This is the first in a series about recently-enacted carbon pricing programs. The other three essays cover Canada, Austria, and Singapore.
Some insiders in Washington, D.C., have given up on carbon pricing. Across the country in the state of Washington, advocates had for a while done the same, after more than a decade in which numerous carbon pricing bills collapsed in the Legislature and not one but two carbon pricing ballot initiatives crashed and burned at the polls. But just a few years after these disappointments, the Evergreen State put in place what veteran climate journalist (and state resident) David Roberts termed the nation’s most ambitious carbon pricing law.
The pioneering environmentalist Denis Hayes, founder of Earth Day, hailed the measure, saying “Finally, we have a bill that addresses climate change and reduces air pollution while enjoying support from much of the state’s business community, organized labor, environmental groups, tribes, social justice organizations, farmers, and religious leaders.”
How did Washington climate policy go from lead balloon to bubbling success? And what should climate advocates in D.C. take away from it? For one, legislators can accomplish a lot when they focus on working together and solving longstanding issues.
Policy designed for IPCC goals
In 2021, the Washington Legislature passed the Climate Commitment Act, giving teeth to its recently passed greenhouse gas (GHG) reduction goals. Those goals had been set in line with recommendations from the UN’s Intergovernmental Panel on Climate Change: a 45 percent reduction by 2030, 70 percent by 2040, and 95 percent/net-zero by 2050 (See Figure 1). The Climate Commitment Act caps emissions at these levels and enforces the cap by requiring emitters to use a limited pool of allowances. The state will distribute some allowances to electric and natural gas facilities and manufacturing facilities, and auction the rest to raise revenue that can then be invested in accelerating emissions reductions and delivering other public benefits.
The program will cover 75 percent of Washington’s GHG emissions and will raise around $500 million per year in revenue. Some have called it the “gold standard” in state climate policy.
Figure 1: Washington’s declining cap on GHG emissions
Feeling the heat
Most Washingtonians are concerned about climate change and say they want climate action. Intense fire seasons in the Pacific Northwest in recent years may have added urgency to their concerns. Washington voters in 2018 gave Democrats control of the state House and Senate while continuing a trend of reelecting Gov. Jay Inslee, a climate hawk, by ever-widening margins. His two percentage point edge in 2012 jumped to more than four points in 2016 and became a nearly seven-point advantage in 2020 after his presidential and state campaigns focused on a climate platform.
Figure 2: Election results for Washington House, Senate, and Governorship
Source: Sightline Institute
Legislators roll up their sleeves
Electing Democrats paid off for voters who wanted climate action because, once they gained control of both houses, Democratic legislators set about passing several climate and clean energy laws. In 2019 they passed an act to decarbonize the electricity sector by 2045, efficient building and appliance targets, and hydrofluorocarbon limits. In 2020 they passed a zero-emission vehicle standard, a low-carbon fuel standard, and the updated climate goals.
These successes helped lawmakers build confidence and momentum towards the bigger goal of economy-wide pricing. Representative Joe Fitzgibbon summarized the impetus behind this whirlwind of climate and clean energy legislation, saying “If you’re not in a place to push for a carbon price, push for whatever the best sounding complementary policy is, because everything we do to ratchet down emissions makes the next thing more doable.” From his strategic post as head of the Senate Environment Committee, Senator Reuven Carlyle (D-Seattle) posited that starting with “a sector-specific approach” paved the way for “economy-wide pricing.” Once we passed the 100 percent [renewable energy mandate], it opened the acknowledgment, I think, within political circles that big legislation was possible.” Past failures were in the past. Washington legislators were building on their success with sector-specific legislation, working their way up to an economy-wide price.
In 2021, they passed that “big legislation,” an economy-wide cap-and-invest bill and a companion environmental justice bill. Cap-and-invest here means cap-and-trade, but the emphasis is on the investments in part because there is expected to be minimal trading as all entities will be able to get the best price at the state-run auction, rather than through trading.
The cap-and-invest act won votes from 81 Democrats, including Senator Tim Sheldon (D-Mason County), a rural Democrat who caucuses with the Republicans. All 60 Republicans voted against, along with five progressive Democrats, (in some cases for the latter because they favored a different bill with a higher carbon price that was perceived as further left).
Though the Climate Commitment Act didn’t garner any Republican votes, Republicans came to the table to negotiate and pass a follow-up bill in 2022 that made some fixes to the original bill. They have also sponsored bills to determine how the revenue would be spent — effectively buying into the program and helping secure its long-term future.
The cap-and-invest program that legislators put together is broadly similar to California’s but with several changes to avoid problems that California has experienced. As Carlyle said, “We looked at California and tried to learn the lessons with humility.” In particular, they noted passionate objections to offsets’ role in California’s program. California allows facilities to use offsets in place of compliance allowances, thus exacerbating an already problematic overallocation that puts too many allowances in circulation, undermining the mandated reductions. As a result, the state has failed to achieve the emissions reductions it desired. Washington, in contrast, will remove allowances from the auction whenever an offset is used for compliance, thus preventing offsets from replacing emissions reductions. This policy choice softened the left’s opposition to carbon pricing.
Grand bargain: Paying for transportation projects, cleaner air, and other investments
Economists might salivate about how a carbon price can internalize the externality costs of greenhouse gas pollution, but voters and organizations get excited about what the revenue from the carbon price can do. The governor and lawmakers worked in tandem to design a package of bills that met the various needs of a broad coalition of the left.
For Washington lawmakers, how to pay for a big transportation package had been a long-standing headache. The carbon price became a funding mechanism for key parts of the $16 billion transportation package that passed in 2022. (The transportation package was large and complicated and needed another year to hammer out. The governor took advantage of the state’s line-item veto rule to reject a required linkage between the cap and the transportation package. Still, legislators understood it was part of the grand bargain and came back to the table and passed it in 2022 almost entirely along party lines.) The money, plus strong labor standards, brought union support for the bill. As Matthew Hepner of the International Brotherhood of Electrical Workers enthused, “We were able to turn around and use (Climate Commitment Act) funds for our transportation package this year.”
Environmentalists had been trying to pass a low-carbon fuel standard for years, and legislators passed that, too.
Tribes had been asking for consultation and consent rights regarding projects impacting their lands and resources, and funds to aid in their efforts to fight climate change and relocate as rising sea levels rendered their coastal lands unlivable. The Climate Commitment Act included these items, though Governor Inslee used his line-item veto to eliminate the consultation and consent provisions.
Finally, environmental justice advocates wanted protections against air pollution that burdened their communities’ health. While the state carbon program is based on global pollutants, the Climate Commitment Act, and its companion Healthy Environment for All (HEAL) Act, includes further protections against local pollutants, winning the support of environmental justice advocates.
The Washington Business Alliance, an organization dedicated to bringing “the best business methods and entrepreneurial thinking to the work of government,” created the Clean and Prosperous Washington campaign to work on design details and public messaging. Big employers in the state such as Microsoft, Puget Sound Energy, and Shell supported the bill. Even oil giant BP, which had previously opposed carbon pricing efforts, got on board. In a letter supporting the bill, BP said “the findings of climate scientists are real, and the world is on an unsustainable path. We support the aims of the Paris Agreement and have called for a faster transition to a low carbon economy.”
Republicans might come around when it comes to spending revenue
In opposing the Climate Commitment Act, Republican lawmakers did not deny the existence of climate change or society’s need to address it. They didn’t say a transition to a low-carbon economy spurred by a carbon price would be bad for business (a position which would have been difficult to defend, given support for the bill from the Washington Business Alliance, Microsoft, and others). Instead, they based their opposition primarily on the argument that the program could increase prices for individuals and families, especially those who were lower-income or rural. “Any change in the gas prices will kill my small communities,” said Rep. Joe Schmick (R-Colfax). “This bill ultimately punishes the poor in our state,” said Rep. Chris Corry (R-Yakima).
However, by closing ranks as the party of “no” on a policy that would make significant investments across the state and speed the transition from fossil fuels to clean energy, Washington Republicans may have gotten crosswise with many of the rural voters they claim to represent. A 2020 poll showed that 63 percent of Washington voters, including most rural or agriculture-associated voters, supported cap-and-invest. Rural voters strongly supported electric vehicles, clean energy, and natural climate solutions such as managing forests and soil to capture carbon and reduce pollution. They may have been swayed by the promise that the cap-and-invest program will spur clean energy development, with much of the revenue to be invested in Washington’s transportation infrastructure and rural communities.
Republican legislators are now catching on, showing they are active participants in discussions about how to spend the cap-and-invest revenue. In 2022, state Rep. Mary Dye (R-Pomeroy) introduced a bill to spend some of the carbon pricing revenue on forest health. Her colleague J.T. Wilcox (R-Yelm) said,
“We can make a huge impact on carbon by fully and permanently funding the forest practices that are necessary for healthy forests, which sequester carbon at the fastest possible rate.” Republicans have also proposed the Outdoor Recreation and Climate Adaptation (ORCA) plan to spend revenues on state parks, forest health, and drought and flood mitigation.
A similar shift may have occurred in California, which passed a carbon pricing bill in 2006 with zero Republican votes (although Republican Gov. Arnold Schwarzenegger signed it into law). When the California act was renewed in 2017, eight Republican lawmakers signed on. “I focused on what was the best policy, not what would be the party line,” said Assemblywoman Catharine Baker (R-San Ramon).
These shifts in Republican positioning at the state level could presage possibilities at the federal level. Some Republicans have moved away from outright climate denial, and rural voters are increasingly interested in clean energy and natural climate solutions.
What can Washington, D.C. learn?
Like many other cap-and-invest programs around the country, Washington’s cap-and-invest program passed with a simple majority vote by Democrats State legislatures might, in select cases, be able to steamroll legislation along party lines, and Congress rarely can, however, and even then, only with the unified government. Since the filibuster is still in place and unified Democratic control is not in the cards in the immediate future, must we content ourselves with implementing the recently-passed Infrastructure Investment and Jobs Act’ (IIJA) and Inflation Reduction Act (IRA), or is there hope that the federal government, like Washington state, could put a price on carbon? A few lessons from Washington state are applicable at the national level:
1). Businesses are supporting market-based climate action.
A key piece of the Washington story was business support for the cap-and-invest program. Nationally, business groups are increasingly and publicly supporting carbon pricing – as seen by carbon pricing endorsements from the Business Roundtable and the American Petroleum Institute. Business groups have historically been a key Republican constituency. (That said, the growing power of the populist wing of the party casts some doubt on the role business positions will play in the future.)
2). Legislators can legislate.
Another feature of Washington’s experience was the success of legislative leadership. Rather than leaning on public initiative or executive action, when legislators decide they need to get something done, they can do the hard work of building relationships, conducting diplomacy, and passing policy. We have also seen this at the national level with the bipartisan IIJA and the party-line IRA. If a member of Congress decided we must take the next step and send a signal throughout the market that the smart money is on low-carbon solutions, they might be able to do the behind-the-scenes grind necessary to bring fellow lawmakers along.
3). A climate bill can solve longstanding needs.
For climate hawks, a carbon price is all about climate, but a bill could be about much more. Legislative leaders in Washington identified a persistent legislative pain point – the transportation package – and used the carbon revenue to help fund it and the political momentum to help pass it. They also worked with a key constituency, Tribes, and made sure the Act met their needs for resources and consultation. Congressional leaders could similarly identify enduring pain points such as addressing the debt ceiling or extending funding for child tax credits and use carbon revenue to fund those, as well as identifying and working closely with key constituencies to meet their needs.
4). Focus on the investments, not the price.
The upfront costs associated with a cap-and-invest bill can strike fear into constituents’ hearts, and often toll the death knell for such legislation. Indeed, Republicans used the same talking points about poor people’s energy bills that have successfully defeated previous carbon pricing efforts. But Washington’s success demonstrates the value of lawmakers staying relentlessly focused on the investments such a policy will create. Republicans are traditionally budget hawks, so stressing the revenue could help generate support across the aisle for a future effort in D.C.
5). Republicans might come to the table for the chance to “pay for” their priorities.
Although they all voted no on the initial bill, Washington Republicans came to the table to work on a subsequent clean-up bill, other pieces of the grand bargain, and on bills determining how to spend the revenue generated by the initial legislation. At the national level, every Republican voted against the IRA. Still, some voted for IIJA, and they might be interested in future efforts to fund their priorities, such as infrastructure, forest protections, agricultural innovations, and rural jobs. This could bode well for a future push to pass a carbon pricing policy if that push focuses more on revenue spending than the revenue-raising mechanism.
6). Build momentum first.
An economy-wide carbon price is a big lift. Legislators must first warm up by tackling particular sectors as they did in Washington. Congress may already have done a warm-up by passing the IIJA and the IRA. The IRA even includes a carbon price on methane. Congress could continue building momentum with a carbon border adjustment mechanism paired with an industry-specific price.