The Seattle Times Editorial Board interviews proponents and opponents of Initiative 732 (concerns carbon emission tax), August 11, 2016

Video posted at http://www.tvw.org/watch/?eventID=2016081009

Starting at 0:00, transcribed by Nan McKay

0.00 Kate Riley: Well, thank you very much for coming. I want to introduce the members of the editorial board. Donna Blankenship, Brier Dudley. I’m Kate Riley. Mark Higgins. And Jonathan Martin. Hal Bernton is a reporter from the newsroom and may be writing a story about this. I want to welcome our guests: Yoram Bauman, Yes on I-732 campaign. This is the organization that is sponsoring the initiative. We also have opposing the initiative Rebecca Saldana from Front and Center. Thank you very much for coming. As I mentioned earlier, we’ll give each of you four minutes to start the conversation. We’ll start with you, Yoram. After that we’ll have questions. And then at the end we’ll give you each about three minutes to provide closing statements. So we’ll end in about an hour.

1:01Yoram Bauman: Terrific. Thank you. It’s an honor to be with you. My name is Yoram Bauman. I’m an environmental economist and have a Ph.D. from the University of Washington and I’m a volunteer with the Initiative 732 Campaign. Our campaign has been a grassroots effort. I’m one of hundreds of volunteers who gathered signatures last year to qualify our measure for the ballot—360,000 signatures. I’m one of over 1,000 people who have donated money to the campaign. We’ve done this in a grassroots fashion that I think resonates with the vision that the founders of our state constitution intended when they provided an opportunity for direct citizen democracy. The motivation for me and for the volunteers and staff on our campaign is that we have a moral obligation to take action on climate change--both for those of us who are alive now and for our children and grandchildren and generations to come. I think about things like ocean acidification, wildfires, threats to public health. I think about my two-year old daughter. I think about salmon. All these issues that I think we’re all aware are going to become one of the major issues of the 21st Century.

So we have this moral obligation to take action on climate change. And Initiative 732 does that. Economists across the political spectrum agree that the single most important thing that we can do to take action on climate change is to put a price on carbon. Get market forces working to reduce carbon emissions, create new technologies, promote innovation and conservation. 732 does that with a world-leading carbon-tax approach similar to the policy that’s been very successful in British Columbia since 2008.

We also have, in addition to that moral obligation, an economic obligation to address climate change in a way that makes sense for households and businesses in our state. And we do that by using the revenue from the carbon tax to reduce existing taxes. Principally, we cut the state sales tax by a full percentage point. It’s going to provide households and businesses across the state with a financial benefit to offset the impact of the carbon tax. One percentage point may or may not sound like all that much but it’s hundreds of dollars a year for an average household in Washington State. So, to a first approximation, for households, the way our policy works is that most households will end up paying a few

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hundred dollars a year more for fossil fuels and a few hundred dollars a year less for everything else. We have worked with the University of Washington on a tax swap calculator that you can find on our website to go through specific details for households or for businesses.

We also effectively eliminate the B&O tax, the business tax for manufacturers in the state, as a way to address competiveness concerns for energy-intensive trade-exposed businesses. And finally we fund the working families rebate which is a match of the federal earned income tax credit, one of the most successful anti-poverty programs in the United States. Twenty-five states have matches of the federal earned income tax credit. Washington State has one—a 10 percent match. It’s never been funded. We provide a funding source—the carbon tax—and we increase the match to 25 percent. Which is going to provide up to $1500 a year for 460,000 working families in Washington State. Between the working families rebate and the sales tax reduction which benefits everybody—households and businesses across the state—our proposal is going to be the biggest step forward in terms of progressivity for the Washington State tax system in 40 years.

Finally, we believe that we have a political obligation to take action on climate change in a bipartisan manner. That’s something that’s important here in Washington State and it’s important if we’re going to take action in Washington, D.C. as well. And ultimately climate change is something that we’re going to have to tackle nationally and internationally. Doing something in a bipartisan fashion is the crucial step forward in terms of opening the door for climate action.

We’re delighted to have endorsements from both Republicans and Democrats in the state legislature, from national figures including George Shultz who was Ronald Reagan’s Secretary of State, Jim McDermott, climate scientist Jim Hanson. So we take that very seriously. And I’m thrilled to be here today to help talk about Initiative 732 and to ask for your endorsement.

5:50 Rebecca Saldana: My name is Rebecca Saldana. I’m executive director of Puget Sound Sage and a proud founding member of the steering committee of Front and Center which represents over 60 people of color, social justice and community-based organizations throughout Washington State. For over a decade Puget Sound Sage has been at the forefront of addressing environmental injustices for—and the reality is that the climate impacts are already being felt in Washington State from our forest fires. And communities of color and frontline workforces are already facing environmental degradation where we have people in South Park and Georgetown facing shorter lives and huge pollution, higher pollution. And 40 percent of our pollution in Washington State is caused by transportation which this particular initiative does nothing to address. And what we have come to terms with as we’ve worked on environmental justice for over a decade is that any successful climate action in Washington State—because it’s important that this actually works for our state—must do three things:It must attract broad multi-sector supportIt must reinvest in clean energy

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It must prioritize communities most directly affected—those are the frontline workers in fossil-intensive industries as well as their communities and communities of color that tend to be more densely populated around industrial areas and around freeways and highways where they’re exposed more to pollution.

As such the economic shift that I-732 does with the one percent sales tax--while makes our current sales tax less regressive, it doesn’t really do anything significantly in terms of really addressing the need for revenue to be more progressive in Washington State. An economic shift will not be equitable when it’s just carbon pricing alone. Equitable climate action requires that we do green investments at the same time. Climate action policies are ultimately about ushering in an unprecedented economic shift for our state and for our economy. Success is about changing our consumer behaviors, about shepherding us from carbon-intensive fuels, protecting habitats and infrastructure and towards a new way. While I-732 could inadvertently increase our consumption of the cheaper carbon fuels like natural gas. Because the cost savings that they’re doing for one percent for most lower income families is about $70 more which is about a couple of tanks of gas. It does nothing to actually put more money to increase the spending power to be able to actually change the car that they’re using to one that would be more carbon neutral or lower emitting car. So, in effect, it’s going to create a pressure to be able to use natural gas and other gases. And, instead, if we were to do something that was both about cutting carbon—putting a price on it—and investing, what we can do is leapfrog—just transitioning from the more expensive ones to less expensive ones and actually just go into clean energy in the first place.

The other piece. While rebates are nice, they won’t actually make the air cleaner in South Park. They won’t actually address the fact that communities that are dependent on oil-intensive industries—it doesn’t improve the lives of those workers.

And, in fact, the B&O tax—again, like great! Except business didn’t actually ask for the B&O tax. And no one has asked those companies about whether that’ll actually make a difference for being able to stay in Washington State.

So what I-732 looks like it will do is basically make a small cut in revenue when we know that in Washington State we have a huge need for revenue. We have a one billion dollar shortfall in mental health. We have a billion dollar shortfall in education. And this does nothing to actually address--outside of their nice policy—while it looks good on paper—doesn’t really take into the context of Washington State’s economy and what we need and what will work for Washington State .

This has not shown that there won’t be leakage and what we can see is that businesses could move. Because it doesn’t actually address what they need to be able to change from the fossil fuels that they are dependent on now to a cleaner fuel. And so they could move out so they’re still polluting and still impacting our communities.

11:16 Brier Dudley: So, Rebecca, as this emerged earlier in the year there was a different environmental group that was unhappy with the Carbon WA proposal because they felt

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that it didn’t go far enough, it didn’t provide enough revenue for certain groups. And they thought there should be a little bit more distribution of the tax proceeds. And that group kind of fell apart. I think the Governor and some of his people… Is that where you’re coming from? Are you supporting the principle of a carbon tax but you think it doesn’t go far enough and that there should be more distribution, or are you opposed to the carbon tax in principle?

11:49 Rebecca Saldana: We believe that there should be a price on carbon and we believe that there needs to be investments in clean energy at the same time. What we know from Paris and from other places is that if we don’t actually usher in a transformation to a clean energy economy. Let me step back for one sec. So what we’re saying is we do know there needs to be a price on carbon and we need to be able to move more quickly to clean energy. In order to meet our goals around climate, we need to keep a significant amount of fossil fuels in the ground.

12:34 Brier Dudley: But where the money goes that’s collected from the price of carbon--you have places you would rather see the money go than to a sales tax cut and to the rebate to the lowest…?

Rebecca Saldana: Right. in order to be able to achieve the goals that we have around climate action.

12:50 Kate Riley: And that money--you would want that money to go into investing in alternative fuels and alternative energy?

Rebecca Saldana: Yes, in green investments.

13:00 Brier Dudley: Although, Yoram’s model is designed to make it more equitable and less regressive. What others..I think economists are pretty united in thinking that a carbon price can be very regressive and have a very negative effect on working families and the working class unless there’s some kind of an offset. And all the different schemes that have come out for pricing carbon have found ways to make it less regressive and offset that. But if you just take the proceeds of the tax and give them to a special industries and things like that, are you not just creating just as much of a regressive structure?

Rebecca Saldana: What was that? The last part you said?

Brier Dudley: How would your program be less regressive than Yoram’s program?

13:45 Rebecca Saldana: We all know that we need tax reform in Washington State. This I-732 is a window dressing. It doesn’t actually create a new progressive tax infrastructure in Washington State. What I’m looking for is how quickly can we get clean air and clean water for our children today. So when we’re looking at climate policy, as Yoram mentioned, we are looking at creating a standard for the country and it has to work for Washington State. So, I’m not looking for special interests. I’m looking for what will actually more quickly either keep carbon in the ground and be able to actually address the largest pollution that

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we’re seeing which is in transportation. So one is putting a price on carbon. But if you don’t actually give people alternatives, what you’re doing is putting more pressure on the people who can least afford it. A one percent doesn’ t actually…seventy dollars as I said earlier doesn’t actually help with the hospitalization bill when a mother in South Park has to take her kid in again and again for asthma. That’s great that she has seventy dollars. It doesn’t actually improve the air. It doesn’t actually reduce the carbon. She’s still going to get into a car—a dirty car—and drive wherever she needs to go to be able to get her kid to the hospital.

15:25: Jonathan Martin: Yoram, can you respond to Rebecca’s comment there that the low income family mitigation in this is insufficient? There’s a few other things I want to ask you about but will you talk about that first off—mitigating the cost of a higher carbon price on low income families.

Yoram Bauman: Sure, and let me begin by acknowledging that low income communities and communities of color disproportionately bear the burden of climate change. And that those communities have potential to get a double benefit from taking action on climate change both because we address those climate impacts and because taking action on climate change is going to provide what are called co-benefits--so you get reductions in other air pollutants, local pollutants, that also come from burning fossil fuels that will go down if we can also reduce carbon emissions—if we can reduce fossil fuel consumption.

Having said that, let me note that there are differences of opinion from low income groups, from community of color groups, about Initiative 732. We are delighted to have an endorsement from Ron Sims. If you look at the 7th Congressional District race, it’s between an Indian American who says she’s going to vote against 732 and a Cuban American Brady Pinero Walkinshaw who says he’s going to vote in favor of 732. If you saw the news story from a week ago, Black Lives Matter—60 organizations affiliated with the Black Lives Matter movement put out a list of policy demands, and one of their policy demands under economic justice was replacing sales taxes with taxes on externalities. They also called for an increase in the earned income tax credit. Those policies are part of Initiative 732. Maybe, beyond that, I think there’s been a philosophical divide—or philosophical difference here between some of the groups with the Alliance and with Front and Center who argue—and please correct me if I’m wrong, Rebecca-- that the way to address impacts on low income communities and communities of color is to provide money for community-directed investment—like the California-style approach. Our approach with 732 has been that they way to address financial impacts on those communities is to put money directly back into people’s pockets by cutting the sales tax and by funding the working families rebate. So there’s been that philosophic divide. And, I think the only two things I would add on top of that is that….732 is an actual policy that’s on paper. We’re a little bit fighting a ghost here because there’s no specific Alliance or alternative policy that’s fully developed, that’s on the table. I was with Jeff Johnson from the Labor Council who’s also a member of the Alliance two weeks ago at a debate in Bellingham. He acknowledged that the Alliance hadn’t yet figured out how to address impacts on communities of color, on low-income households. That’s what he said at that debate. If you look at the report that Sightline came

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out with last week, they argued that a California style approach probably wouldn’t work very well in Washington State.

18:48 Brier Dudley: Can we address the low-income question? The earned income credit thing you’re talking about, as I understand, will benefit 460,000 people that are eligible for it.

Yoram Bauman: Households….

Brier Dudley: Households. Yeah, but that’s what?--five or seven percent of the population? I guess what I’m wondering about is the effect on the people below the lowest quintile of income in the State of Washington and the second and third quintiles where the largest group of people in Washington and the largest group of working people are and how they will be affected. They’re not going to get the payback through the EIC credit you’re talking about. They’re people who might drive from Kent to come up here and install carpets or sheetrock or clean houses. They’ll be burning a lot of gas. They have no other option. They’re carrying toolsAnd they will be disproportionately affected by this. And how do you respond to that concern?

19:43 Yoram Bauman: So, the working families rebate is a terrific policy. But you’re right that it benefits only 460,000 working families in Washington State. But everybody in Washington State benefits from the reduction in the sales tax. And 70 percent of the money from the carbon tax goes through to reduce the sales tax by a full point. If you look at our carbon tax swap calculator, our analysis is that--and Sightline backs this up I think—most households end up plus or minus a hundred dollars just with the sales tax. And the working families rebate is the bonus on top of that.

20:15 Brier Dudley: I’d also like to talk about the effectiveness of the carbon tax. I know you all like to talk about the--we’re all concerned about climate change—that’s obviously a huge concern. BC is pointed to as the great example. However, the latest information that British Columbia has provided shows that their emissions have actually increased since 2009 when the recession eased off. And in Washington State, where we have not had a carbon tax, our emissions of greenhouse gasses have actually gone down since 2009, over the same period, even though we both had strong economies. So that kind of makes me wonder if the things that we’re doing in Washington already with clean air rules and more efficient vehicles and things like that are providing the same or better benefit than BC is seeing with the carbon tax.

21.04Yoram Bauman: You know economists agree that putting a price on carbon is the single most important thing that we can do to tackle climate change. If you want to look at the experience in British Columbia….British Columbia has had some outlying issues. Their population has grown. They’ve discovered some natural gas that is affecting their overall level of greenhouse gas emissions. But if you look at the impact of the carbon tax by itself in British Columbia, the impact of that has been terrific. We have a headline from The Economist from 2011 : “We have a winner.” Couple of years later: another headline from The Economist: “The evidence mounts.” Here’s a paper that came out last year from Duke

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arguing that the carbon tax has reduced emissions by five to 15 percent relative to what baseline emissions would have been. Here’s a working paper from earlier this year two economists at the University of British Columbia arguing that, without the carbon tax, gasoline consumption would have been seven percent higher.

22:02 Brier Dudley: But this is the BC Commission’s report. You’ve seen it, I’m sure. The bottom line, though, is emissions have gone up. Transportation, which is a particular target of this effort, is basically flat. Any decline in their transportation emissions is probably attributable to more efficient vehicles being cycled into the fleet. So, if it doesn’t have a big effect in BC and Washington’s already doing a better job, what’s the argument for this big tax regime in Washington?

22:33 Yoram Bauman: First of all, those more efficient cars that are entering the fleet in BC, a lot of them are entering the fleet because of the BC carbon tax. The paper that I just cited from UBC that came out earlier this year argues that fuel efficiency would be four percent lower if BC didn’t have the carbon tax. So the correct comparison is what are emissions in BC now compared to what they would have been without the carbon tax. Obviously, that’s a hard counter factual to figure out. But just looking at where BC’s now and where were they in 2009 is not the best comparison to make.

23:02 Donna Blankenship: Do you have another comparison from somewhere else? Do you have any more scientific evidence that supports your idea?

Yoram Bauman: That putting a price on carbon will reduce carbon emissions?

Donna Blankenship: Um huh.

23.15Yoram Bauman: There are carbon pricing measures in place. California has a cap and trade system. East coasts states have a cap and trade system. Some Scandinavian countries have used carbon pricing for years. I think There’s a strong argument from economic theory that if you put a price on carbon you’re going to end up with less carbon, and the empirical evidence that we have to date from British Columbia and from elsewhere strongly supports that conclusion.

23:45 Brier Dudley: After we had a big energy price increase in 2005-2006, the Congressional Budget Office did a look at how those increased energy prices affect households. They disproportionally affect working households, of course. It’s more expensive. But it didn’t change behavior. It was kind of interesting. They said that, so far, higher prices have had little effect on the amount of motor fuel and fuel oil used per household. So there wasn’t a dampening of consumption when the price went up because of market forces. All that happened, though, was that it affected household incomes, spending, savings rate--it had sort of a dampening effect on the economy and personal income. But people still kept driving. So if that’s the example we have of fuel prices going up because of market demands, how are we so sure that if we artificially increase fuel prices with a carbon tax, that people will change their behavior?

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24.45 Rebecca Saldana: And in addition to that 2008 Congressional Budget Office, there’re similar outcomes. The University of Wisconsin state transportation initiative drew similar conclusions, And also there’s a study by the US Energy Information Administration that finds a much stronger correlation between GP (gas prices) and VMT (vehicle miles travelled). And that really what we’re seeing…Moreover, as new research is coming out, it suggests a weaker and weaker correlation between gas prices and vehicle miles travelled. And so the biggest thing in terms of changing transportation is infrastructure investments in new pathways. The piece that we’re making is that in order to get—pricing only will work if it’s coupled with creating other factors that will impact consumer and business practice.

25.46Donna Blankenship: When you say “pathways”, what are you talking—are you talking about transit?

25.50Rebecca Saldana: Again, investments in transportation. So, fuel efficiencies. New community solar. Again, like what we’ve seen since 2008 to 2014 with a recent study that was done here in Washington State is that back then the average low-income worker was travelling 12 miles. In 2014 they’re travelling 21 miles to get to work.

26:18: Hal Bernton: I just want to jump in the tax for one piece of context that I think is worth trying on. The British Columbia carbon tax—and I went up there a couple of years ago—it stalled at 30 dollars a ton. There’s been a lot of uncertainty. I think that one significant difference, for better or worse, between this carbon tax and any other you can find that’s actually in the real world is that it sets a signal all the way through 2059. Is that correct, Yoram? The tax---this is what’s going to happen. It’s not just going up to $25 a ton and staying there. It eventually goes to $100 a ton. Which is roughly equivalent to, is that $1 a gallon?

27.09Yoram Bauman: $2 per ton of CO2 is about $1 for a gallon of gasoline.

27.11Hal Bernton: So if you did have something, I guess the question would be… There’s nothing to say that it couldn’t be coupled with other measures, but if you did have that sort of long-term price signal, would things play out differently? I don’t think we have a real test case on that. I may wrong, and I would throw that open.

27.33Yoram Bauman: Well, we can certainly look at how things are different in the transportation world in Europe, for example, compared to the United States. I think it’s pretty clear that the high fuel taxes in Europe have a lot to do with the small cars they drive there and the SUVs that we drive here. I also want to emphasize, though, that it’s easy especially in Washington State to focus on motor vehicles and motor gasoline. Transportation is 40-45 percent of state carbon emissions. But motor gasoline is only about 25 percent; so the rest of it is trucks, airplanes, things like that. And then you’ve got electricity sector emissions. You’ve got industrial sector emissions. The way economists look at it, the motor vehicle aspects are one of the hardest issues to move forward on. People tend to not be very responsive to price changes. Although the experience in British Columbia suggests that they are, in fact, responsive to those price changes, especially in

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ways that will matter a lot as we head down the road. But if you look at something like electricity generation, the Energy Information Administration looked at a model of what would happen nationally if you do something like our policy adopted nationally--$25 per ton of CO2 going up slowly over time--and they found tremendous game-changing reductions in electricity sector emissions which makes up between a third and a half of US carbon emissions and is still a significant contributor to carbon emissions in Washington State.

29:00 Mark Higgins: I wanted to go back to something Yoram had said a minute ago, Rebecca. It had to do with the struggle that the Alliance had with trying to define the kind of community investments that might make a difference in the quality of air and life in communities like South Park. So, using your own example, what kind of investment would be needed in a community like that and how would that work in an ideal world?

Starting at 29:30; transcribed by Nancy Penrose

29:30 Rebecca Saldana: To an earlier point, he name drops Ron Sims and Jim McDermott. Great. Since then Ron Sims has not said a single word on it. He endorsed before it was an initiative, when he thought it was a great idea. He’s all for a great idea. There’s not a single business, community organization, labor union, Washington State Democratic Party, are all in opposition to I-732, Sierra Club, 350 have found faults that this is not the right approach. And from The Nature Conservancy who says that, they all agree, that for something to really happen that’s actually going to work and be implemented, and not just be in lawsuits, we need a broad based coalition to actually move this forward. So with that in terms of what kind of investments we are looking for that would work, I think the big thing that is important also is that we need to have the people most impacted actually at the table, helping shape it. So it’s great that this policy was created by a university PhD economist, but the rest of us that are actually economists in our daily lives, trying to make everything work out, we haven’t found the economists to be that helpful in trying to figure out how we are going to make our budgets work. I feel that that is important because when we are talking about equity it’s about having low-income folks and communities of color at the table from the beginning shaping the policy. And that is definitely not the case in I-732. So it’s fantastic that he is able to quote us but it’s more important that it is actually is in the right context. He quotes also Sightline which their analysis is at minimum shoddy. They are basing their fact that maybe something like a cap and trade and the California model wouldn’t work in Washington State based on data and a small survey that they did in Oregon. Oregon and Washington are not the same states. You’ll see from us over the next couple weeks some of our own blogs and research to help create more information for people to make a clear decision around this.

32:18: Jonathan Martin: Rebecca, listening to you what I hear is the argument that the enemy is the perfect of the good. In history in Washington when initiatives have gone down, you think about the income tax which your group has advocated for vigorously, but it was shot down heavily and has never come back. And I wonder if you arguing against this as not quite the perfect thing to a goal that you want to get to is going to, in the minds of voters, who are not all in Seattle and who are not all in Progressive groups, there are

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actually Republicans out there in the world as well who are skeptical about this policy, are you worried that you are shooting down a path to get to a goal that you want in pursuit of a larger and more expensive, I think, initiative that you are proposing that could have even more political problems.

33:20: Rebecca Saldana: No, I don’t think so. All climate policies are not equal. As an environmental justice organization committed to clean and healthy environments for low-income folks, immigrants, people of color, and having worked for a decade with farm workers both in Eastern Washington and Oregon, what I have experienced is that climate policies that are poorly planned set us all back and weaken attempts for climate action in the future. A policy passed first is a policy most likely to stick, so that’s why it’s so important to us that we get the climate policy right in the first place.

34:04: Donna Blankinship: What would the elements be in a policy that you think would actually make a difference?

34:07: Rebecca Saldana: It would be that it attracts broad multisector support. So it includes business from the front, at the table, health sector, communities of color, workers, at the very beginning, because that’s what we’ll need. We will already see that the oil industry will come out against, regardless of how good it is, so if we don’t have strong base it won’t happen. It needs to reinvest in clean energy technology, otherwise we will not spur on a just transition to a clean fuel economy. And it must prioritize communities most directly affected, which are the frontline workers and the communities that are already experiencing the impacts of climate. I-732 is not able to deliver on any of those three.

35:04: Brier Dudley: Yoram, I’d like to ask you about what might happen if this passes in Olympia because we have been interviewing candidates for the legislature including incumbents and challengers and both Democrats and Republicans that have come to talk to us have talked about the carbon tax being a way they can cover a lot of their education obligation under the McCleary settlement. This will create a billion plus revenue stream for the State of Washington and your scheme that you’ve got will return that, sort of, to the public through a sales tax cut and the income tax thing, but is there a chance that you are going to give cover to the legislature to pass a carbon tax through this election and then have them divert that revenue for the education funding that they need instead of giving it back to the public. Then you would have a very regressive tax imposed and public policy disproportionately affecting the lower and middle classes in Washington and using that to fund education. What do you think the risk is there?

36:04 Yoram Bauman: Let me start by saying that everyone acknowledges we have an education funding challenge in this state, with McCleary. I have a two-year old daughter who is almost certainly going to end up in the public school system in Seattle. I myself am a product of the San Francisco public school system. So education is crucially important but I would argue that that is a separate issue from 732. And in fact this editorial board argued something similar when the Governor put forward a proposal to have a carbon price, the Carbon Pollution Accountability Act that would fund education, your editorial board argued that a revenue-neutral approach would be a better way to proceed. One of the things we’ve

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learned over the past year is how difficult it is to try to sidestep the argument of is government too big, is government too small, do we need more money, do we need less money. I can tell you as an economist that if you look at state and local government spending as a percentage of personal income, it has been essentially flat for decades. So I can give you that as a baseline. Folks on the left and right will disagree with that, but that’s what the facts are. So we are proposing a policy that will have what Sightline called a rounding error effect on state tax revenue and then yes, there are other issues that the state needs to address. There are education issues, there are mental health issues and they can address those issues as they see fit, but the idea that somehow the legislature…I mean if we don’t pass 732 then there could well be other measures to come along that would increase revenue for those policies like ST 3…

37:44: Jonathan Martin: The rounding error…the OFM projections, the State’s projections on this say it’s negative by $900 million over four years, which is the size of what we spend on the foster care system. So it’s not a rounding error. It’s a big amount of money.

38:10: Brier Dudley: That’s assuming the Legislature doesn’t tinker and reroute the money that’s coming in. It could be extremely revenue negative [corrected later to positive] if the money goes to another purpose.

38:21: Yoram Bauman: So the last time the state sales tax was changed, the state rate, which was 6 ½ percent, was in 1983, so state sales tax rates tend to be very stable over time. We lower it by a full point and our expectation is that it will stay lower. That’s the intent of our policy. The latest OFM numbers that will be in the Voter’s Pamphlet is that we are $800 million revenue negative over 6 years, $797 million, yes. But in the context of the state budget, state tax revenue is $20 billion per year. The overall state budget is $45 billion a year for the general fund. So if you look at it, and this is what Sightline argues, if you look at it in percentage terms, the state budget forecasts, if you look at the Economic and Revenue Forecast Council forecasts, they release quarterly for biennial budgets down the road, those estimates fluctuate every quarter by hundreds of millions of dollars.

39:20 Brier Dudley: Do you think the carbon tax is an appropriate tax to cover education costs in Washington State? Thinking about the regressivity of it and things like that. As an economist, what do you think?

39:30: Yoram Bauman: I hesitate to lend my opinion to the debate on that. On the one hand you have education funding is valuable and provides benefits disproportionately to lower and middle income households. On the other hand, I think you are right, there’s an argument that a carbon tax does have elements of a regressive tax and there should be something in the policy like a reduction in sales tax, like the working families rebate to address impacts on low-income households. So I suppose I end up in a similar place to where your editorial board did two years ago, which is that education is going to be here for a long time and carbon emissions are probably not going to be here after 50 or 60 years. That’s our hope anyway. And so we should take that long time horizon view in terms of education funding and hopefully we can find a less regressive way to fund education as well.

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40:35 Hal Bernton: The numbers were just posted this week. But one point of clarification, they keep mentioning over 6 years and some people say no that is actually over 4 years. So is it 4 or 6. And more specifically, I think that you don’t agree with those numbers and I’d like to know where you think the state has erred in those numbers in that analysis,

41:09: Yoram Bauman: So the official way that OFM did the analysis is that it says that it is over 6 years. That’s the language in the Voter’s Pamphlet statement. The way that OFM sometimes does those calculations…I’ll give you a perfect example of this: the Working Families Rebate that we apply, they double count it in the first fiscal year. So they put two years work of Working Families Rebate into the first fiscal year, which has a budgetary impact of $260 million on our policy. So that’s one of the concerns we have with how OFM did their analysis. We think you should not count two years’ worth of the Working Families Rebate in one year. We also have some issues with the carbon tax model that OFM relied on for their analysis. It doesn’t tax exported power. So if you generate power in Washington State and you sell it outside of Washington State, their model is a consumption-based model that doesn’t include that revenue in the carbon tax base and it should because that’s what’s in 732. If you look at the tax rate that’s applied to power that is sold through the spot market, called unspecified power, the OFM analysis uses the wrong tax rate for that compared to what the actual language of 732 says. And Sightline agrees with us on a number of these points. And that’s how they (Sightline?) conclude that no matter whose numbers you use—if you use OFM numbers, if you use our numbers which are slightly revenue positive, if you use Sightline numbers, which are somewhere in the middle—all those numbers are all within plus or minus one percent in terms of state tax revenue. That’s why they call this issue a red herring, that’s why they call it a rounding error. When you think about state tax revenues fluctuating, when you think about projections fluctuating by hundreds of millions of dollars every quarter, that’s the right context to think about our policy and they said that we are about as revenue neutral as you can get. And we are.

43:13 Brier Dudley: OFM also estimates it will take them 60 people a year to manage this and administer the carbon tax program. That’s pretty significant increase for them. Maybe Rebecca’s dislocated workers in the oil industry could go work for OFM managing the carbon tax after it’s done. What do you think could be done to simplify the costs so that it doesn’t create this whole new agency to monitor and track a carbon tax in Washington.

43:40: Yoram Bauman: I don’t think there’s going to be a whole new agency. If you look at the experience in British Columbia, they’ve had very low administrative costs for their carbon tax policy and largely that’s because they did something which we have done also with 732 and that’s piggyback the carbon tax onto the existing tax structure. So the carbon tax is applied to motor gasoline and piggybacks onto the existing motor vehicle tax. Carbon tax on other fuels applies to part of the same economic system as existing taxes and that reduces administrative complexity.

44:10: Brier Dudley: Do you think that OFM is exaggerating the administrative overhead that’s involved here?

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44:15: Yoram Bauman: I think the administrative costs will be low when you think about a policy that, we are talking about a carbon tax that is going to generate $2 billion a year and have $2 billion a year in tax reductions on the other side so I think that administrative costs are going to be very low.

44:40: Hal Bernton: How about the Boeing tax break. Is that still in place? Is that something, we did a story that you guys would have written it differently.

44:51 Yoram Bauman: So our policy lowers, effectively eliminates the B&O tax for manufacturing in the state and we do that as a way to address competitiveness issues. There was a legal question about aerospace. It has to do with the multiple activities tax credit and the way that the B&O tax for aerospace is written in the law books combines the tax rate for manufacturing, wholesaling, and retailing. I think there are still differences of legal opinions. I’ve talked with a number of folks in Olympia about this and I get differences about whether we could have done something differently or whether we should have done something differently with that. What I can tell you is that in the grand scheme of things, this is a pretty small element of the policy and it is something that the legislature can fix down the road if they see fit.

45:44: Kate Riley: Rebecca has said a couple times that this Initiative does not address something her group thinks is important that is investments in alternative energies and technology. Can you talk about that sphere if I-732 passes and what’s happened in BC in terms of new investment?

46:08: Yoram Bauman: First of all, I-732 is not intended to be the be all and end all of climate policy. At the same time we are voting on 732, those of us in the tri-county areas will be voting on Sound Transit 3, which is a huge chunk of money to put into alternative transportation approaches. So the idea that 732 is it and we are not ever going to do anything else and we can’t ever do anything else is simply not true. So there’s a question about how much you can pack into any one policy. And our concern when we came at this was how do we address the economic impacts of the carbon tax for households and businesses across the state? And there’s only so much money you have from the carbon tax to allocate to the different buckets and we ended up cutting the sales tax, reducing some B&O taxes for manufacturers, and funding the Working Families rebate, and that was the thought process that we went through. If you look at the experience in British Columbia, I think what you have seen is, you’ve seen market forces move innovation and adoption of new technologies. I had a friend up there who was remodeling his house and he happens to work on carbon tax policy so he asked the builder, the contractor, if he knew anything about the carbon tax. And the contractor knew all about the carbon tax, how much you’d save if you did different things with your windows, if you installed this kind of heating system vs that kind. And those are the types of changes, it’s kind of millions of individual decisions, those are the types of changes we will see if we have this economic incentive, if we put a price on carbon. And that’s essentially why economists think it is so important to put a price on carbon.

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47:56: Brier Dudley: Another thing that we’ve seen in British Columbia is that there was a large revenue stream and the provincial government had a hard time keeping their fingers off of that revenue stream. I think the Duke study that you cited was concerned about that at the end that some of the money that came into BC was diverted to the film industry in Vancouver because there’s political pressures when you have that kind of money coming in, the Legislature says hey, we’d kind of like to help the film industry here. How do you think Washington state can resist that kind of political pressure once it sees $2 million coming in for this?

48:29: Yoram Bauman: First let me address the issue in BC. In BC every year the Finance Minister releases a report saying how much money came in from the carbon tax and how much money went out in tax reductions, not film industry tax reductions, but personal and corporate income tax reductions that were intended to be the balance and every year since the policy was in place in 2008 my understanding is the tax reductions have been greater than the revenue coming from the carbon tax, by a small amount. So it has been true to the word of the government there. It has been revenue neutral, very close to revenue neutral. So, I take issue with the idea that there have been shenanigans in BC. What we are doing here in Washington State is we have Department of Revenue do a report every year that does the same thing, that says how much money is coming in from the carbon tax, how much money is going out in terms of sales tax reduction and then the Legislature has an opportunity to adjust that. Yesterday we received an endorsement from Mark Meloscia who’s a Republican state senator, running for State Auditor, and he was enthusiastic about the idea of doing audits of I-732 to see if it was working. And we told him absolutely, we’d be delighted to see audits of I-732 because we believe we have an effective, equitable policy.

49:48: Mark Higgins: The companies that are really heavy energy users, I’m thinking of Nucor Steel. Have you had a chance to model the impact of I-732 on a steel or aluminum company and is there not a chance that some of these companies would move out of state because of the Initiative?

50:11: Yoram Bauman: We reached out to everybody that we could while we were working on designing this measure, including many of the manufacturers in this state. The overall picture…so B&O tax data is proprietary. Companies are unwilling to share that apparently with anybody for any reason but we can get aggregate B&O tax data and we’ve done the analysis of that, it’s on our website. The B&O tax reductions that we provide for manufacturers in aggregate are roughly equal to the carbon tax liabilities that those manufacturers will face. I can’t say that that’s going to work out for every particular company, but if you take a company like Nucor Steel, for example…I’ve toured their facility, I’ve talked with their folks. They talk about how they use a lot of hydropower. Their electric arc furnaces are very efficient, very low carbon. I think that ultimately that facility is going to end up being a winner under our kind of policy. And I think what we’ve heard from some of these businesses that that these decisions end up getting made at their corporate headquarters and they’re thinking about what are the national implications of this. Even if this might work for our plant in Washington State maybe we are not going to support this

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because of the implications for our plants elsewhere that don’t have the clean energy supply that Washington State has. Closing statements:51:54: Rebecca Saldana: So while price signal like I-732’s $25 per ton tax plays a major role in the shift of carbon, a growing body of research suggests that price signal is only one of many factors that influence consumer behavior and it won’t get us to the finish line. Over the past 18 months, Puget Sound Sage has been part of a large coalition building collective power to challenge the fossil fuel industry and to find a feasible pathway to an equitable clean energy economy. There is great urgency to address climate change and carbon pollution and we must do it the right way, together, in partnership with communities and the State to make us stronger. I-732 is a false promise and we encourage you to oppose it with us. It’s a false promise because it will fail to meet our existing statuary greenhouse gas emission targets and fall much shorter of standards set by the best science available. What pricing alone does, while it might be cost effective, it does not actually get us the deepest reductions. Without investing in carbon reduction solutions and low-carbon energy and transportation solutions, it won’t be sufficient. We in Washington State know what our revenue issues are and what our Legislature has been able to do or not able to do, it is irresponsible for us to move forward in a way that is almost revenue neutral, at best, but will have an impact on our revenue at a time when we know that we have huge responsibilities in mental health and education as well as actually decreasing pollution quickly enough to make a difference for people today and for building the infrastructure for generations to come. It’s a false promise of climate justice because frontline communities need clean transportation, energy investments in our communities that reduce pollution and create job pathways instead of pushing jobs out of our state. We need job pathways that are creating a green economy and this will not move us quickly enough. We encourage you to join us, with environmentalists, communities of color, Democrats, and labor, and even the Washington business industry. With its own polls showing that voters don’t favor this approach, we don’t see a winning way forward for I-732 and we encourage you to oppose I-732.

54:58: Yoram Bauman: I’d like to start by mentioning the perspective from Audubon Washington which has supported the 732 campaign and is putting significant resources behind the 732 campaign. We asked them why are you supporting our campaign and they said, we are the bird people, we care about birds, and climate change is the number one threat to birds and I-732 is the best policy on the table right now to take action on climate change. So it was simple: we support I-732. We’re delighted to have Audubon support. We’re delighted to have support from many other organizations, individuals, and elected leaders across this State. I want to agree with something Rebecca said in that we have this sense of urgency. We are behind the eight ball. We need to take action on climate change. And 732 is the policy that is on the table right now to take action on climate change. I’m not going to tell you that I-732 is all that we need to do to get across the finish line, as Rebecca puts it. It is a terrific first step. It will be a model for the nation. It will be a model for the world, as a way that we can work on climate change in a bipartisan way that is going to address impacts on households and businesses across the State. Let’s come back to the basic case I made at the beginning, that we have a moral obligation to take action on

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climate change for the sake of those of us who are around now and for our children and grandchildren. We have this economic obligation to address climate change in a way that works for households and business across the State and we worked very hard to come up with a policy and succeeded in coming up with a policy that is going to be fair in terms of how it addresses business impacts, in terms of how it addresses household impacts, especially for low-income households. 732 is not only going to tackle climate change; it is going to be the biggest step forward in terms of progressivity for our state tax system since the 1977 ballot measure that eliminated the sales tax on grocery store food. That is a tremendous step forward for our State tax system and for progressivity. And finally we have this political obligation to make climate change less of a divisive issue. We’re not going to be able to do the things we need to do on climate change if it is just a wedge issue for the left side of the political spectrum. If you look at our political endorsements list, I think it’s pretty impressive. It goes Democrat, Republican, Democrat, Republican, all the way down the page and onto the next page. That’s pretty rare these days. We are delighted to have this bipartisan coalition behind I-732 and we ask for your support!

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