Competing WA cap-and-trade ballot initiative? A modest proposal to stop the insanity

The rise of competing Washington state climate ballot initiatives has been in the cards for several years now. 

Last week, as reported in Cascadia Planet, Climate Solutions and Washington Environmental Council, the two Washington state environmental nonprofits leading the legislative charge for Gov. Jay Inslee’s carbon cap-and-trade bill, announced that they are considering running their own 2016 initiative if the governor’s bill fails.  That seems an increasingly likely outcome.

The initiative could well be a cap-and-trade, which is problematic for a number of reasons.  One is competition with a 2016 carbon tax ballot initiative already on the streets. Another is the sheer complexity of cap-and-trade.  Below I will delve into the pitfalls of a cap-and-trade initiative and offer a modest proposal to conduct complementary initiative efforts. 

Consideration of ballot initiatives far predates the governor's bill.  In 2012 and 2013 when I still served as Research Director of Climate Solutions, a group I helped found in 1998, talk of an initiative filled office meetings and staff retreats.  We were briefed on polling around different initiative options, and big funder money was in prospect.  Perhaps the biggest funder of all, California hedge fund billionaire Tom Steyer, raised the possibility of a ballot initiative in keynoters at major 2013 Climate Solutions fundraisers in Seattle and Portland. 

An independent effort was stirring though.  Frustrated with the failure of Climate Solutions and allied groups to pass meaningful climate policy, either in the state or nationally, economist Yorum Bauman was organizing Carbon Washington to join climate-concerned citizens around the idea of a carbon tax ballot initiative.  An alum of Sightline Institute, Bauman had in 1998 co-authored a book on the topic entitled Tax Shift with Sightline founder Alan Durning and Rachel Gusset.  It was about a concept pioneered at Worldwatch Institute, from which Durning had emerged, to shift the tax burden from what we want to encourage by taxing what we want to discourage.   Carbon pollution, for instance.

Of course, that aroused substantial tensions between the groups.  CarbonWA’s consideration of a 2014 ballot initiative stirred some heated discussions between leaders of the groups.  CarbonWA in the end opted against a 2014 run, instead continuing to organize and educate the public. 

Climate Solutions was meanwhile busy getting ready for a legislative push. In 2012 the prospect that Jay Inslee would be elected governor stirred great enthusiasm.  As a congressman, Inslee was one of Capitol Hill’s climate leaders.  As governor, it was thought, the guy who challenged Barack Obama to a basketball game (He’s told me the story) would rain down threes on the opposition in the state legislature and finally get a climate bill with teeth passed.  That would be in contrast to 2008, when the somewhat reticent Gov. Christine Gregoire did not push hard for a binding carbon cap, and so a bill that set only goals was passed.

It looked like that scenario would come about until in early 2013 two turncoat Democrats lined up with Republicans in the state senate, turning over control to the Rs and locking out the possibility of a carbon pricing bill.  For all we know, it was for precisely that reason that the two conservative Democrats sold off their party. 

Attention turned to the 2014 session, when it was thought a strong effort could turn the Senate back to the Democrats and re-open the legislative track.  Inslee was successful in gaining Senate Republican agreement for a public engagement process to set up for 2014, the Climate Legislative and Executive Workgroup, which held hearings around the state in 2013.  The four-member group included two Democratic climate action supporters, and two Republican legislators who are climate change deniers.  Predictably there was a majority and minority report. 

Then in 2014 Inslee appointed a group of citizens representing business, labor and public interests to serve on the Carbon Emissions Reduction Taskforce (CERT).  The governor’s instructions clearly pointed to a cap-and-trade system, in which carbon trading markets seek the lowest-cost carbon reductions.  Though the CERT report looked at both carbon tax and cap-and-trade options, the path was clearly toward the latter.  Inslee likes the certainty of a cap and is skeptical of the efficacy of carbon taxes.  “If you’re going to limit carbon, you should limit carbon. Don’t bring a feather to a knife fight,” Inslee told Grist. 

As the CERT was meeting the political campaign was ramping up.  With support from Steyer and other high-net-worth funders, a number of Republican state senators thought to be vulnerable were targeted.  One funder told me that with a concerted get-out-the-vote effort up to six seats could be turned. But Democrats were fighting uphill in an off-year election in which Republican turnout tends to be higher.  It was also the sixth year of a presidential term in which the party of the president typically does not do well.  That was especially the case with Obama, whose policies had turned off the youth and ethnic voters who once flocked enthusiastically to his side.  When election day came in November dismal results in the U.S. Senate were paralleled in Washington state. Republicans stayed in control. 

Nonetheless, the legislative track had already been grooved too deeply to turn back.  In December Inslee proposed the Carbon Pollution Accountability Act, a cap-and-trade.  In an effort to win supporters on the Republican side he directed most revenues that would be raised in the carbon auction to education and road maintenance, two areas where the state faces genuine funding crises. 

To this date, Republicans have not taken the bait.  Demonstrating their allegiance to fossil fuel interests they have lined up solidly against the carbon cap, and even put a “poison pill” in a gas-tax-funded transportation package that would effectively make it impossible for Inslee to implement standards for lower-carbon fuels.  Perhaps the governor can still pull it out. But the clock is ticking down and he’s behind on the boards. 

Thus the initiative option being discussed at Climate Solutions and by allied groups comes into play.  Climate Solutions has spent significant resources and time building an impressive coalition to push climate action, the Alliance for Jobs and Clean Energy.  The group line-up includes environmentalists, labor, ethnic community advocates and health advocates.  If a statewide initiative is to be passed, it will indeed require the progressive unity embodied in the Alliance.  It will also require the substantial grassroots citizen networks that have been assembled by CarbonWA.  Plus around twenty million or so bucks.  This is why it’s time to get together around something that works, and, with genuine respect for the governor, that is not a cap-and-trade ballot initiative. 

This is not about policy design.  It’s about politics.  Competing initiatives open vulnerabilities for the opposition to attack a climate movement that can't seem to get its stuff together.  Making one of them cap-and-trade amplifies the problem. Cap-and-trade is simply too complex a measure to present to voters at the ballot box, as the graphic accompanying this post illustrates. Try to explain that to voters when you are out gathering signatures, or running 30- and 60-second radio and TV adds.  It just doesn’t work. 

There’s an additional reason not to take cap-and-trade to the ballot.  Its complexity draws skepticism from many people, including sophisticated climate experts.  There is a reason 38 Washington state economists endorsed the far simpler revenue-neutral carbon tax forwarded in CarbonWA’s I-732.  Carbon trading markets hold many potentials for gaming, as has been documented with the European Union system.  Even the best systems require complex verification to prove that a offset purchased in a carbon market is actually reducing carbon.  Verification costs typically are in the 30 percent range. 

Yes, as the governor argues, we have learned from Europe and the California system with which Washington would align averts the pitfalls.  A logical case can be made, but reason does not rule political debate.  In politics, perception is reality, and a cap-and-trade initiative opens the door to creating all kinds of misperceptions. 

My last blog post on tensions between competing initiative efforts drew many positive comments and exactly two negative responses. One came from one of the governor’s closest climate policy advisors.  “If your interest is establishing carbon pricing in Washington, this blog post is in no way helpful," he wrote. "But, on the bright side, I’m sure Frank Holmes enjoyed it immensely."

Holmes is Northwest regional director for Western States Petroleum Association, the lead oil industry lobby group in Olympia, and a devious and cunning bunch they are.  My response to the governor’s advisor was that a cap-and-trade initiative would be a gift to Frank Holmes and the Koch Brothers.   The opposition forces will have the “job-killing energy tax” charge to use against any carbon pricing measure.  With cap-and-trade they will have an additional attack vector. They will also be able to paint the carbon trading market as a Goldman Sachs-friendly vampire squid in the face of climate policy, a blood funnel to suck money to Wall Street.  They will use neo-populist arguments to wedge off the many progressive constituencies already skeptical about cap-and-trade.   All they other side has to do is create confusion.  The oil industry and the Kochs are world-class masters in the dark art of throwing shade, and cap-and-trade presents many juicy opportunities to do just this. 

I think if we get anywhere it’s with something simple like I-732, a straight-up tax on carbon pollution that recycles the revenues to reduce sales taxes one percent, fund a credit for working families and eliminate business & occupation taxes on manufacturers, helping them defray competitive pressures from higher energy prices. 

I understand the attraction of a cap-and-trade initiative framed as “Polluters Pay,” putting costs on major industrial and institutional carbon emitters as the governor’s bill does and an initiative would likely do.  But voters are not fools.  They realize that costs will be passed on.  We all use fossil fuels, and it is indeed the effect of generally higher prices that spurs a shift to efficiency and clean energy alternatives. We can’t pretend otherwise. As well, polluters are also employers, and people are nervous about their jobs. 

So let me make a modest proposal to thread this needle, one that allows different initiative efforts to proceed in a complementary rather than competitive fashion.  First, I am told by one of the state process insiders that their initiative is “not necessarily” cap and trade.  That is good because it opens the door to other options. 

One might be a cap-and-auction in which polluters must buy permits for all carbon they emit.  There is no trading market, just an auction that sets the price.  Revenues can be recycled back to taxpayers or devoted to other expenditures such as clean energy.  Sen. Maria Cantwell’s CLEAR Act does both.

The problem is it still sets up a competition among different policy designs.  Even experts find the hermeneutics of policy design a brain twister.  Voters will simply boggle on it and fossil fuel interests will use it to create confusion. 

Instead, here is my suggestion – Have the carbon pricing policy design of a second initiative mimic I-732.  Make it a carbon tax that starts at $15/ton, goes up to $25/ton in the second year and then rises with inflation.  Let the contrast between the two initiatives not be in policy design, but in how carbon revenues are spent – fully recycled to a tax shift, or partially recycled with some of the money going to public investments, perhaps in education, transit and green jobs. Don’t argue about policy design. Make it a referendum that lets Washington citizens choose between two sets of objectives based on the merits.  If both win, make the initiative with the higher margin the one that is implemented.

Yes, I agree with the governor that Washington needs a binding carbon cap.  A carbon tax is one pricing system that can meet a cap.  The British Columbia revenue-neutral carbon tax has achieved something like a 10 percent emissions reduction, which the governor’s proposal would not reach until the mid-2020s.  So we have some time to give carbon taxes a test drive to see how they work in Washington.  As people become comfortable with carbon pricing and see that it works and produces economic benefits for them, the political atmosphere to pass a binding state carbon cap will improve.  Then it can be done in the legislature, where such a complex measure should be handled, not at the ballot box. 

There is an argument that carbon taxes will have to be dialed up very high to meet state carbon goals by the 2030s.  The CERT report contains modeling that indicates this.  But the modeling does not take into account technology change in a clean energy field that is racing forward beyond all expectations.  We are on the threshold of truly cost-competitive solar and wind power, energy storage and electric vehicles.  These developments could well magnify the price-tipping effects of carbon taxes beyond what is projected. Let's at least give it a try. 

It is time to draw back from a potentially destructive competition between initiative processes and work in a complementary fashion.  There are genuinely good arguments to be made for different options, and we should give voters a chance to weigh those arguments.  A friendly competition around destinations for carbon revenues is far preferable to a mind-boggling debate over policy design that will turn off voters.  Let’s go for a simple design that can be easily explained to voters, and work for a legislatively-enacted carbon cap in the longer term, based on success at the ballot box.  Since CarbonWA’s signature gathering is taking place in 2015, while a second initiative would stage that process in 2016, it is even conceivable the same citizens will be carrying signature boards for both.

If all the participants in the process care about stabilizing the climate and leaving a habitable world for our children and theirs, and I know you all do, it’s time to work out a mutual pathway that addresses all concerns.  Please consider my modest proposal.