
2. Nevertheless it would raise energy bills for virtually all the state’s residents.
3. It proposed an undemocratic procedure for allocating carbon revenues.
The money behind this message may be “bad”, but the message itself was correct. 1631 was so poorly conceived that the arguments of the troglodytes were closer to the truth than those of the progressives. Take them one by one:
1. 1631 was the second carbon tax initiative in two years. Last year’s effort, I-732, had broader coverage and allowed for higher carbon prices over time. It was opposed by progressives, who organized to defeat it and then drew up their own, weaker proposal. There is a lot of detail to go into, but the short version is that 1631's carbon price was essentially symbolic, a few cents on the carbon dollar. It was not a meaningful action to deal with the threat of a climate catastrophe.
2. This one was particularly galling for me as an economist. Supporters of 1631 actually campaigned on the argument that the tax would be paid by a few large corporations, not by all of us. On this point the No crowd was entirely right and the Yes entirely wrong. I’m sure many pro-1631ers really believed that energy taxes aren’t passed through to consumers, but those at the top who drafted the proposal knew better. Their public communication was dishonest, they got called on it, and they lost.
3. 1631 was the product of horse-trading between various interest groups. Environmentalists wanted carbon revenues to go for green infrastructure. Identity groups wanted funds funneled into minority, immigrant and low-income communities. Unions wanted money for workers in the fossil fuel sector who might lose jobs. Tribes wanted the state to defray the costs of climate change that impinge on them with particular force. All of these are worthy goals in their own terms. The problem is, how to translate a deal reached around a table between various representatives of these movements into a political process for disbursing public funds. The solution they came up with was an appointed board of 15 “experts” who would control the allocation, carving off the carbon money from the general fund and its control by the state legislature. Do I understand the distrust of the legislature? Yes. Was this blatantly undemocratic and contrary to the widely-held principles of how government ought to operate? Also yes. The No people blasted this idea again and again, and the public responded predictably.
The defeat of 1631 was an own goal by the progressive community. We still haven’t had a vote on a sensible, defensible carbon pricing measure. Until we do, I don’t want to write off the political feasibility of taking direct action against climate change. A better bill would have universal coverage, as stiff a carbon price as possible, and—because carbon prices would eat significantly into household budgets—would return most or all of the revenues back to the public, ideally in equal lump-sum rebates.**
*Subsidies to renewables, energy efficiency programs and the like, while highly desirable, have only indirect effects on the use of carbon energy. They shift the demand for fossil fuels to the left by some amount, but in a complex, evolving world with many other factors influencing global energy markets, the effect on emissions is unpredictable. A direct approach uses the power of law to keep some portion of fossil fuels themselves in the ground, either by a cap on their use or price increases calibrated to corresponding use reductions. The indirect approach to carbon is direct in its impact on renewables and other resources it targets, just as the direct approach to carbon is indirect in its effects on renewables and efficiency. Ideally we should adopt both approaches, with programs directed against carbon fuels and for energy alternatives.
**732 was intended to rebate carbon revenues, but through tax cuts. This was a mistake, since the amount of the rebate was variable (depending on how complex tax formulas would be affected by changing state economic conditions) and the rebates greater for those with higher incomes. Worse, a portion of the cuts was allocated to business taxes in a misguided effort to buy off business and conservative interests. The mobilization against it by progressives was vigorous and emotional; I attended an event in which supporters of 732 were called racist from the podium. Mainstream environmental groups joined this opposition in order to demonstrate their social bona fides.