What Does a Carbon Tax Mean for Manufacturing?

industrial plant emissions

by | Nov 2, 2016

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industrial plant emissionsA carbon tax initiative — the first of its kind in the US — will go before Washington state voters next week.

The proposal would impose a tax on all fossil fuel consumption, starting at $15 per metric ton of carbon emitted next year. The carbon tax, Initiative 732, would increase to $25 a ton in 2018 and gradually rise to $100 a ton (in 2016 dollars) over the next several decades. It would also lower other taxes including the sales tax, business tax on manufacturers, and it would provide tax credits for low-income residents.

If approved, the Washington carbon tax could provide a model for other states looking to reduce greenhouse gas emissions. But it faces stiff opposition from industry and green groups alike.

Many environmentalists and and businesses oppose the tax, albeit for different reasons. Neither the Sierra Club nor the Washington Environmental Council support the measure, largely because it does not increase revenue for environmental programs and clean-tech jobs. The initiative fails to invest “in green jobs, energy efficiency, transit, housing, and renewable energy infrastructure,” according to the Sierra Club.

Businesses, on the other hand, say the tax will create a competitive disadvantage for Washington companies by increasing fuel and energy costs. The initiative’s authors say it will increase the price of gasoline by about 25 cents a gallon and the cost of coal-fired power by 2.5 cents per kilowatt-hour.

“The clear losers will be energy intensive industries such as industrial and manufacturing companies that consume large amounts of energy throughout their entire value chain,” Lux Research analyst Yuan-Sheng Yu told Environmental Leader. “These taxes will be imposed at each when fossil fuel is consumed, be it for heating, powering equipment, and fueling vehicles for transportation and logistics.”

In the past couple weeks these big energy users have contributed more than $450,000 to defeat the initiative, with the three largest donors being the American Fuel and Petrochemical Manufacturers trade association ($250,000), Puget Sound Energy ($100,000) and Kaiser Aluminum ($100,000).

American Fuel and Petrochemical Manufacturers president Chet Thompson has said a carbon tax would be bad for businesses and consumers.

“Imposing a carbon tax will only lead to higher fuel costs — with the largest burden being forced on lower-income households — and threatens the manufacturing of fuels and petrochemicals, which will put millions of industry jobs at risk,” Thompson said in an earlier statement. “The net effect is that we pay more for energy and, collectively, end up poorer as a result, instead of reaping the benefits from affordable and reliable energy and petroleum products.”

Yu with Lux said the carbon tax is unlikely to increase corporate clean energy use in Washington state.

“Ideally, the revenue generated from carbon taxes should go towards the deployment of renewables,” Yu said. “For the manufacturing industry, if a new line item for carbon is added due to this, it would be unlikely companies seek alternative sources of energy and will likely increase the price on their products instead. For things such as gasoline and diesel, we have seen in the past that high gas prices spur more interest in hybrids and electric vehicles. But currently only a handful of vehicles exist that are similar in price to conventional vehicles and have a 200-plus mile drive range. These are just two examples, but to say this carbon tax alone will be successful in mitigating the effects of climate change would be a stretch.”

To successfully reduce greenhouse gas emissions, a carbon tax would need complementary policies that encourage investment in renewable energy, he added. “As it stands now, the carbon tax is just a tit-for-tat approach that would unlikely move the needle in the near future.”

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