Why a Pigouvian Tax Cannot Play Favorites

This week has been amazing, with three major pieces of legislation which will reduce emissions in Washington State over the (very) long term passing and being signed by Governor Inslee this week. This is following 5 years of work which Carbon Washington and Audubon Washington have been doing to try to get policies which achieve three goals, 1. Reduce global warming, 2. Fight income inequality, and 3. Do not give special treatment to the largest polluters in our state.

This bill fulfills all three. It has issues, mostly that it has a very long timeline and doesn’t do enough to incentivize reductions in emissions before 2030, but this is a major step towards a carbon tax which fulfills those three goals those of us at Carbon Washington, Citizens Climate Lobby, and Audubon are working towards.

The third goal has been the sticking point over the last 5 years. Both Governor Inslee’s bill in 2017 and the initiative from the Alliance in 2018 (which conveniently had no details until after the Governor’s bill was dead) would have given millions of tax payer dollars to coal, oil refineries, and natural gas corporations through tax exemptions every single year. These would have mitigated much of the reduction in global warming these politically expensive pigs in lipstick would have created. If the exemptions had not been in the bills they would have made a bigger difference, and been on the revenue side almost indistinguishable from 732, but by exempting the worst polluters in Washington in both cases, the reductions of emissions would have been relatively minimal. The Yes on 1631 campaign didn’t provide estimates on global warming reductions, but the No campaign did, and while it would have made some impact, completely exempting over 20 major polluting industries would have significantly reduced its impact. They tried to give public money to the biggest polluters in the nation, sacrificing the health of our children’s generation as our schools are starved for funds in exchange for immediate political favors.

This is why they fail.

This is also why I will not vote for Governor Inslee in the Presidential race.

Another example of how exemptions to Pigouvian taxes play out has to do with the proposed toll in downtown Manhattan New York will implement at some time in the near future. As they explained in this episode:

RAFIEYAN: There are still plenty of details that need to get ironed out, not least of which is just how much is this toll going to cost? New York Governor Andrew Cuomo suggested a flat fee per car per day of about 11 or 12 bucks and $25 for trucks. But there will be some exemptions. The state has already approved breaks for emergency vehicles, for people with disabilities. And other groups are asking for exemptions as well – delivery truck drivers, livery cab drivers, motorcyclists, police officers.

VANEK SMITH: And that could really affect how much money the congestion pricing plan brings in. And at least in Mohammad’s view, if all these guys get exemptions, it’s not going to help traffic at all or raise much money.

This is my beef with I-1631 and Governor Inslee’s proposal. As soon as you give one special interest group an exemption to a policy, whether it be to a road toll or to a carbon tax then everybody in the world and their second cousin feel like they are also entitled to special treatment. When it comes to problems like global warming and traffic, we are all guilty. I walk to work (partially because I don’t have a car right now, but I did even when I did have a car) to reduce my impact, but I do not deserve special treatment for my good behavior when I pollute. Just like with a road toll, as soon as the most common offenders start to get exemptions you have defeated the reason of using a Pigouvian tax and not a general income tax, making no progress.

If we are not going to use a carbon tax to fight the biggest problem facing humanity today, instead of handing out millions of tax payer dollars to the dirtiest companies in the world, what are we doing?

We are now coming to a monumental point in Washington State history where environmental groups have the political capital and support of the average person to make monumental historic changes which will ripple across the country and the world, making our world livable for all for centuries to come. It is up to us to take this political capital and convert it to real substantial policy which will end the biggest challenge facing humanity today. This means that whatever we propose next year MUST treat all pollution equally, no matter who is destroying our shared air. We have already tried the policies which court the Petroleum Manufacturers Association, and their attempts got us no where. The only proposals which have made it through the legislature give no handouts to any large polluters. This is not a coincidence, this is how politics works. Compromising with the devil always fails.

We MUST propose a carbon tax in the legislature in January which gives no exemptions to any major polluter in our state. This is the only way forward which I can see. While there are certainly many policies which we can do alongside a carbon tax, at the end of the day a well designed carbon tax MUST be part of the package if we are to have any hope at curbing global warming. It is simply the most effective policy to fight global warming ever devised according to many economic journals which compare the efficacy of different policies.

Are you with us or against us?

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