In 2015, the Washington Legislature failed to act on Governor Jay Inslee’s cap-and-trade proposal to limit the greenhouse gas emissions that cause climate change. Since then, all branches of Washington State government, as well as the people themselves, have engaged in what looks like a massive brainstorming session on how to limit Washington’s greenhouse gas emissions. However, the recent close of the 2016 legislative session marks a turning point, with some options dropping off the table. This post summarizes how we got here and outlines where we may be heading for the next couple of years.

Future posts will analyze the remaining options as they develop. The melee includes the Clean Air Rule under development by the Department of Ecology in direct response to the Governor’s frustration with last year’s legislative inaction. It also includes Ecology implementation of the EPA’s Clean Power Plan, the potential for action by the 2017 Legislature, and the possibility that the courts will step in at some point.

Carbon tax swap Initiative 732 will go to the November ballot alone

Just months ago, it looked like voters might see as many as three carbon pricing initiatives on the ballot this fall:

  • Initiative 732, a revenue-neutral carbon tax;
  • A possible legislative alternative (an “I-732 B”); and
  • A revenue-positive carbon fee initiative from the Alliance for Jobs and Clean Energy (“Alliance”), a coalition of progressive social and labor groups.

But now, I-732, the upstart carbon tax initiative from Carbon Washington and UW economist Yoram Bauman, will be the voters’ only option in November.

I-732 is an initiative to the Legislature. That means that the Legislature had the chance to act on it before voters. Legislators could have approved the initiative as written, in which case it would immediately become law rather than appearing on the ballot. They could also have voted on an alternative, which many have referred to as “I-732 B,” that would have appeared alongside I-732 on the November ballot. Instead, the Legislature did nothing, which means that I-732 will appear on the November ballot without a legislative alternative.

Meanwhile, the Alliance has backed away from its announcement last fall[1] that it intended to run its own carbon pricing initiative in 2016. The Alliance’s initiative would have charged greenhouse gas emitters a fee (functionally much like a tax, with no proposed mechanism for allowance trading) and directed the funds to “accelerating the transition to a clean energy economy and addressing the impacts of carbon pollution on our air, land and people.” Eleventh-hour dramatics at the end of 2015 nearly led Carbon Washington to abandon I-732 and join forces with the Alliance behind a single initiative that would have gone directly to the November ballot.[2] When that effort collapsed, Carbon Washington went ahead and filed I‑732. In response, the Alliance recently announced new details about its policy proposal, but also its decision not to run an initiative in 2016. The Alliance cited fears based on its polling that putting a second climate initiative on the ballot alongside I‑732 “would not lead to success.”[3]

I-732 faces significant headwinds between now and November

Although I-732 will have the ballot to itself, it still faces an uphill battle. However, Carbon Washington has already beaten the odds and conventional wisdom to make it onto the ballot and into the center of Washington’s climate policy debate, so it’s too early to count I-732 out.

I-732’s backers designed the law to be revenue-neutral, using carbon tax revenues mainly to reduce the state sales tax, building and operations (B&O) tax, and funding rebates to offset the impact of the tax on Washington’s poorest residents. Revenue neutrality was designed to bring conservatives on board and secure bipartisan support, but it has instead drawn opposition from left-leaning groups without noticeable countervailing support from conservatives.

For example, many Alliance members have distanced themselves from I-732 or even actively oppose it. Washington State Labor Council AFL-CIO, the state’s largest labor organization, voted in late January to oppose the carbon tax measure. Not long after followed OneAmerica, an organization focused on social justice and organizing immigrants and communities of color. More recently, the Washington Environmental Council announced that it does not support I-732. Climate Solutions, another leading advocacy organization, announced that it will neither support nor actively oppose I-732. Even the Washington State Democrats (not an Alliance member) voted to formally oppose I-732. Each of these organizations listed the lack of revenue reinvestment as a central reason not to support the initiative. Instead the Alliance will spend the summer on a “listening tour” about its own policy proposal.

Meanwhile, I-732’s supporters are embroiled in a technical debate about the initiative’s fiscal implications. The state Department of Revenue’s (DOR) official fiscal note estimates that I-732 would cost the state $914 million from 2017 through 2021. Carbon Washington has responded repeatedly with counterarguments, an official media statement, and an op-ed in the Olympian. Essentially, Carbon Washington argues that DOR overestimated the shortfall, and that $900 million isn’t really that much in the context of a $93 billion budget. DOR has responded to some of Carbon Washington’s technical arguments challenging the fiscal note.

Carbon Washington also claims that “even in the worst case, lawmakers could easily clarify the intent of I-732.” Although “easily” is debatable, this argument is roughly right: Article II, Section 1(c) of the Washington State Constitution allows a two-thirds legislative majority to amend I-732 immediately, and a simple majority could amend it starting two years after its enactment, i.e., November 8, 2018. Even under DOR’s analysis, over $630 million of the I‑732 shortfall would occur in the 2019–2021 biennium, meaning that the 2019 Legislature would have a chance to amend I-732 by simple majority before two thirds of the projected shortfall materializes.

But regardless of the outcome, this debate hurts I-732. Revenue neutrality is one of the policy pillars of I-732, and no proposed law benefits from uncertainty about whether it will work as intended. Moreover, the simplicity and practicality of a carbon tax are central to its appeal, and a complicated spreadsheet debate between economists and tax bureaucrats undermines that perception.

The Legislature set the stage for closure of Colstrip units 1 and 2

Although the 2016 Legislature didn’t enact sweeping climate change legislation or respond to I-732, it did take one significant step toward reducing Washington’s carbon footprint when it enacted Senate Bill 6248. The law allows the state’s largest utility, Puget Sound Energy (PSE), to start collecting money from ratepayers to fund the eventual shutdown and cleanup of the older, inefficient units 1 and 2 of the massive coal-fired power plant in Colstrip, Montana. PSE would first need approval from state’s utility regulators, the Utilities and Transportation Commission, and S.B. 6248 explicitly gives the UTC the authority to grant that approval for prudently incurred costs. Despite the wishes of Montana governor Steve Bullock, Washington’s Governor Inslee signed the bill into law on April 1.

So what’s next?

Can backers of I-732 convince the voters?

How will the UTC respond when PSE asks to start socking away ratepayer money to shut down Colstrip 1 and 2?

When and how will the Alliance try to turn its proposal into law?

What will the Clean Air Rule look like when Ecology releases a new draft in May?