Initiative 1631, which would have created a carbon tax in Washington State, lost by almost 12% of the vote this week. Commentators on all sides have interpreted this as a decisive defeat for carbon pricing, making more indirect policies like subsidies to renewables the only politically feasible option.*
I don’t have time for a lengthy analysis, but in a few words I want to suggest that this conclusion is premature. I live in Washington State and saw the battle unfold first hand in real time. Voters were not asked by opponents of 1631 to reject carbon pricing; on the contrary. And it was the failure to draft and promote a straight-ahead carbon pricing law that doomed it.
While supporters of 1631 point to money from fossil fuel interests as the “cause” of their defeat, the actual propaganda of the No side did not belittle the threat of climate change, nor did it even argue against the need for action to reduce emissions. It hammered on these points:
1. 1631 was weak. It excluded too much of the state’s emissions and wouldn’t have a meaningful impact on them.
2. Nevertheless it would raise energy bills for virtually all the state’s residents.
3. It proposed an undemocratic procedure for allocating carbon revenues.
The money behind this message may be “bad”, but the message itself was correct. 1631 was so poorly conceived that the arguments of the troglodytes were closer to the truth than those of the progressives. Take them one by one:
1. 1631 was the second carbon tax initiative in two years. Last year’s effort, I-732, had broader coverage and allowed for higher carbon prices over time. It was opposed by progressives, who organized to defeat it and then drew up their own, weaker proposal. There is a lot of detail to go into, but the short version is that 1631’s carbon price was essentially symbolic, a few cents on the carbon dollar. It was not a meaningful action to deal with the threat of a climate catastrophe.
2. This one was particularly galling for me as an economist. Supporters of 1631 actually campaigned on the argument that the tax would be paid by a few large corporations, not by all of us. On this point the No crowd was entirely right and the Yes entirely wrong. I’m sure many pro-1631ers really believed that energy taxes aren’t passed through to consumers, but those at the top who drafted the proposal knew better. Their public communication was dishonest, they got called on it, and they lost.
3. 1631 was the product of horse-trading between various interest groups. Environmentalists wanted carbon revenues to go for green infrastructure. Identity groups wanted funds funneled into minority, immigrant and low-income communities. Unions wanted money for workers in the fossil fuel sector who might lose jobs. Tribes wanted the state to defray the costs of climate change that impinge on them with particular force. All of these are worthy goals in their own terms. The problem is, how to translate a deal reached around a table between various representatives of these movements into a political process for disbursing public funds. The solution they came up with was an appointed board of 15 “experts” who would control the allocation, carving off the carbon money from the general fund and its control by the state legislature. Do I understand the distrust of the legislature? Yes. Was this blatantly undemocratic and contrary to the widely-held principles of how government ought to operate? Also yes. The No people blasted this idea again and again, and the public responded predictably.
The defeat of 1631 was an own goal by the progressive community. We still haven’t had a vote on a sensible, defensible carbon pricing measure. Until we do, I don’t want to write off the political feasibility of taking direct action against climate change. A better bill would have universal coverage, as stiff a carbon price as possible, and—because carbon prices would eat significantly into household budgets—would return most or all of the revenues back to the public, ideally in equal lump-sum rebates.**
*Subsidies to renewables, energy efficiency programs and the like, while highly desirable, have only indirect effects on the use of carbon energy. They shift the demand for fossil fuels to the left by some amount, but in a complex, evolving world with many other factors influencing global energy markets, the effect on emissions is unpredictable. A direct approach uses the power of law to keep some portion of fossil fuels themselves in the ground, either by a cap on their use or price increases calibrated to corresponding use reductions. The indirect approach to carbon is direct in its impact on renewables and other resources it targets, just as the direct approach to carbon is indirect in its effects on renewables and efficiency. Ideally we should adopt both approaches, with programs directed against carbon fuels and for energy alternatives.
**732 was intended to rebate carbon revenues, but through tax cuts. This was a mistake, since the amount of the rebate was variable (depending on how complex tax formulas would be affected by changing state economic conditions) and the rebates greater for those with higher incomes. Worse, a portion of the cuts was allocated to business taxes in a misguided effort to buy off business and conservative interests. The mobilization against it by progressives was vigorous and emotional; I attended an event in which supporters of 732 were called racist from the podium. Mainstream environmental groups joined this opposition in order to demonstrate their social bona fides.
Problem one with these “public initiatives” is the dishonesty with which they are both opposed and supported. I have always been astonished by the blatant lies in television ads on both sides of almost every issue.
Problem two is that many of them are, as you point out here, many of them are poorly crafted and do not well serve the purpose they are intended to serve or, in some cases, the purpose they pretend to serve.
There was an “initiative” in Arizona when I lived there which had to do with utilization of water from the Central Arizona Project. Scientists told us one thing, fear mongers another. The fear vote won, overriding what had been the city’s initial decision, and Tucson’s water was unfit for human consumption for two years before the process was reversed. All of the city’s water system pumps had to be replaced, and quite a lot of its distribution pipeline as well, costing some $300 million.
“I don’t want to write off the political feasibility of taking direct action against climate change.”
Virtually nobody, liberal or conservative, is going to voluntarily give up their wealth or access to modern conveniences in order that effective action be taken on climate change One of the biggest, ugliest McMansions in my neighborhood, one that has two giant SUVs parked out front, had Democratic campaign posters planted in the front law this year. I so wanted to knock on their door and call them out for the massive hypocrites that they are, but knew it wouldn’t do any good.
Racist? behahahahahahah. Elements of Big Business have been powering Carbon Tax schemes for 15 years. This was just another one.
“732 was intended to rebate carbon revenues, but through tax cuts. This was a mistake, since the amount of the rebate was variable (depending on how complex tax formulas would be affected by changing state economic conditions) and the rebates greater for those with higher incomes. Worse, a portion of the cuts was allocated to business taxes in a misguided effort to buy off business and conservative interests.”
While 732 was indeed as bad as this notes, Greg Mankiw deemed it to the only version of the carbon tax that should be considered. After all – Mankiw that more tax cuts for rich people is always the right policy.
I-732 also would have frozen property, and B&O (business gross receipts) tax rates for two years (2/3 legislative majority to change the rates specified in the initiative – republicans would never provide enough votes to exceed that) while the state was under a court order to come up with several billion dollars more for education.
Do also keep in mind 732, for all its bending over to try to get republican votes, went down 60/40 vs 1361’s likely 57/43 loss. 732 lost 80/20 in the most red county. The 2016 washington state republican plafrom specifically rejects making *any* policy based on climate change.
Republican votes are not available for policy like this, it is useless to chase them.
IMO this one was worth voting for, in part because the 2/3 legislative majority to change the board, etc, is achievable unlike a 2/3 majority to raise taxes. And after two years that falls to a simple majority. Two years of a less-than-ideal funds distribution method is not that bad.
Washington initiatives aren’t as broken as California’s amend-the-constitution-by-majority-vote problem.
There was another initiative that did kind of the same thing. The one that removed the ‘malice’ standard from police killings. The details of the initiative are by all accounts not great, but all sides have agreed to a set of fixes that the legislature can do by 2/3 majority next year. However changing the ‘malice’ standard would not get a a majority of the legislature while the initiative won about 60/40.
Initiatives are good for getting us over political humps, but not good for getting policy details right.
I suppose the good news is that one of the crazy things 1631 did was put a carbon tax up in a midterm election year, which normally has a more conservative electorate. This particular year it may have worked out ok in that respect because of the blue wave. Still there is another good opportunity in just two yeas, rather than 4.
John Cochrane goes full Greg Mankiw:
A long winded way of saying those carbon tax revenues should never be used for government spending when more tax cuts for the rich are necessary.
I agree with you.
Having actual experience with propositions, I would suggest that the Carbon Tax needs to go to the schools, if you want it to pass.
Those extremely cynical people behind the state lotteries found that they could not get a straight-up lottery passed in many places, but that a “Lottery with the Earnings Going to the Schools” passed easily.
That’s the way to do it.