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A reluctant no on Initiative 732

Fri., Oct. 21, 2016

Initiative 732 proposes a carbon tax and frames it as an economist would: If you want less of something, tax it. So it taxes carbon and lowers the sales tax to achieve a roughly revenue-neutral result.

As a result, carbon would finally have a price, which would temper its use and make energy alternatives more competitive, and the state could become a model for lowering greenhouse gas emissions. Consumers would see the tax at gas pumps and in their power bills. They’d get a break of 1 percentage point in the state sales tax.

The editorial board has been intrigued by a carbon tax, finding it to be more straightforward than other pricing schemes. Plus, it provides a direct signal to everyone – not just large industries – that they’re part of the solution. We editorialized in favor last year, when the Legislature wouldn’t act and the governor took executive action to cap the carbon emissions from large producers, which include natural gas distributors, petroleum producers, power plants and metal manufacturers. The Legislature established caps in 2008, but has done nothing to achieve them.

The initiative also offers a tax credit for low-income households to help offset the increase in energy prices and relief for energy-intensive industries with a B&O tax break. There is much to like, but the more we heard from large energy users, the more we grew concerned.

Kaiser Aluminum, for instance, says the B&O tax break isn’t enough to offset the increase in energy prices caused by the tax, which starts at $15 per ton in 2017, rising to $25 per ton in 2018, and then increasing annually at 3.5 percent plus inflation, topping out at $100 a ton. One of the advantages of operating in this state – relatively cheap power – would be blunted.

Kaiser’s Trentwood plant, which employs about 900 workers, uses natural gas to heat aluminum to its melting point of 1,200 degrees. There isn’t a clean-energy alternative to do this. Fearing job losses, business and labor groups oppose the initiative. Kaiser says the governor’s carbon caps would be easier to deal with.

Proponents say the law could be tweaked after it passes, but that would require action from a divided Legislature. So should voters take the leap that I-732 could be enacted without too much economic harm?

We reluctantly say no.

The state’s emissions are but a blip on the grand global warming scale. This is about becoming a model for other states or Congress. However, there already is one: British Columbia, which imposed a carbon tax in 2008. It’s supposed to be an escalating levy, but the province has frozen it at $30 per ton as it waits for the rest of the country to catch up. As a result, it’s falling behind its emissions-reduction schedule.

It would be different if many states were to try this at once, but the largest market, California, is invested in cap and trade. We think it’s too risky to go it alone.