Climate Policy in Washington: Comparing the Republican and Democratic Proposals

January 8, 2014

 

After months of study and discussion, the Republicans and Democrats of the Climate Legislative Executive Workgroup (CLEW) in Olympia released two different draft proposals designed to cut Washington’s carbon emissions.

The two approaches are quite different but both claim to meet a standard of environmental effectiveness. For example, the proposal offered by Gov. Jay Inslee, Sen. Kevin Ranker (D-Orcas Island) and Rep. Joe Fitzgibbon (D-Burien) claims:

Based on the information reviewed by the Workgroup, we believe these policies are the most cost effective tools we have available to meet our state emission limits. As we move forward, it will be important to design our actions in a way that maximizes the benefits and minimizes the costs of implementation, by directly considering our emissions and energy sources, and our businesses and jobs.

Do either of the proposals actually meet that goal? The short answer is “no.” Virtually all of the policies offered by either side of the aisle are very ineffective with some important exceptions.

Overall, the Republican proposal chooses less-expensive approaches, but the total CO2 reduction is lower than the Democratic proposal. The proposal from the Democrats, however, is much more expensive and chooses some policies that will do literally nothing (literally!) to reduce carbon emissions while increasing the cost of electricity for consumers.

To assess the environmental effectiveness of these plans, we calculated the cost to reduce one ton of carbon. Since money doesn’t grow on trees, we want to make sure the public is receiving the greatest environmental benefit for every dollar we spend.

It should be kept in mind that “cost” numbers can be compared to a number of alternatives:

• $11.34: The current cost of a ton of carbon reduction under California’s cap-and-trade system.
• $21.20: The “optimal” cost to reduce a ton of carbon using Yale economist William Nordhaus’s climate modeling. Nordhaus has been doing climate modeling longer than any other economist and is the man columnist Paul Krugman calls his “mentor.”
• $30: British Columbia’s carbon tax price per ton.

Whichever amount you choose, all of the proposed policies proposed by CLEW members are significantly higher. My complete spreadsheet analyzing the strategies is available upon request. E-mail me at tmyers@washingtonpolicy.org.

Here is our assessment of the Democrats’ policies. Later this week we will analyze the Republican approaches.

Democrats’ Climate Proposal

The Governor and the Democratic legislators have offered eight approaches to reducing carbon emissions. The proposal is fairly vague, so we have used a range of sources to estimate costs, including the CLEW’s own analysis (which is quite poor, as we’ve noted) and Washington state’s experience.

 

Cap-and-Trade

The CLEW’s report lists the cost of cap-and-trade as “not quantified.” Without a number, there is no way to measure the cost effectiveness of the policy in protecting the environment. Since this is the centerpiece of the Democrats’ proposal, it would be extremely risky to move forward without some kind of estimate.

One key element of cap-and-trade that will drive its cost up is that the cap is inflexible. Washington’s carbon emissions, however, vary significantly year to year. For example, in 2006, Washington emitted 211 lbs. of CO2 per megawatt hour (MWh). Just a year earlier in 2005, however, there was a low snowpack, hydropower had to be replaced with fossil fuels, and emissions were 322 lbs. of CO2 per MWh ‒ a number that was 52 percent higher.

Imagine the impact of a mandated, inflexible carbon cap when emissions can rise or fall 50 percent in just a year. This will cause huge price swings leading to the loss of industry like we saw in 2001 when aluminum companies shut their doors after a huge jump in electricity prices.

Cost to Reduce One Ton of CO2: “Not quantified” with significant risk.

 

Coal-by-Wire

The goal of this policy is to prevent Washington utilities from buying coal-generated electricity from outside the state. This would be an entirely symbolic gesture and, while it would sharply increase electricity costs to Washington residents and businesses, it would not reduce carbon emissions at all.

A few years ago, Seattle City Light took the same symbolic step of ending its contracts with coal generators in the utility’s effort to claim Seattle is carbon neutral. Those coal plants, however, did not shut down. The electricity was still generated and sold elsewhere, and the environmental impact was the same.

This symbolism is politically popular with some, but simply cannot be called effective in helping the environment.

Cost to Reduce One Ton of CO2: Infinite

 

Finance Clean Energy

The proposal offered by Democrats is a “feed-in tariff” which is simply a mechanism for subsidizing the high cost of renewable energy. The CLEW report offers a wide range from $30 per ton of CO2 up to $500 per ton. Their report, however, uses national numbers. The numbers are misleading. In other parts of the country, wind energy, for example, would be replacing coal. In Washington, wind or solar energy would replace hydro or natural gas.

Using numbers from the Energy Information Administration, a subsidy of five cents per kilowatt hour (kWh) yields a cost of about $370 to reduce a ton of carbon. A subsidy of 15 cents, as is currently offered to purchase solar panels in Washington, would skyrocket to $1,110 per ton. Washington also subsidizes the purchase of locally built solar panels at the astronomical rate of 54 cents per kWh, which amounts to nearly $4,000 per ton of carbon reduced, compared to $11.34 per ton reduced in California.

The simple reality is that while reducing carbon emissions from electricity production seems easy, Washington’s energy is so decarbonized already, it is an extremely ineffective way to reduce emissions.

Cost to Reduce One Ton of CO2: $370 – $4,000

 

Green Building Standards

Despite the abysmal record of these standards, green building standards seem to be a default suggestion anytime there is a discussion of cutting carbon emissions. Numerous studies, including one by the state legislature’s own auditing agency, the Joint Legislative Audit Review Committee (JLARC), finds the standards do not live up to their promise of helping the environment.

As JLARC found, half of the “green” schools in Washington state actually perform worse than the average school in the same district in energy use. These “green” schools are spending more to get a less efficient building.

Assuming that schools are, in fact, six percent more efficient on average as JLARC found, the total cost per ton of CO2 reduced is about $1,800. Again, the price is high because reducing electricity use is expensive and yields tiny reductions in CO2. The analysis demonstrates “green” building standards are ineffective at cutting carbon emissions.

Cost to Reduce One Ton of CO2: $1,800

 

Incentivize Clean Cars

The State of Washington already does a tremendous amount to promote clean cars. Buyers of electric vehicles do not have to pay sales tax. Washington state taxpayers pay to build electric car-charging stations. It is difficult to know what is being suggested here, since the Democrats’ policy letter makes only a passing reference to “incentives for the purchase of clean cars.”

Assuming they mean the extension of the current policy of waiving sales taxes, this is a costly and ineffective approach. First, you have to assume that people who can afford an $80,000 Tesla vehicle would refuse to buy it if they had to pay sales tax. This is pretty unlikely since those who can afford such an expensive car are probably not price sensitive.

Assuming, however, that one-third of potential buyers would not buy the car without the incentive (this was the experience of the federal Cash for Clunkers clunkers), the cost is still very high. The sales tax exemption costs about $190 per ton of carbon.

There is the additional problem of taxing working families to subsidize the purchase of luxury electric cars for the rich. Even the average buyer of a Nissan Leaf has an income of over $100,000 a year. A policy of subsidizing electric car owners is an expensive way to tax workers and send those dollars to the rich.

Cost to Reduce One Ton of CO2: $190

 

Low-Carbon Fuel Standard

Washington has been studying the LCFS for years. The last time the state’s Department of Ecology discussed the issue in a legislative work session, officials could only say that calculating how an LCFS would work was “complicated.” The biggest winners from this policy would be biofuel companies like Imperium Renewables, whose owners have lobbied heavily for a policy from which they would benefit financially.

Essentially, an LCFS would require mixing biofuel with regular fuel. The CLEW report puts the price of this policy at $103-$131 per ton of CO2 reduction. A more comprehensive study of the cost of the LCFS lists the cost at nearly $190 per ton of carbon reduction. The National Bureau of Economic Research found the cost of a national LCFS to be between $307 per ton and $2,272 per ton.

Of course, this assumes that biofuels meet the expected level of efficiency. It is now clear those policies that supported ethanol actually increased carbon emissions. This is why Department of Ecology officials have been so slow to offer a plan for an LCFS. Company owners who stand to benefit from an LCFS are less worried about the details, but those who actually care about reducing carbon emissions should be wary of a policy that has a high cost but speculative benefits for the environment.

Cost to Reduce One Ton of CO2: $103-2,272

 

Land-Use Planning

A few years back, I attended a speech on the value of land-use planning in fighting climate change. The speakers claimed central community planning was the best thing we could do to cut carbon emissions. When I asked if they had an estimate of the cost of these policies, the advocates said they had not considered that.

This is the same experience we’ve had in Washington state. For some time, we’ve asked for an analysis of Washington’s growth management law, to see if it is achieving the goals the public was promised. No such research has been done.

The CLEW study lists the price of central planning as negative, meaning it saves money. The source of this claim is the Oregon Department of Ecology, whose study assumes most of the costs are picked up by Federal taxpayers and that increased density and transit automatically reduce carbon emissions. Put simply, they assume good results. Given Sound Transit’s abysmal record of predicting ridership, assuming something as complex as land-use planning will work as predicted is folly. Even the advocates of such policies admit they do not know the cost.

Cost to Reduce One Ton of CO2: Unknown

 

Research

Generally, we support funding for basic research, so pursuing new knowledge makes sense within reasonable budget limits. Expecting this kind of research to produce near-term breakthroughs for the environment, however, is not realistic. Given that enormous uncertainty and the fact that this is not really a carbon-reduction strategy, it is impossible to assign a cost.

Cost to Reduce One Ton of CO2: Unknown

 

The proposal by the Democrats contains no specifics, so these estimates are based on past discussion of policies, approaches studied by the CLEW itself and current approaches used elsewhere. Despite the lack of specificity, however, there is little chance that subsidizing solar energy will suddenly become an effective way to reduce carbon emissions. There is little chance “green” buildings will become 85 times more effective and meet a reasonable effectiveness standard. Put simply, none of these policies is likely to meet the stated goal of choosing policies that “maximize the benefits and minimize the costs of implementation.”

Submitted by Councilmemrr Hank Myers (not verified) on Wednesday, January 8, 2014.

The story should have also noted the free market costs for carbon offsets. The other costs are regulatory rates and do not reflect reality.A

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