Costs of I-1631 carbon fee up for debate

If Washington voters approve a fee on carbon emissions through Initiative 1631, there’s a general agreement that, as the saying goes, “It’ll cost you.”

There is less agreement, however, on how much.

Part of the problem with calculating the cost is the way I-1631 tries to reduce carbon pollution, through a fee that is assessed upstream from consumers of things that produce that pollution, like gasoline being run through automobile engines, natural gas being used to heat homes and some – but not all – electricity generated by Washington utilities.

A portion of that fee then works its way down to the person filling up the tank, turning up the thermostat or flipping on the light switch, and goes into a fund to cut pollution.

The initial fee of $15 per ton of carbon pollution in 2020 has an annual $2 bump plus an adjustment for inflation until certain goals are met, then just inflation. There’s also uncertainty over when and how much Washington residents and businesses will cut their energy consumption, and how projects funded by the fee would factor in. And no one can say definitively what the costs will be five, 10 or 15 years later.

That doesn’t stop either side from trying, however.

Using a model developed by the state Energy Office, the Washington State Budget and Policy Center, which supports I-1631, estimates the average household would pay an extra $13 per month in 2020 for the energy it uses. That’s assuming a 13-cent per gallon increase in gasoline – 15 cents per gallon for diesel – plus increased utility bills that would depend on whether a home heats with natural gas, oil or electricity. No fee for wood heating.

The Stockholm Environmental Institute in Seattle offers a slightly smaller estimate of $12 per month in 2020 for the average household, with $8 of it going for gasoline or diesel, and $2 each for electricity and natural gas.

The increased cost for gasoline is in line with figures from the U.S. Energy Information Administration, which estimates the average adult in Washington drives about 8,300 miles per year and the average car gets 25 miles per gallon. That gets a two-adult household close to the $91 the Stockholm Institute estimates for increased spending on gasoline in 2020.

Swap a family sedan for a Prius or a Volt, or even a car with more efficient gasoline engine, and those costs would go down. Throw in a third car, or substitute a large truck or an old clunker, the fuel bill goes up.

The fee on a 42-gallon barrel of oil would go up at least $2 per year, plus inflation, so the price of gas would continue to rise, by some estimates about 3 cents per gallon each year. Initiative supporters believe over time that will prompt more people to buy electric vehicles or more fuel-efficient cars, or drive less, reducing vehicle exhaust – which is one of the prime sources of carbon pollution in Washington state – and lowering the overall cost per household.

How much a rise in price will reduce demand for gasoline is up for debate. A 2014 study by the Energy Information Administration contends the demand for gasoline is relatively “inelastic,” an economist term that suggests people don’t change their buying habits quickly when the price goes up.

But Michael Lazarus of the Stockholm Institute said that while the demand for gasoline may not respond as much as some other items, it is sensitive to price, and the switch to electric cars could be helped by increased infrastructure, like more recharging stations, which could be built with money collected by the fees.

“Transportation is the hardest nut to crack,” Lazarus said.

Each utility in Washington will face increased costs – which they will pass through to their customers – depending on the mix of generating facilities. Avista gets 55 percent of its power from hydroelectric dams and other sources not subject to the carbon fee, Jason Thackston, senior vice president of Energy Resources, said.

“We’re one of the cleanest power producers in the nation,” Thackston said.

Another 35 percent is generated by natural gas, a fuel that is subject to the fee, and about 10 percent comes from coal-fired plants in Colstrip, Montana. Although I-1631 exempts power from Colstrip Plants 1 and 2 because they will be shutting down, Avista has a share of Plants 3 and 4, which are not exempt.

Avista’s estimate on the cost of the fee is higher than the utility rate hikes the Stockholm Institute projects. In 2020, it projects the average electric customer would see an increase of $58 per year, or just under $5 per month, and the average natural gas customer $61 per month, or just over $5.

If the average gasoline usage remains the same, I-1631’s effect on the average total household cost for an Avista customer who heats with natural gas would be closer to $18 per month in 2020.

Avista is taking a neutral position on the initiative, Thackston said, although it thinks the legislative process would have been a better way to set up such a system.

On Wednesday, the utility also emailed a message to customers that showed its estimates for 2020, along with estimates of $7.50 per month for electricity and $9.20 per month for natural gas in 2025 and $15 and $17.63 per month, respectively, in 2035.

Inland Power and Light gets its electricity through the Bonneville Power Administration, with little of it coming from coal or natural gas, spokeswoman Jennifer Lutz said. It estimates the fee will cost an extra $430,000 in the first year, which when spread over its customer base averages out to $12.75 in 2020, or just over $1 a month.

It would be higher for homes and businesses that use more electricity, she said, but estimating those increases is difficult.

“There are just so many variables,” she said.

Inland estimates the total cost to the utility would double by 2025 and triple by 2030.

The major oil companies that are the prime opponents of the initiative commissioned a study that projects a much higher cost per household.

The NERA Economic Consulting Inc. contends the increased cost to businesses that would be passed on to customers should also be added to the estimate of household costs. It projects job losses and lower wages through 2035, and a lower gross state product.

In its $350,000 study, NERA projects that those “macroeconomic impacts” would cost the average household $440 in 2020, or almost $37 per month. By 2035, that would grow to $990, or $82.50 per month.

Supporters of the initiative dispute the suggestion that all of those business costs will be passed on to the general public in the form of higher prices and lower wages. It also argues the study doesn’t do an adequate job of accounting for the jobs that will be created by the fees that are collected and divided among projects for clean air and energy; improved water and forests, and help with energy bills for low income residents.

NERA contends its study uses a model that factors the positive effects of the spending of the fees into the negative effects of the higher energy charges.

If the oil companies thought they could pass on all of their costs, they wouldn’t be leading a $31 million campaign to defeat the initiative, supporters argue. They also note that NERA has produced industry-friendly but controversial research in the past, including one study that President Donald Trump cited in withdrawing from the Paris Agreement, and another in the 1990s for the tobacco industry which contended that advertising did not increase cigarette consumption.