This is part 5 of a special blog series on transportation issues in the Puget Sound Region. These issues are under consideration by the Transportation Futures Task Force, a group of stakeholders convened to recommend solutions to ease our transportation woes and better support transportation options. Transportation Choices’ Deputy Director, Shefali Ranganathan, is a member of this task force.
PART 5: EXPLORING THE MEANING OF ‘TAXING THE HIGHEST POLLUTERS’
Written by an all-star TCC Volunteer
Last spring the PSRC conducted an opinion poll that indicated strong public support for “taxing the highest polluters” to fund our transportation system. Sounds pretty great, right? However, people may have only vague ideas about what such a funding structure entails — once the details are fleshed out, political and public support isn’t guaranteed. Below, we explore possibilities for taxing the highest polluters and what impacts the average citizen could expect.
Carbon taxes are widely accepted as an effective mechanism for targeting major polluters, and are part of a suite of transportation funding mechanisms being considered by the Transportation Futures Task Force. Carbon taxes on motor fuels and cap-and-trade systems both offer the ability to generate substantial funds while supporting equity and environmental goals, and are currently being implemented and evaluated in many other regions.
Carbon taxes on motor fuels and cap-and-trade systems take slightly different approaches toward achieving a similar goal. Under a carbon tax the price of emitting a unit of pollution is set, but the total quantity of emissions is not. Therefore, carbon taxes offer a more predictable model for revenue generation. Conversely, if environmental goals are the priority, a cap-and-trade system provides certainty about the quantity of emissions produced, but the revenue generated would be difficult to predict.
Okay, let’s dive into a few more details on each of these programs:
Carbon Tax on Motor Fuels:
A carbon tax on motor fuels puts a price on the carbon content of motor fuels, but would be collected upstream at the refinery level rather than at the pump. Unlike traditional gas taxes, carbon tax rates are relatively easy to increase annually, allowing the flexibility to keep up with inflation and maintain purchase power. To the average driver in Washington, this tax would feel similar to a modest raise in the gas tax. A carbon tax would also generate funds at roughly the same rate as the gas tax, with every $0.01 of tax generating about $17 million per year in the Puget Sound Region.
Our neighbors in British Columbia enacted a carbon tax in 2008. B.C.’s program has been lauded as being easy to implement, socially progressive, and equitable. However, like the proposal in Washington ballot measure I-732, the B.C. carbon tax is “revenue-neutral,” meaning that other taxes have been reduced in roughly equal amounts. This makes it more difficult to draw conclusions about reception to a program that would generate new funds.
Cap-and-Trade System:
Under a cap-and-trade system, the state would set a limit on carbon emissions and require the largest polluters, including refineries and fuel distributors, to buy tradable emissions permits. The cap would be reduced over time, forcing emitters to either cut their emissions or purchase increasingly expensive permits. In the last legislative session Governor Jay Inslee proposed a cap-and-trade plan that failed to gain support from either Democrats or Republicans. However, proponents suggested that it could generate up to $1 billion a year for a variety of uses, including transportation. One challenge is that revenues would go directly into the state general fund, where the transportation system would have to compete with other programs to receive them.
California enacted a cap-and-trade system in 2008, which was just expanded to include motor fuels earlier this year. The established emissions cap will decrease 3% each year for the next five years, driving up the market price for carbon credits. Critics argued that including motor fuels would cause gas prices to skyrocket, but so far gas prices have only increased about ten cents per gallon on average. For the most part, the change even went unnoticed by consumers, which bodes well for political and public reception to similar programs in our state.
To learn more about transportation funding mechanisms and keep up on the work of the Transportation Futures Task Force, stay tuned for more posts in this series!
