The City of Portland is proposing a carbon tax that would be the first of its kind anywhere in the country. Given the increased emphasis on climate change by the incoming Biden Administration the proposed ordinance should be on your required reading list.
Carbon dioxide and other greenhouse gas emissions are changing the climate. Energy prices do not currently reflect these costs of greenhouse gases. A carbon tax puts a price on those greenhouse gases, encouraging business and government to produce less of them.
Today the U.S. already has a “carbon” tax on fossil fuels, that is the federal excise tax on automotive fuels, of about $5 per ton. Economist suggest a broader carbon tax (coal, oil, natural gas, etc.) of $40 per ton would add about 36 cents to the price of a gallon of gasoline and about 2 cents to the average price of a kilowatt-hour of electricity. Policymakers could use the resulting revenue to offset the impacts on energy-intensive industries and lower-income households, lower individual and corporate taxes, and invest in clean energy and climate adaptation.
A carbon tax is a form of tax on pollution. More common in the U.S. are other forms of tax on pollution, like tradable credits, including the Regional Greenhouse Gas Initiative (RGGI), a regulatory trading program to reduce greenhouse gases. RGGI is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont to cap and reduce CO2 emissions. States sell nearly all emission allowances through auctions and invest proceeds in energy efficiency, renewable energy, and other consumer programs, and all users of energy in those states pay the “tax” through higher electricity and natural gas rates passed on by electric utility companies.
A study on the efficacy of RGGI, characterized laws that mandate green building, like LEED or Green Globes, as an example of a pseudo pollution tax on embodied carbon that come with a high economic cost.
But doubling down on the broader subject of pollution taxes, advocates candidly acknowledge their real aim for a carbon tax is as a core strategy for reducing and eventually eliminating the use of fossil fuels.
There are some carbon taxes outside of the U.S. Finland was the first country to enact a carbon tax in 1990. And the United Kingdom, Ireland, Australia, Chile and Sweden all have some form of carbon tax and more than a dozen countries have a scheduled implementation.
The City of Portland’s current legislative proposal, introduced last month, follows Oregon lawmakers’ failed efforts to levy statewide carbon fees, with bills to establish a cap-and-trade policy failing to pass in 2019 and earlier in 2020. A city level carbon tax begs the question if businesses will leave the city to remain competitive, moreover whether the city levy will be deductible on federal tax returns.
The stated goal of the bill “is to reduce pollution in Portland to improve the health of our residents and reduce the risks to our economy from climate change and the high costs of pollution.”
The proposal is intended to raise approximately $11 million per year as dedicated and ongoing funding for Portland to take more aggressive steps to reduce greenhouse gas emissions and the most harmful impacts of air pollution. Portland is off track in meeting its carbon reduction target. Portland’s June 2020 Climate Emergency Declaration set a goal to reduce local carbon emissions by at least 50% below 1990 levels by 2030. Emissions are currently 19% below 1990 levels.
The new Portland Healthy Climate Fee would establish a $25 per ton fee on greenhouse gas emissions from facilities in Portland with emissions of 2,500 metric tons of CO2e (carbon dioxide equivalents) per year or greater. The base fee would be $62,500.
Based on publicly available 2019 data, 35 facilities in Portland would be subject to the tax. Covered facilities are primarily industrial plants, hospitals, food production facilities, and higher education campuses. Together, they released about 370,000 metric tons of CO2e in 2019. Here is a list of the possible payers of the new tax, some of whom may vote with their feet and relocate to a more tax free jurisdiction. Health care facilities that, however, are proposed to be exempt from paying any new fees until January 2022 due to the financial strain they face from the Covid-19 pandemic.
The City Council is expected to consider the proposal in January 2021 and it appears all but certain there are the three votes (of five council members) to enact the new law later in the month. A public comment period is now open through noon on January 4, 2021. Comment here. The mayor of Portland Ted Wheeler has said he will sign the bill.
It is clear that climate change will once again be a national priority in the U.S. and a carbon tax will be part of the discussion. Whether or not you live in Portland, this ordinance should be on your required reading list.