Washington Insider-- Wednesday

Washington State's Carbon Tax Initiative

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

New Zealand Ambassador to US Calls for US Lame-Duck TPP Vote

Efforts by New Zealand to push for a lame-duck vote in the U.S. Congress on the 12-nation Trans-Pacific Partnership (TPP) deal are being accelerated, according to remarks this week by New Zealand's Ambassador to the U.S. Tim Groser.

New Zealand embassy officials are meeting with members of Congress from both parties to discuss TPP, Groser informed. The agreement was signed in February by New Zealand but has not been ratified. "We are fully engaged in this, and we will be accelerating our efforts," Groser said at an event hosted by the embassy. "Obviously, we're trying to work out what the real timetable will be. That is a little opaque at this point."

He was joined by the ambassadors from Mexico, Singapore and Vietnam who also spoke in favor of TPP at the event sponsored by the Global Innovation Forum and the National Foreign Trade Council.

Not ratifying the pact would be like "dealing with fire" in terms of long-term economic and strategic implications for the U.S., Groser argued.

"The global economy is so interconnected, in ways, frankly, that normal political discourse does not recognize, that the consequences could be much larger than people imagine," Groser told Bloomberg BNA. "We don't have to go down the whole nightmare of the trade wars that occurred in the 1930s on the back of unilateral decisions to put up protectionist measures to realize that this is a very dangerous area."

USTR Froman: No Talks with UK Until Brexit Complete

Reiterates Obama's pre-Brexit vote statements

The UK must clarify its relationship with the European Union before London and Washington can begin new trade talks, U.S. Trade Representative (USTR) Michael Froman said. Froman, speaking at an event this week in Geneva, said he did not have any specific advice for British trade officials other than to focus on sorting out their divorce from the European trading bloc.

Until the Britain “sorts through” the nature of its relationship with the EU, “it's impossible to have a serious conversation” about other deals, he said.

Those comments echo President Barack Obama's repeated stance the U.S. will not pursue a new trade deal with the UK in the near term despite the special relationship between the two nations. Froman urged Britain to answer an array of questions about its future trading environment, such as whether it will remain part of the EU's customs union and single market, and whether it will have sovereignty over its tariffs and regulations.

Withdrawing from the EU's single market and customs union could force the United Kingdom to shed both its trade benefits with the EU's 27 member states and with the other 55 countries with whom the EU has existing free trade agreements.

“The reality is that has got to be their priority, it is their priority, and until those sets of questions are further clarified it is hard to have a serious conversation about what the nature of a future of a future U.S./UK trade relationship might look like,” Froman said. “We have a special relationship with the UK, and we are going to want to have a good trade and investment partnership with them, and obviously we have a close relationship with the EU and we are going to want to strengthen our trade and investment relationship with them as well,” he said.

Another key: Whether and how Britain can sort out the tariff rate quotas and agricultural subsidy limits that are now shared with the EU in their joint schedule.

Washington Insider: Washington State's Carbon Tax Initiative

The Washington Post is reporting this week that a ballot initiative in Washington state could create the nation’s first-ever carbon tax intended to fight climate change by making it more expensive to emit greenhouse gases. However, the proposal is meeting unexpected headwinds from environmentalists even though dozens of climate scientists and economists have endorsed the concept.

Many environmental groups refuse to support it at all, citing concerns about the proposal’s revenue projections, its approach to the involvement of disadvantaged communities, and a lack of “true investment in clean energy.”

Initiative 732 (I-732) began as a grassroots campaign known as Carbon Washington, the Post says, founded by environmental economist and stand-up comedian Yoram Bauman.

The idea is to tax the carbon that people or industries emit or in the fossil fuels they buy, thus providing an incentive to reduce greenhouse gas emissions. I-732 would start at $15 per ton of carbon, increasing to $25 in the second year, and then gradually growing over the next few decades to a maximum of $100 per ton.

The scheme is designed to be “revenue-neutral,” that is it would be accompanied by reductions in other taxes, including the regressive state sales tax. Because the state has no income tax, the sales tax currently provides a major portion of the state’s revenue, so lower income households pay a greater percentage of their total income in taxes.

While support from individual politicians has come largely from Democrats in the legislature, the initiative has been endorsed by a few key Republican state senators as well as from the scientific community. Last week, more than 50 climate scientists from the University of Washington published an open letter expressing support for the Initiative.

Nonetheless, the proposal is controversial among local social and environmental groups who doubt the revenue projections and fear it could actually end up costing the state money. The State Department of Revenue has estimated the proposal could reduce state income by about nearly $800 million in its first six years. The initiative’s organizers, on the other hand, predict a slightly revenue-positive effect.

An independent analysis by the Sightline Institute, a Northwest think tank, suggested the proposal would result in an annual shortfall of about $80 million, less than half a percent of the overall tax revenue. It also says that since budget forecasts are uncertain, the “I-732 is revenue neutral, to the best of anyone’s ability to forecast it” and added that “as an argument against I-732, therefore, the ‘revenue hole’ case is a red herring.”

Not everyone agrees. The state Office of Financial Management says it would create a $797 million hole over the next three biennia in the already insufficient state budget, according to the Washington Environmental Council. It has decided not to support I-732.

Also, the state’s Sierra Club will not support I-732, arguing that state needs to fund education, parks, environmental programs and social services, are too great.

Some groups also focus on what they see as the initiative’s failure to adequately consult with disadvantaged communities. Bauman insists the proposal will benefit disadvantaged communities by reforming a regressive state system.

Finally, one of the biggest complaints is that the revenue-neutral proposal, by its nature, doesn’t specifically funnel revenue back into investments in clean energy and other climate friendly policies. Because it uses the market to drive change, some groups argue that its success at reducing fossil fuel consumption is uncertain unless it’s combined with additional green investment strategies. But the revenue couldn’t be used to offset other taxes if it were spent on energy investments.

Some opponents to I-732 are involved in an agreement with the TransAlta Corp., which operates a coal-fired power plant in Centralia, Washington. That deal calls for the plant to eventually transition away from coal and prevents participants from opposing the sale of coal transition power. Signers included Sierra Club, the Washington Environmental Council, Climate Solutions and the NW Energy Coalition.

Sierra Club’s senior campaign representative in Washington, Doug Howell, claims that there is no connection between the TransAlta deal “and our stance on I-732. We took a 'Do Not Support' position because I-732 does not guarantee investments in clean energy, climate resiliency and green jobs creation are made,” he said.

I-732 still claims the support of other environmental groups, notably the National Audubon Society’s Washington office. According to Gail Gatton, executive director of Audubon Washington, about 70% of the state’s membership supported the initiative.

“This is the only initiative on our ballot. It does what we need it to do, which is reduce the carbon emissions that are causing climate change," Gatton noted. "...I think for Audubon, climate policy isn’t really about money. It really is about what will reduce the carbon emissions.”

Carbon taxes are widely supported among climate change opponents because they are direct and potentially revenue neutral. Still, they are a tax with all the political baggage that implies, so the prospects for passage seem uncertain. Nevertheless, the combination of environmental benefits and tax reform opportunities mean that this effort will be widely watched, especially as efforts to limit climate change intensify, Washington Insider believes.

Want to keep up with events in Washington and elsewhere throughout the day? See DTN Top Stories, our frequently updated summary of news developments of interest to producers. You can find DTN Top Stories in DTN Ag News, which is on the Main Menu on classic DTN products and on the News and Analysis Menu of DTN’s Professional and Producer products. DTN Top Stories is also on the home page and news home page of online.dtn.com. Subscribers of MyDTN.com should check out the US Ag Policy, US Farm Bill and DTN Ag News sections on their News Homepage.

If you have questions for DTN Washington Insider, please email edit@dtn.com