Nation’s First Carbon Tax?

March, 2016-
When I opened this morning’s paper the headline read, “Washington Considers Nation’s First Carbon Tax.”  At a recent Washington PUD Association meeting we discussed the various carbon reduction policies that are currently in play in Olympia as well as Washington DC.  There are multiple policies that could impact our cost of providing reliable electricity to you the ratepayer. To list a few:

• At the direction of the Governor, the Department of Ecology began working on developing a cap on emissions of CO2 and other greenhouse gases from large emitters in the state called the “Clean Air Rule.” Recently, Ecology announced that after receiving feedback from the public and stakeholders, they are withdrawing the proposed rule, updating it, and will release a new proposed rule this spring. Their goal is to finalize and adopt the Clean Air Rule this summer.

• Ecology is also taking the lead on development of a plan for the state to comply with the President’s Executive Order/EPA Clean Power Plan rule that sets CO2 emission limits for the nation’s existing power plants. While the state is currently working on the compliance plan, the future of the EPA Clean Power Plan is uncertain. The U.S. Supreme Court imposed an injunction on implementation of the rule while legal challenges are addressed.

• In addition, there’s an initiative (I-732) before the state legislature that would impose a tax on carbon emissions from the generation of electricity used by consumers in Washington State with the funds going toward a 1% reduction in the state sales tax, a reduction in the B&O tax on manufacturing, and to provide funding for the working families sales tax exemption. If the legislature doesn’t enact it, the initiative will go to voters to decide in the fall.

How would all these measures impact Mason PUD 1?
Because the Clean Air Rule and Clean Power Plan are still in development, we don’t know how those policies will ultimately interact with each other or with I-732, should the initiative pass. Because the initiative has already been drafted, we do know more about potential impacts to our PUD.
If enacted, the initiative’s carbon tax would start in 2017 at $15 per metric ton of CO2, rise to $25 in 2018 and increase by 3.5% plus inflation annually until it reaches a cap of $100 per ton in 2016 dollars. The tax would impact what we and ultimately you pay for electricity from the Bonneville Power Administration. During low water periods, BPA has to make market purchases of electricity. Market purchases come from a pool of unspecified electricity resources; meaning the source of electricity isn’t identified (think grab-bag of electricity). The Initiative assumes the unspecified resources have a certain level of carbon emissions and would apply the tax based on the assumed emissions. According to the initiative proponents, the intent is to treat these resources as if they were coal generation. That means at the $15 per ton level, our cost of power would increase approximately $60,000 in a high water year and $212,000 in a low water year. These costs will vary with the tax increasing annually until the $100 per ton cap is hit.

Regardless of the approach, as our community, state, and nation considers measures to reduce carbon, I believe it is important to ensure that carbon reduction policies are complementary and not additive. We should avoid conflicting or redundant policies that may increase costs without a corresponding reduction in carbon emissions. We should also ensure that our polices ensure reliability of the electric grid, and that they provide value to our community.

We are fortunate in that we are starting from a good place. 95% of the electricity used to serve customers is from zero-carbon resources- mainly clean, renewable hydropower. As your elected representative, I am honored to work to protect and maximize the value of our reliable, low-cost and clean hydropower resources.
In the interest of keeping our community informed on policies that may impact the costs and delivery of services, I plan to call a public hearing on Tuesday, May 10th at 1:00 p.m. at the District board room to provide information on the various approaches to carbon reduction and to hear from you, the owners of our system.  Following the work session, the Board may vote on a resolution that will outline our official position on the various carbon reduction efforts.  We look forward to a productive conversation and hope to hear from you.
Sincerely,
Karl Denison
Commissioner, District 1