The Carbon Calculus

 

Carbon pricing is gaining momentum in Oregon, sparking concern for energy-intensive businesses — but also opportunity to expand a homespun green economy.


A year and a half ago, Steve Clem, a vice president at global construction company Skanska, testified at the Oregon legislature in support of a bill to fund a study analyzing a state carbon tax. That study, “Carbon Tax and Shift,” written by the Northwest Economic Research Center at Portland State University and released in March 2013, set in motion a debate about whether the state should institute a mechanism for putting a price on carbon emissions.

Last year the legislature passed SB306, setting aside money for the research institute to redo the study with more geographic and industry specificity. The new research, released on December 8, 2014, lays the groundwork for lawmakers to consider a bill to create a carbon tax. If enacted, Oregon would be the first jurisdiction in the United States to have a statewide tax on carbon emissions.

Clem’s company would clearly benefit from a law putting a price on carbon. The firm focuses on energy retrofits and modeling the operational costs of carbon in new construction. “We have potential business offerings that would rely on putting a real value on carbon that we can’t offer clients yet because there is no demand for it,” he says.

Katie Fast, vice president of public policy at the Oregon Farm Bureau, does not share his enthusiasm. Fast is concerned a tax would make transportation fuels too expensive for farmers. Fuel costs are already likely to increase because of new regulations to reduce the carbon content in fuels, such as the state’s Clean Fuels Program, and a federal requirement for gasoline to have 10% ethanol blend. “That is probably all the market can handle right now,” says Fast.

Oregon clean-tech businesses favor carbon regulation for obvious reasons, but several energy-intensive and trade-dependent sectors argue they would face higher costs. These sectors include agriculture, electricity, steel, cement and waste management. Unsurprisingly, many of them are against carbon regulation at the state level, arguing it would hurt their competitiveness.

But a law to restrict or encourage the reduction of carbon emissions, which contribute to global warming, may be inevitable. And some claim it is better for Oregon to show leadership and get ahead of the curve by figuring out ways to be profitable from the new green economy.

Oregon is no stranger to efforts to put a price on carbon. In 2007 the state joined a regional partnership with California, Arizona, New Mexico and Washington — known as the Western Climate Initiative — that aimed to create a regional cap-and-trade program. But the program failed to gain political support among members, and California remains the only member of the Western Climate Initiative to have implemented a cap-and-trade program.

Now Portland State University’s carbon-tax study has put carbon pricing back on the political agenda. There is “near certainty carbon-tax legislation will be introduced in 2015,” says Richard Glick, a partner at law firm Davis Wright Tremaine. He wouldn’t be surprised if cap-and-trade legislation were introduced too.

Can Oregon’s economy, which is heavily reliant on manufacturing for jobs creation, prosper under the extra costs to businesses of a carbon tax? Sam Pardue, the CEO of Indow, a Portland-based maker of insulation products for windows, argues it can. Although a carbon tax would add costs to some industries that are heavily reliant on energy for the products they create, the sector relies more on intellectual capital to stay profitable, says Pardue. “Oregon is a big manufacturing state, but where we are strongest is where knowledge is getting applied to raw materials.” He points to the state’s semiconductor industry as a case in point. “While energy is an input into that process, information and knowledge are a far greater input into the silicon chips that get made here.”

National carbon taxes are inevitable, Pardue says. “The states that get a head start will be the ones that end up prospering.”

carbon-emitters

carbon-schememapIf Oregon instituted its own carbon-pricing system, it would join several U.S. states that already have carbon regulations (see map). Nine Northeast and Mid-Atlantic states are part of the Regional Greenhouse Gas Initiative (RGGI) cap-and-trade program for the power sector. California has been operating a cap-and-trade system since 2013. And Washington Governor Jay Inslee is pushing for a cap-and-trade program to reduce greenhouse gases in his state. British Columbia has had a carbon tax  in place since 2008.

Jurisdictions that have carbon pricing do not report large-scale job losses that opponents of carbon regulation fear could happen if Oregon instituted its own tax. However, as Jock Finlayson, executive vice president at the Business Council of British Columbia, points out, the tax has created winners and losers — energy-intensive industries have seen their energy costs go up, and these additional costs have exceeded tax cuts, while low-emitting sectors, such as high tech, have benefited. British Columbia has not seen large-scale job losses as a result of its $30 CAD per ton ($25 USD) carbon tax. Petroleum use fell 17% in 2008 to 2013, while it increased by 3% in the rest of Canada, according to a report by the think tank Sustainable Prosperity.

The Canadian province’s cement industry has been among the most vocal business sectors to denounce the tax. In May 2014 the Cement Association of Canada put out a press release saying local producers had lost nearly a third of their market share to imports since the inception of the tax seven years ago.

California’s cap-and-trade system covers the power and industrial sectors, and expanded in 2015 to include the transportation fuel and natural gas sectors. Susan Frank, director of the California Business Alliance for a Clean Economy, says the state’s climate change law, AB32, which includes a renewable portfolio standard and a low carbon fuel standard, has created jobs and boosted the economy.

“There has been no evidence, despite claims to the contrary, that AB 32 is destroying the California economy,” Frank says. “There is plenty of evidence that quite the opposite is true: that California is benefiting from clean-tech investments; that new jobs are being created; that for every job we might lose in the oil and gas sector, we are gaining more jobs in the energy-efficiency sector.” The members of Frank’s association come from all sectors, not just clean tech. Frank, who served for eight years as the president and CEO of the Palo Alto Chamber of Commerce, formed the group in 2008 partly to give a voice to non-clean tech businesses that supported action on climate change. “We have small clean-energy companies, but I also have a mattress shop and a coffee shop, a media outfit, and people who are not attached to the clean energy space who are saying this is not going to hurt us; this is going to make us better.”

A study on the economic impact of the East Coast’s RGGI cap-and-trade program for the power sector shows the carbon-pricing program has benefited the economy in member states. The program is set up so that states disburse most of the revenue from the sale of emissions allowances — $912 million between 2009 and 2011 — back into the economy on energy efficiency, renewable power projects, assistance to low-income households to pay electricity bills, and to education and job training. The 2011 study by the Analysis Group concluded the disbursement boosted member states’ economies by increasing purchases of goods and services, such as engineering services for audits and sales of energy-efficiency equipment.

RGGI also led businesses and consumers to spend less on electricity bills because states invested a large amount of the allowance proceeds on energy efficiency. The study’s authors estimate RGGI produced an overall net reduction of $600 billion in electricity bills between 2009 and 2011.


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Kim Moore

Kim Moore is the editor for Oregon Business magazine.

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