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industrial plant emissions

What Does a Carbon Tax Mean for Manufacturing?

industrial plant emissionsA carbon tax initiative — the first of its kind in the US — will go before Washington state voters next week.

The proposal would impose a tax on all fossil fuel consumption, starting at $15 per metric ton of carbon emitted next year. The carbon tax, Initiative 732, would increase to $25 a ton in 2018 and gradually rise to $100 a ton (in 2016 dollars) over the next several decades. It would also lower other taxes including the sales tax, business tax on manufacturers, and it would provide tax credits for low-income residents.

If approved, the Washington carbon tax could provide a model for other states looking to reduce greenhouse gas emissions. But it faces stiff opposition from industry and green groups alike.

Many environmentalists and and businesses oppose the tax, albeit for different reasons. Neither the Sierra Club nor the Washington Environmental Council support the measure, largely because it does not increase revenue for environmental programs and clean-tech jobs. The initiative fails to invest “in green jobs, energy efficiency, transit, housing, and renewable energy infrastructure,” according to the Sierra Club.

Businesses, on the other hand, say the tax will create a competitive disadvantage for Washington companies by increasing fuel and energy costs. The initiative’s authors say it will increase the price of gasoline by about 25 cents a gallon and the cost of coal-fired power by 2.5 cents per kilowatt-hour.

“The clear losers will be energy intensive industries such as industrial and manufacturing companies that consume large amounts of energy throughout their entire value chain,” Lux Research analyst Yuan-Sheng Yu told Environmental Leader. “These taxes will be imposed at each when fossil fuel is consumed, be it for heating, powering equipment, and fueling vehicles for transportation and logistics.”

In the past couple weeks these big energy users have contributed more than $450,000 to defeat the initiative, with the three largest donors being the American Fuel and Petrochemical Manufacturers trade association ($250,000), Puget Sound Energy ($100,000) and Kaiser Aluminum ($100,000).

American Fuel and Petrochemical Manufacturers president Chet Thompson has said a carbon tax would be bad for businesses and consumers.

“Imposing a carbon tax will only lead to higher fuel costs — with the largest burden being forced on lower-income households — and threatens the manufacturing of fuels and petrochemicals, which will put millions of industry jobs at risk,” Thompson said in an earlier statement. “The net effect is that we pay more for energy and, collectively, end up poorer as a result, instead of reaping the benefits from affordable and reliable energy and petroleum products.”

Yu with Lux said the carbon tax is unlikely to increase corporate clean energy use in Washington state.

“Ideally, the revenue generated from carbon taxes should go towards the deployment of renewables,” Yu said. “For the manufacturing industry, if a new line item for carbon is added due to this, it would be unlikely companies seek alternative sources of energy and will likely increase the price on their products instead. For things such as gasoline and diesel, we have seen in the past that high gas prices spur more interest in hybrids and electric vehicles. But currently only a handful of vehicles exist that are similar in price to conventional vehicles and have a 200-plus mile drive range. These are just two examples, but to say this carbon tax alone will be successful in mitigating the effects of climate change would be a stretch.”

To successfully reduce greenhouse gas emissions, a carbon tax would need complementary policies that encourage investment in renewable energy, he added. “As it stands now, the carbon tax is just a tit-for-tat approach that would unlikely move the needle in the near future.”

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3 thoughts on “What Does a Carbon Tax Mean for Manufacturing?

  1. The keys to an effective carbon tax are 1. make it national and 2. make it revenue neutral with all the revenues returned to the public. These steps mitigate the concerns about disparity of pricing from state to state and they protect lower income households from taking the brunt of the impact of rising prices. As with most policies, this can be crafted effectively. The combination of the price signal in the market and the stimulative effect of the revenue return will act as a proxy for renewable investments. There is no need to cloud the waters by picking winners and losers, when doing so makes it virtually impossible to garner Republican support (without it, there’s no chance of a deal). A 100% revenue-neutral carbon fee & dividend policy is the best chance we have at national action to bring down carbon emissions across all sectors.

  2. This article fails to mention that the revenue from the I-732 carbon tax will reduce the state sales tax by a full point and effectively eliminate the existing state business tax (the B&O tax) for manufacturers in Washington State as a way to address competitiveness. See http://www.yeson732.org if you want to actually read the policy and see what it does!

  3. Well stated, Brandon. Distributing the tax equally to consumers will go a long way toward making it a positive stimulus to the economy.

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