Washington has a lot in common with British Columbia in terms of dominant industries and power generation, so there is every reason to believe that the lessons learned in B.C. will apply in Washington state.
Most of the adjustments would be borne by transportation and households, while electricity-intensive industries (in particular, IT) would face few additional costs. Initiative 732 would also be mostly revenue neutral, returning revenue from the carbon tax through a one percentage point reduction in the state sales tax, and additional reductions in business and personal taxes. As such, implementing a carbon tax in Washington would have similar environmentally-beneficial and economically-benign effects as it has in B.C.
However, there is opposition against I-732 on many fronts. On one hand, opinion polls suggest that public opinion about the urgency to tackle climate change remains divided south of the border. On the other hand, environmentalists have not fully embraced carbon taxes and have asked instead for a double-dividend green fund, which is similar to Quebec’s Green Fund and recycles revenue from the province’s cap-and-trade auctions. Subsidies fuelled by a double-dividend fund are more likely leading to opportunistic expenditures and showcase projects that use up the available funds without proper means-testing. Besides, governments have a poor track record of choosing cost-effective ways of reducing CO2 emissions, and markets are much better at finding the most efficient path by reacting to price signals.
Our research shows that fuel taxes of any level make a difference, so it is perfectly clear that carbon pricing in Washington will help reduce emissions slowly but steadily. But, new taxes remain eminently unpopular, as does tinkering with a state tax system that is already in some disarray. If voters reject I-732, which is more likely than not, eyes will shift from Washington state to Washington D.C. for climate leadership.
The state of California remains the environmental leader in the United States with its cap-and-trade system (joint with Quebec and soon Ontario). It is not very likely that other states will follow, even if Washington’s I-732 passes. Despite the significant merits of using market-based approaches to tackle climate change, namely carbon taxes or cap-and-trade systems, there is little appetite in the United States for any sort of new taxes. The most opportune approach would be simply to raise the federal fuel tax, stuck at 18.4¢/gal (about 5¢/L) since 1993. This would benefit the environment and at the same time fix a large part of the huge federal budget deficit. Nevertheless, the political climate in the US Congress is currently not conducive to considering higher fuel taxes.
This is in contrast with Canada, where the Liberal government recently announced that all provinces must levy a national floor price on all carbon emissions. Even though Canada’s emissions of greenhouse gases are only about 1.6 per cent of the world’s total (compared to China, for example, at 24.5 per cent), all countries need to do their bit. The countries that lead through technological innovation can gain a competitive edge in the newly-developing market for climate solutions. Improving energy efficiency can even be a win-win: it reduces greenhouse gas emissions at the same time as it reduces long-term costs for businesses.