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Nation’s first carbon tax on the ballot in Washington

John Thomas of the casting department at Kaiser Aluminum's Trentwood plant sets up the machinery to pour molten aluminum and form 10-ton ingots Tuesday, Sept. 27, 2016. Because of the amount of energy used by the aluminum industry, Kaiser will be among the most affected companies if Initiative 732 passes and a carbon tax is enacted. (Jesse Tinsley / The Spokesman-Review)
John Thomas of the casting department at Kaiser Aluminum's Trentwood plant sets up the machinery to pour molten aluminum and form 10-ton ingots Tuesday, Sept. 27, 2016. Because of the amount of energy used by the aluminum industry, Kaiser will be among the most affected companies if Initiative 732 passes and a carbon tax is enacted. (Jesse Tinsley / The Spokesman-Review)

Washington voters will decide whether to approve the nation’s first carbon tax in November, a measure supporters say would help the state cut its greenhouse gas emissions and could set precedent for a national climate policy.

“The pitch is that climate change is real, and we should do something about it,” said Yoram Bauman, founder of Carbon Washington, which is promoting Initiative 732. “We have an approach that works for families and businesses across the state.”

But I-732 has failed to gain support from some of the groups that would typically back efforts to reduce carbon emissions. Both the state’s Democratic Party and the Sierra Club have opposed the initiative, saying it isn’t the right approach to climate policy.

Business and labor groups also are lobbying against it, saying I-732 would be a “job killer” that would shift employment to other states and countries.

Some of the loudest opposition is coming from Spokane Valley, where Kaiser Aluminum employs more than 900 people making aluminum products for the aerospace industry and other manufacturers.

Kaiser’s Trentwood facility uses natural gas-fired furnaces to heat aluminum to its melting point, around 1,200 degrees. The energy-intensive process puts the company on Washington’s short list of top carbon polluters. Each year, the plant releases more than 100,000 metric tons of carbon dioxide.

Kaiser has become one of the largest contributors to the campaign to defeat I-732, with a $50,000 donation.

“We’re not saying that we shouldn’t be working on carbon emissions,” said Kyle England, a company spokesman.

But company officials say the carbon tax, as proposed, would cost Kaiser millions of dollars annually, undermining the company’s ability to compete in a global marketplace. Ultimately, the tax would shift jobs overseas to coal-fired factories that produce more of the heat-trapping gases responsible for climate change, they said.

Modeled after carbon tax in British Columbia

Bauman, who is leading the I-732 campaign, has a doctorate in economics and an unconventional career.

The Seattle resident, who earns his living as a writer and speaker, said he’s probably the world’s only standup comedian focusing on economic issues. He’s the co-author of several books, including the “Cartoon Introduction to Economics.”

Bauman helped write I-732, which is modeled after a similar carbon tax in British Columbia. He said it’s a fair, market-driven approach to reducing carbon emissions that spreads costs across both households and businesses. He also takes issue with Kaiser’s position that the initiative would reduce the company’s global competitiveness.

Bauman described the initiative as a “tax shift” that raises the cost of carbon but also mitigates the effect on manufacturers and Washington families, who would pay more for gasoline, heating fuel and electricity.

Under I-732, each ton of carbon produced in Washington would be taxed by $15 beginning in July 2017. The tax would increase to $25 per ton the next year, and would rise annually until it hits a maximum of $100 per ton.

But Washington residents would see a 1 percentage point drop in the state’s sales tax over two years if the initiative is approved. Most households would see a change of up to $200 in their annual expenses, which could be either a savings or an extra cost, according to Bauman. Initiative opponents argue that most families would pay more. And low-income families could qualify for refunds in the state sales tax they paid to offset higher gasoline prices and utility bills.

Kaiser and other manufacturers would get a break on the state’s business and occupation tax, which is levied on companies’ gross income.

If the initiative passed, Kaiser would pay about $1.5 million next year in carbon taxes, a figure that would increase to about $10 million annually if the company’s emissions remained steady at 100,000 metric tons per year.

Kaiser doesn’t reveal proprietary information, including how much the company pays in business and occupation taxes, said England, Kaiser’s spokesman. But company officials said the proposed reduction in B&O taxes under I-732 is a negligible amount for Kaiser and wouldn’t offset the cost of carbon taxes.

Since Kaiser won’t “put numbers on the table,” it’s hard to know how the company would fare under the initiative, Bauman said.

However, if Kaiser can demonstrate that it isn’t getting an equitable break in B&O taxes, “we will go with them to Olympia to fix the policy,” Bauman said.

Opponents cite impacts to state’s revenue

Other opposition to I-732 has centered around the potential impacts to the state’s budget.

While the I-732 campaign is touting the initiative as revenue-neutral by swapping out one type of tax for another, the state Department of Revenue estimates that the initiative would cost the state about $800 million in lost tax revenues over four years.

The state’s Democratic Party and the Sierra Club both listed revenue concerns in their statements against I-732. Lowering tax revenue would complicate the state’s budget troubles when Washington is already struggling to make court-ordered investments in education and mental health services, they said.

Bauman called the revenue issue a “red herring.” The I-732 campaign disagrees with some of the Department of Revenue’s methodology that resulted in the projected loss of $800 million in state revenue, he said.

Another study done by Sightline Institute, a liberal think tank in Seattle that hasn’t taken a position on the initiative, calculates an $80 million annual decrease in tax revenues, or about $320 million over four years.

But both forecasts have significant uncertainties, based on future unknowns, the Sightline analysis said.

“The forecast depends on statewide carbon emissions and statewide sales tax revenue that could change by hundreds of millions of dollars a year,” the Sightline analysis said.

If revenue shortfalls occur, Bauman said, the gap could be addressed through tweaking I-732’s tax-swap formula.

Last year’s drought and record wildfire season should be a wake-up call for Washington residents, Bauman said. Without action to curb climate change, the conditions experienced last summer could be typical for the state by 2060, he said.

Clean-air rule predates I-732

Kaiser is already a leader in reducing the “carbon intensity” of its products, company officials said.

Each pound of aluminum produced at Trentwood requires about 15 percent less energy than in 2010. Kaiser continues to work on energy efficiency, but the company hasn’t found a way to replace its gas-fired furnaces, which remain the best way to melt aluminum, England said.

Both Kaiser and the local affiliate of the Steelworkers Union worked closely with the state Department of Ecology on Washington’s recently adopted clean-air rule. The rule creates a cap-and-trade system for carbon emissions, which Kaiser and other large emitters must comply with.

The administrative rule was created after the Legislature failed to act on Gov. Jay Inslee’s earlier cap-and-trade proposal. It provides some flexibility for energy-intensive manufacturers that compete for customers with companies from other countries. Under the rule, Kaiser would get credit for previous work on energy efficiency.

Kaiser is “cautiously optimistic” that it can meet the requirements of the clean-air rule while continuing to expand its production, England said.

“We think it should be given time to work,” he said.

“We want to produce every pound of aluminum possible in Spokane, which is in one of the greenest states in the nation,” England added.

That’s good for both Washington’s economy and the environment, he said.