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What’s Cooking in the States’ Carbon Tax Laboratories?

This post originally appeared at the Legislation Law Prof Blog

You wouldn’t know it by watching Congress, but scientists have eliminated pretty much any doubt about the reality of anthropogenic climate change. (The recent National Academy of Sciences’ report being the latest definitive statement of the overwhelming, and worrying, evidence.)

There’s also little doubt that taxing carbon emissions would be an important start to addressing the problem. Most leading economists, even conservative ones, agreed years ago that taxing carbon is a less expensive way to reduce CO2 emissions than a hodgepodge of regulations. The policy fix is no recent breakthrough: it simply follows economist Arthur Pigou’s teachings from nearly a century ago.

Yet it’s also pretty much certain that in the current Congress, any bill to put a price on carbon is dead on arrival.  And if Nate Silver’s numbers are right, the midterm elections aren’t likely to improve the odds.

Meanwhile, it remains a live question, in a set of cases argued before the U.S. Supreme Court in January, how the EPA may permissibly regulate greenhouse gases under the Clean Air Act. As so often happens, court watchers expect Justice Kennedy to cast the deciding vote – and tea leaves are mixed on whether he’s more likely to support or rule against the Obama administration.

If the wrangling in DC over how the federal government may address climate change (or if it should even do so at all) inspires despair, it might help to recall the hopeful words of Justice Brandeis. “It is one of the happy incidents of the federal system,” he wrote, in his famous dissent in New State Ice v. Liebman, “that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”

Increasingly, state legislators and policy advocates are starting to experiment with legislative language around carbon taxation. What’s bubbling up?

First, it’s worth noting that the most promising experiment comes from north of the border, where British Columbia has had a revenue-neutral carbon tax law in place since 2008. The Atlantic Cities blog published a helpful summary of the law, and its success, earlier this week.

In the U.S., bills related to carbon taxation have been introduced in Oregon, Washington, and Massachusetts. Oregon and Washington agreed in the Pacific Coast Action Plan on Climate and Energy, signed last October, to join British Columbia and California in putting a price on carbon. In Oregon, the 2013 legislative session saw the introduction of two separate bills, HB 2792 and HB 2874, which would have taxed fossil fuels according to their carbon content. Both failed to reach a vote, but a separate bill, SB 306B, which authorizes a legislative report on a clean air tax or fee, was signed into law in August 2013. That report is due this November, meaning further legislation on a carbon tax is likely on hold until the 2015 session.

An advocacy group called Carbon Washington has been working on draft carbon tax legislation and spent part of 2013 organizing to place a measure on the November 2014 ballot. They announced in December that they have backed off that strategy for now. (Presumably giving Yoram Bauman, one of Carbon Washington’s organizers, a bit more time for his gigs as a stand-up economist.) A January 2014 report by the state’s Climate Legislative and Executive Workgroup, which was created pursuant to 2013 SB 5802, recommended that Washington implement a “cap-and-market” program to meet its emissions targets.

In Massachusetts, 2013 HB 2532 also would have created a revenue-neutral carbon tax. Although filed with 13 cosponsors, it failed to reach a vote. It may, however, have helped move forward public debate on the policy. Three of the five candidates in the Democratic primary for Massachusetts governor have come out in favor of a carbon tax, though the leading candidate, Attorney General Martha Coakley, has so far declined to commit.

Finally, in California, the cap-and-trade plan put in place in 2006 by AB 32 is set to expand to cover gasoline. State Senate leader Darrell Steinberg recently proposed replacing the cap-and-trade system with a simpler carbon tax beginning in 2015. He would allocate most of the revenues – estimated at $3.6 billion in the first year – to increasing the earned income tax credit for low-income residents, who pay a proportionally larger share in energy costs, and to transit and environmental programs. Of course, any carbon-tax bill would have to pass through both houses of the California legislature with the 2/3 supermajority required for tax hikes.

As people like Andrew Revkin and Richard Lazarus have pointed out, climate change poses a “super wicked problem.” A carbon tax in one or two states won’t be a silver bullet. Indeed, implementing a carbon tax in just one jurisdiction could raise some of the potential problems that economist Tyler Cowen has pointed out. But, given that the near-term prospects for congressional climate action are next to zero, the bills currently bubbling up in Olympia, Salem, and Boston offer a promising way to get the policy process moving forward in other statehouses, and, sooner or later, in Congress.