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The Carbon Calculus

Back in Oregon, support for a carbon tax hinges on whether companies feel they will make or lose money on a low-carbon economy.

carbon-opinionsClem at Skanska says a lack of carbon-pricing policy means Oregon’s homegrown environmental expertise is exported abroad and elsewhere in the U.S. rather than kept in state. Oregon is known for taking leadership on environmentally sound infrastructure, such as the construction of a wide network of bike lanes and the Portland Streetcar. But it lags behind in instituting more far-reaching green policies, like a carbon price mechanism and a low carbon fuel standard, which would benefit the state’s myriad environmental design, engineering and consulting firms.

“There is more demand for our services in places other than Oregon because we don’t have mechanisms in place that would drive the business here,” Clem says.

Oregon’s renewable-energy industry would also benefit from carbon pricing. The state has some of the largest wind farms in the world. Much of the financing for these types of projects depends on unstable tax subsidies that frequently expire. One of these is the federal renewable-electricity production tax credit for renewable-energy projects. It expired at the end of 2013, putting an end to new large-scale wind project development across the country.

Screen Shot 2015-01-23 at 3.17.41 PMIberdrola Renewables, a Portland-based power producer and the second-largest wind operator in the U.S., says a stable carbon price signal would help drive long-term renewable energy investments, which can run into hundreds of millions of dollars. “There are so many variables to investing in renewable energy. But an efficient, predictable and sustainable price on carbon would be a much better policy, especially nationally, than what we have today, which is a tax incentive that expires every year. That is not a great way to build a lasting growth plan,” says Kevin Lynch, vice president of external affairs at Iberdrola.

Oregon’s energy-intensive sectors are the clear losers from a carbon tax. They will face higher costs from a tax with the rise in fuel costs. Some prefer to stick with tax incentives to support their sectors’ adoption of low-carbon alternatives.

Other industries favor direct regulatory standards for greenhouse-gas reductions rather than a market-based carbon price. Rich Angstrom, president of the Oregon Concrete & Aggregate Producers Association, which represents the interests of employers such as Ash Grove Cement Company in Lake Oswego, says industry-specific standards for reducing carbon emissions would be preferable to a carbon tax because the standards could be tailored to the needs of individual sectors. “If a standard is set by the state agencies, we can have a discussion of what is achievable for each enterprise,” says Angstrom.

Two of the largest electric utilities in Oregon are skeptical a carbon tax can achieve large emissions reductions. Sania Radcliffe, director of government affairs at Portland General Electric, says legislators would not be able to set a carbon tax high enough to achieve meaningful reductions. One disadvantage of a carbon tax is that it does not guarantee a limit or a cap on greenhouse-gas emissions like a cap-and-trade program does. While emissions reductions are likely under a carbon tax, it does not guarantee Oregon will meet its greenhouse-gas reduction goals.

Having a state-based carbon tax is a worry for PacifiCorp, which operates across six states and imports electricity into Oregon from fossil-fuel power plants it owns out of state in jurisdictions that don’t have carbon price regulations. Scott Bolton, vice president of community and government relations at Pacific Power, a division of PacifiCorp, says: “If the goal is to provide a price signal that causes you to use less of a high-emitting resource than you normally would, that doesn’t change how we as a company on an integrated basis across six states would operate our system, which defeats the goal of a carbon tax.”

carbon-pies

Bolton argues his company is already subject to carbon constraints because of federal rules that the Environmental Protection Agency is implementing under section 111D of the Clean Air Act (see sidebar: “Cleaning up power”). That regulation, which will be finalized in June, sets greenhouse gas reduction targets for existing power plants.

PacifiCorp already factors in carbon prices when it analyzes what generating sources it will need over a 20-year time frame. It does this because of the likelihood carbon regulations will be introduced at some point in the future. In its 2015 resource plan, the utility will analyze potential future carbon-emissions costs applied as a tax based on current carbon price mechanisms. It assumes a carbon price starting in 2020 at approximately $22.39 per ton, rising to $75.77 per ton by 2034 in one scenario, and to $161.74 a ton by 2034 in another.

Based on these assumptions, the company has chosen to invest more in low-emitting sources of energy and energy efficiency, says Bolton. “We declared back in 2007 that we were putting a moratorium on new coal plants because the risk of regulation was too much. It has helped guide a steady investment in renewables, particularly wind, and combined- cycle natural gas.”

Like PacificCorp, many Oregon businesses are moving forward with incremental carbon-reduction initiatives. But as concern mounts regarding the environmental and economic impacts of climate change, more ambitious efforts to address climate change are gaining momentum globally, as well as locally. More than 200 Oregon companies signed the Business for Innovative Climate & Energy Policy Declaration, a project of Ceres, an organization advocating for sustainable leadership. The initiative calls on policymakers to pass meaningful energy and climate legislation. Signatories include large Oregon businesses such as Adidas Group and Intel, as well as small, locally owned entities, like Hot Lips Pizza and the Joinery.

The U.S. and China — the world’s two largest emitters of greenhouse gas — have made headway on agreeing to reduce their share of carbon pollution. In November the two countries issued a joint climate change announcement: President Obama pledged a new target to cut greenhouse gases 26 to 28% below 2005 levels by 2025. China’s president, Xi Jinping, announced his country’s carbon dioxide emissions will peak around 2030.

Investors are also putting more pressure on governments to adopt carbon-pricing regulations. In September 364 investors representing more than $24 trillion in assets signed the Global Investor Statement on Climate Change, which calls on governments to provide “stable, reliable and economically meaningful carbon pricing that helps redirect investment commensurate with the scale of the climate-change challenge.”

An increasing number of global corporations are using carbon pricing to manage risk and plan ahead. A report released in September by the Carbon Disclosure Project, an initiative to encourage companies to report environmental information, shows 29 U.S. companies — including Dow Chemical Company, Bank of America and ExxonMobil — are incorporating a carbon price into their business planning and risk management.

In Oregon a carbon tax could take the state’s burgeoning green economy to the next level. Some businesses, no doubt, will fight the extra costs. But for many, carbon pricing is already a reality, and inevitable for others. “The world will probably turn to carbon pricing,” says B.C.’s Finlayson. “We are operating on the premise that carbon constraints would be adopted over time.” n

Click through for more information on the PSU carbon-tax study and the impact of the tax on emissions reductions.


Kim Moore

Kim Moore is the editor for Oregon Business magazine.

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