Carbon emission permits are a tax

As the cost of the state's climate law continues to increase gas prices, members of the Inslee Administration are upset when the cost of the CO2 allowances are referred to as a "tax." The governor and others have resorted to convoluted language and logic to avoid using that politically powerful word. For example, the governor's spokesman Mike Faulk recently wrote, "the cap and invest program is not a 'carbon tax'," but "requires emitters to purchase ... permits for their emissions."

It is part of the effort to obfuscate the impact of the Climate Commitment Act – Washington's new climate law that puts a price on CO2 emissions – on families, farmers and the economy. Legally and logically, however, the costs imposed fit the definition of a tax in several ways.

According to the U.S. Government Accountability Office, a tax meets three tests, "(1) is imposed by a legislature upon many, or all, citizens, and (2) raises money that (3) is spent for the benefit of the entire community."

The GAO has ruled charges passed along to customers, like the cost of the CO2 allowances, are a tax.

Although some may claim CO2 allowances are imposed only on a few entities, the costs are passed along to virtually all (if not all) state residents. The state Utilities Commission confirmed this recently, allowing Puget Sound Energy to pass along the costs of CO2 allowances to its natural gas customers.

The CCA passes both of the GAO's other two tests, as well. The governor repeatedly highlights that the CCA raises money, and that it is spent on a wide range of projects. By the GAO's standard, Washington's CO2 allowances are clearly a tax. The state Court of Appeals has confirmed this assessment.

A 2022 ruling helps define the difference between taxes, regulations and fees. In the court's ruling, the first test "is whether the primary purpose in imposing the assessment is to accomplish a public benefit that costs money or whether its primary purpose is to pay for a regulatory scheme..."

A key goal of the CCA is to raise money for public benefits. In fact, the governor rejected a revenue-neutral carbon tax specifically because he said he wanted to increase taxes to fund government programs and subsidies.

The language of the CCA itself shows that generating revenue is a key goal of the law.

To reduce CO2 emissions, organizations covered by the CCA could invest in carbon offsets that have been certified effective by the state. The CCA, however, caps the amount of offsets at 5%.

This makes no sense if the goal is CO2 reduction.

After all, the Department of Ecology must verify carbon offsets reduce emissions. If a project successfully reduces CO2, why is 5% good, but 5.1% prohibited? The only reason is that funding for carbon offsets goes to private projects, not state government.

The CCA also includes a flat price for emissions, which is called "carbon tax." When auction prices for CO2 allowances exceed a certain amount, the CCA requires a special auction to put more allowances on the market. In those special auctions, price bidding is eliminated and replaced with a flat price for CO2 emissions.

In November's special auction, all of the extra allowances being offered are set at the fixed price of $51.90. There are a limited number of allowances, but the difference between a flat carbon tax and a flat carbon tax with a limited number of credits is a thin reed to cling to for those claiming it isn't a "tax."

Politicians who are bold about proclaiming their commitment to fighting climate change have become evasive when dealing with the impacts of their policy. From denying it would impact prices, to claiming it doesn't impose a tax, the governor, agency staff and others are bold on climate change only when it is politically convenient.

- Todd Myers is the Center for the Environment director at the Washington Policy Center. Email him at tmyers@washingtonpolicy.org.