Since the Industrial Revolution, companies have largely benefited from an unwritten rule of waste: If it’s invisible to the eye, it’s invisible on the bottom line. Firms must adhere to clean-air and clean-water regulations, but releasing climate change-inducing greenhouse gases, primarily carbon dioxide, into the atmosphere has never been met with a penalty in Washington.
It’s this paradigm Gov. Jay Inslee, a Democrat, is trying to shift. In December, Inslee laid out a cap-and-trade plan that would require the state’s most significant polluters to purchase allowances for their emissions. Cap-and-trade systems have been considered effective ways of reducing greenhouse gas in the atmosphere, but less certain is their economic impact. While supporters say a cap and trade would put Washington on a path to carbon-free commerce, business leaders are crying foul, saying it would raise prices for consumers without accelerating the pace of greenhouse gas-reducing innovation.
Inslee’s Carbon Pollution Accountability Act of 2015 would require companies that emit more than 25,000 metric tons of greenhouse gases in a year — an estimated 130 of them, which are responsible for roughly 85 percent of state emissions — to purchase allowances for their pollution. These allowances would be sold quarterly at state-run auctions, and companies could then trade excess allowances. The number of allowances sold, and thus the amount of greenhouse gases allowed, would be capped. That cap would decrease by about 2 percent annually, in theory reducing the total amount of pollution.
Business groups quickly denounced the plan. The Washington Climate Collaborative, a coalition of industry groups organized in response to Inslee’s plan, derided the imposition of allowances, saying that Olympia instead should work to incentivize low-carbon practices and technology. The state already has the eighth-lowest per-capita emissions in the nation, which the group says is evidence of industries’ and residents’ abilities to lower carbon footprints on their own. But Washington’s low emissions primarily can be traced to hydropower, an innovation that is in no way recent.
Cap-and-trade opponents point out that the cost of carbon allowances wouldn’t be restricted to the state’s largest polluters. Inslee said “it’s better to tax pollution than voters” when he unveiled his proposal, but some say the people likely would feel a pinch, too, at least in the near term.
“It’s a fallacy that only these 130 entities — we call them employers, the governor calls them polluters — are going to be the ones who pay the cost,” says Brandon Houskeeper, government affairs director for the Association of Washington Business, a member of the Collaborative. “That’s Economics 101. Your community college teaches you that … some (firms) are going to have to pass that cost along to remain competitive in their industry.”
Even if that happens, those in the governor’s office say Washington businesses would remain competitive. “Take a look at California. Take a look at the European Union … are companies there facing (unreasonable) competitive pressures? So far, and the jury’s still out, we’re not seeing it,” says Chris Davis, Inslee’s advisor on carbon markets. “If you think companies are going to up and leave Washington because of this, then you probably think energy prices are the determining issue about where a company decides to locate. That’s certainly an issue, but it’s not the only one.”
A cap and trade could spike certain sectors of the economy. Inslee allotted $400 million of the expected annual haul of $1 billion to transportation projects, which would line contractors’ pockets and improve transportation efficiency. California, which directs its permit-auction funds toward other projects that would lower the state’s carbon footprint, has seen a spike in capital investment.
“One of the most intense advocates (for California’s cap-and-trade system), along with the environmental community, is the venture community,” says David Roland-Holst, an economics professor at the University of California, Berkeley. “Energy, by revenue, is the world’s largest industry, and it has this huge carbon liability. So trying to address that through technology — that challenge is irresistible to the technology community.”
How cap-and-trade revenue is spent plays a strong role in a program’s economic viability. Roland-Holst’s research has found that investing in clean energy yields the greatest economic return. The systems in California and New England do this, but Inslee’s proposal directs most of the expected revenue toward transportation and education. These are surely political decisions to boost the proposal’s popularity; both parties want the state’s transportation infrastructure to improve, and the Legislature must provide more education funding to meet requirements put in place by the state Supreme Court.
Economics aside, Inslee’s plan would put a price on the key contributor to global warming. Kristin Eberhard, who researches carbon markets for the Sightline Institute, a sustainability think tank, says the current pace of innovation isn’t keeping up with the threat of climate change, and the business community hasn’t taken advantage of previous incentives to decrease carbon.
“We have a problem with pollution, and we have to reduce it,” she says. “And we have programs in place to incentivize that — programs that incentivize renewables, energy efficiency, and electric cars. It just hasn’t been enough. You have to make the price tell the truth about the pollution.”