Oregon carbon tax & conflicting studies

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aoiBy Associated Oregon Industries,
by John Ledger

Two studies focusing on a carbon tax have been released recently.  The studies make different assumptions and have a different focus:  the NAM study on economic stability and the PSU study on GHG reductions and state tax revenue.

The PSU study concludes that a carbon tax could be a net positive for Oregon, and the NAM study a net negative.  Both note that there would be some sectors, notably manufacturing, that would be hurt.  The National Association of Manufacturers (NAM) study is silent about measures to repair the damage; the Portland State University (PSU) study assumes the state would decide which categories of business are desirable to save and help out in some form.  Given the difference in inputs, modeling, and scenarios, the only thing we can be sure of is that either the PSU study is right and the NAM study is wrong, or the PSU study is wrong and the NAM study is right, or they are both right, or they are both wrong.  Or a mixture of the foregoing.

National Association of Manufacturers

The study looks at two carbon tax scenarios:

The first scenario is a $20 per ton carbon tax increasing at 4%.  The other scenario is designed to reduce carbon dioxide (CO2) emissions by 80%.  According to the study, in both cases any revenue raised by the carbon tax would be far outweighed by the negative impact to the overall economy.  A carbon tax would lead to lower real wage rates because companies would have higher costs and lower labor productivity.  Over time, workers’ incomes could decline relative to baseline levels by as much as 8.5%.  The increased costs of coal, natural gas and petroleum products due to a carbon tax would ripple through the economy and result in higher production costs and less spending on non-energy goods.

According to the NAM study, if a carbon tax is levied, residents of Oregon will pay more for natural gas, electricity, gasoline and other energy commodities, detrimental to manufacturers and employment.

Natural Gas.  The cost of using natural gas would increase by more than 40% in 2013, the first year of the carbon tax study, adding to household energy bills and increasing operation costs for many Oregon businesses.

Gasoline Prices.  Prices at the pump would jump by more than 20 cents per gallon in 2013.

Household Utilities.  Households in Oregon would see a significant increase in their electricity rates, with an average increase of 13% in 2013.

Employment Loss.  This tax would deal a blow to employment in Oregon, with a loss of worker income equivalent to 9,000 to 17,000 jobs in 2013 and 29,000 to 32,000 by 2023.

Economic Sectors Hardest Hit in 2023.  The hardest hit economic sectors in Oregon would be agriculture, which would lose between 0.5% and 1.0% in economic output; energy-intensive manufacturing, which would lose between 1.0% and 1.3%; and non-energy-intensive manufacturing, which would lose between 0.5% and 1.0%.

Portland State University

The PSU study uses British Columbia’s carbon tax as a model and also uses two scenarios and several variants.

The first scenario used 70% of carbon tax revenue for corporate income tax cuts, 20% for personal income tax cuts, and 10% for reinvestment in industrial energy efficiency programs.  (This scheme is structured so that households making less than $35,000 annually incur no extra cost from the program.)  The second scenario uses 50% of revenue for corporate income tax cuts; 25% for personal income tax cuts; and 25% for reinvestment in industrial energy efficiency programs, residential energy efficiency programs, and transportation infrastructure.  This version also leaves low-income households with no extra cost from the program.

The PSU results vary dramatically depending on the details employed in the scenario; however, the report concluded that “there does not need to be a tradeoff between correcting market failures associated with emissions and economic growth.  In fact, if revenues are used to eliminate the distortionary effects of existing income taxes, a carbon tax might stimulate growth.  This would leave Oregon with a tax system that disincentives emissions while promoting less-energy-intensive output.  Additionally, a carbon tax offers a significant revenue generation option at a time when the state is evaluating new options to diversify Oregon’s revenue mechanisms.”

No carbon tax bill is expected to pass this session with the possible exception of a study bill.