To Cut Emissions, DC Council Should Reconsider Carbon Tax
Earlier this year, the District of Columbia City Council came close to passing a carbon pricing plan that would have turned the District into a world leader in curtailing climate emissions. At the time, a least six councilmembers had come out in favor of some kind of price on carbon, and Ward 3 Democrat Mary Cheh, chair of the Committee on Transportation and the Environment, was leading the charge to write and pass legislation.
But at some point over the summer, something changed. Cheh switched gears and instead decided to support increasing the District’s renewable portfolio standard (RPS) to 100 percent by 2032, up from the current law that stipulates 50 percent renewables by that same year. This would mean that all of the District’s electricity usage would have to come from carbon-free sources. The council is expected to start debating the measure later this fall.
The switch by the council to a 100-percent renewables plan is unfortunate. The RPS subsidizes renewable energy production rather than taxing carbon emissions directly, so the plan insulates energy users from paying for the real cost of pollution. The plan also means that D.C. taxpayers will be subsidizing renewable energy sources like solar and wind that are constructed and operated in other states. That money could be better used for other investments within the District.
The District’s current average electricity price isn’t much over the regional average. At around 13.75 cents per kilowatt-hour (KWh), it is lower than the average price in other parts of the country, including New England. It would be a mistake for the council to install a climate policy that doesn’t do much to cut emissions while boosting electricity prices in the District well above those in neighboring states like Virginia and Maryland.
The idea of a tax on pollution was first supported by right-of-center thinkers in the 1970s who viewed pollution taxes as the most efficient method to incentivize users and businesses to find ways to use less energy. A tax on carbon, if done right, could cut harmful pollution faster and less painlessly than any other method.
Much of the initial push for a carbon price in the District came from the “Put a Price on It, DC” campaign that began in May 2017 and involved more than 50 organizations, including labor unions, small businesses and environmental groups. Unfortunately, the proposal had some problems, including too swift a rise in the carbon tax — $10 per metric ton added each year to a cap of $150 per metric ton.
Additionally, the “Put a Price on It, DC” proposal was not revenue-neutral and used a dividend program to redistribute revenues from commercial users to residential consumers. The R Street Institute, a center-right think tank that works with organizations on both sides of the aisle, has found that a revenue-neutral carbon tax — one that cuts the tax burden in other parts of a government’s budget and does not increase the overall tax burden — is the fairest and easiest way to constrain emissions.
Another advantage of a carbon tax over an RPS system is that taxation often creates “induced innovation.” Studies have shown that shifting the target of taxes away from income and toward pollution tends to boost spending on research and capital investment in pollution-reduction efforts. Global warming aside, such a policy could create economic growth within the District over time.
The District of Columbia already has the unhappy distinction of being one of the highest-taxed jurisdictions in the United States, with a personal income tax of about 8.5 percent and a corporate income tax of 8.25 percent. These rates are a deterrent to investment and job creation, especially at the small business level.
Because climate policy is prone to backsliding and to dramatic changes in underlying policy, it’s important to get the policy right when it’s enacted. Poorly designed climate policy has ended political careers, hurt both progressive and conservative governments in places like Australia and Canada, and created government-induced electricity shortages. The state of California may soon be embarking on this losing trend as it pushes to for a 100-percent renewables plan by 2045.
The current state of affairs concerning climate politics seems to be that “doing something!” is more important than “doing something right.” This is nonsensical. Only by creating a climate policy that takes into account the economic trade-offs it creates can the policy sustain itself in the face of future economic downturns.
Let’s hope the D.C. Council will take a look at revenue-neutral carbon taxes before making a final decision on its climate policy. It would be a shame if councilmembers made choices that undermined the nearly two-decade-long economic renaissance from which the District is currently benefiting.
William Murray is Federal Energy Manager at the R Street Institute
