Research & Commentary: Carbon-Dioxide Tax Would Be Bad for Washington

Published October 26, 2018

This November, Washington State voters will consider Initiative 1631 (I-1631), a ballot initiative that would establish a carbon-dioxide tax on all fossil fuels “sold within [Washington],” and all “electricity generated within or imported for consumption in [Washington].”

The purpose of the carbon tax is to decrease carbon-dioxide emissions by levying a tax based on the amount of emissions produced. The tax that would be established if I-1631 were to pass would begin at $15 a ton in 2020 and increase by $2-plus inflation per ton each year.

Carbon-dioxide taxes are inherently regressive and disproportionally harm low-income families. The Congressional Budget Office (CBO) found a $28 per ton carbon tax would result in energy costs being 250 percent higher for the poorest one-fifth of households than the richest one-fifth of households.

CBO reports the reason for cost discrepancy is “a carbon tax would increase the prices of fossil fuels in direct proportion to their carbon content. Higher fuel prices, in turn, would raise production costs and ultimately drive up prices for goods and services throughout the economy … Low-income households spend a larger share of their income on goods and services whose prices would increase the most, such as electricity and transportation.”

The Washington Policy Center estimates I-1631 would increase average household costs between $234 and $305 in the first year alone, and between $672 and $877 per year after 2030. “Taxpayers would feel the tax primarily in three ways. First, the largest impact would be at the gas pump,” the report states, noting prices at the pump would increase by 14 cents a gallon during the first year and increase by two cents a gallon each following year. “Second,” the report continues, “a smaller portion, on average, would be associated with the cost of natural gas for home heating. Finally, since Washington’s electricity is mostly carbon-free, there would be a smaller impact felt in most utility bills.”

2013 study by the National Association of Manufacturers estimates a $20-per-ton carbon-dioxide tax in Washington, a threshold that would be met in 2022 under I-1631, would result in a 15 percent increase in household electricity rates. Additionally, the price of natural gas would increase by more than 40 percent in the first year. The study also estimates a carbon-dioxide tax would push gasoline prices up by 20 cents a gallon in the first year alone.

One other substantial problem with the carbon-dioxide tax is that it would produce an insignificant environmental benefit, as Oren Cass, senior fellow at the Manhattan Institute, noted in National Affairs.  “The effectiveness of a carbon tax as a matter of environmental policy [depends] not only on how it would directly alter the trajectory of [local] emissions but also on its ability to affect global emissions by driving globally applicable technological innovation or by influencing the behavior of foreign governments,” wrote Cass. “On each of these dimensions, the carbon tax fails.”

Thanks to its copious hydroelectric power sources, the Evergreen State currently has some of the lowest retail electricity prices in the United States (7.68 cents per kilowatt hour). Moreover, a 2018 WalletHub study reports that only Colorado has lower total energy costs than the Washington.

A carbon-dioxide tax would make everything more expensive for working families in Washington, drive up costs for businesses, and have an insignificant effect on global CO2 emissions.

The following documents provide more information about I-1631 and carbon-dioxide taxes.

Citizens’ Guide to Initiative 1631
This report from Todd Myers, director for the Center of the Environment at the Washington Policy Center, says the carbon-dioxide tax that would be levied if I-1631 were to pass, it would translate to between $234 and $305 for the average household in the first year, increasing to $672 and $877 per year after ten years. The largest portion of the cost would come from a 14-cent-per-gallon gas tax that would increase by about two cents per gallon each year. 

The Deeply Flawed Conservative Case for a Carbon Tax
In this paper published by the American Enterprise Institute, Benjamin Zycher says the “conservative” Climate Leadership Council’s (CLC) much-hyped carbon-tax proposal is “naïve” and “virtually all of the … assertions in support of its proposal are incorrect or implausible.” The CLC’s plan is “poor conceptually and deeply unserious,” wrote Zycher.

The Case Against a U.S. Carbon Tax
In this paper from the Cato Institute, Robert P. Murphy, Patrick J. Michaels, and Paul C. Knappenberger examine carbon-dioxide tax programs in place in Australia and British Columbia and consider whether similar programs would be successful in the United States. They conclude, “In theory and in practice, economic analysis shows that the case for a U.S. carbon tax is weaker than its most vocal supporters have led the public to believe.” 

Economic Outcomes of a U.S. Carbon Tax–us-carbon-tax
This report from the National Association of Manufacturers evaluates the potential impacts carbon taxes whose revenues would be devoted to a combination of debt and tax rate reduction would have on the U.S. economy. The results consider the varied economic effects of fossil-fuel cost increases caused by carbon taxes, as well as the positive economic effects of the assumption that carbon tax revenues would be used to reduce government debt and federal taxes.

Ten State Solutions to Emerging Issues
This Heartland Institute booklet explores solutions to the top public policy issues facing the states in 2018 and beyond in the areas of budget and taxes, education, energy and environment, health care, and constitutional reform. The solutions identified are proven reform ideas that have garnered significant support among the states and with legislators.

The Carbon Tax Shell Game
Oren Cass of the Manhattan Institute argues the carbon tax is a shell game. The range of designs, prices, rationales, and claimed benefits varies so widely that assessing the validity of most proposals is nearly impossible to accomplish. In this article for National Affairs, Cass says the effect of carbon-dioxide taxes on emissions has proven to be insubstantial, a fact he says is ignored by the tax’s proponents when promoting its purported benefits.

The Social Benefits of Fossil Fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.

Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers—summary-for-policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models (IAMs) and cost-benefit analysis (CBA).

Less Carbon, Higher Prices: How California’s Climate Policies Affect Lower-Income Residents
This study from Jonathan Lesser of the Manhattan Institute argues California’s clean power regulations, including the state’s renewable power mandate, is a regressive tax that harms impoverished Californians more than any other group. 


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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