Clallam County Public Utility District No. 1 commissioners confirmed their stance against a proposed carbon tax.

The three-member board voted unanimously on May 9 to adopt a resolution opposing Initiative 732 set to come before the voters in the upcoming general election.

“I think we can do a lot better than this and get a lot more accomplished,” Clallam PUD Commissioner Ted Simpson, said.

The carbon tax, sponsored by a nonpartisan grassroots group Carbon Washington, aims to encourage sustainable economic growth and a reduction in carbon emissions by taxing, per ton, carbon dioxide (CO2) pollution from fossil fuels.

The commissioners’ decision on the initiative came immediately after public comments were heard mainly from proponents of the tax.

Mike Massa, from the Carbon Washington executive committee, was among about 25 people attending Monday’s meeting.

“What I would encourage you do is consider the impact of the entire policy on your customers and not just the impact of electricity rates,” Massa told the commissioners during pubic comment. “There are costs to doing nothing, so when evaluating a policy you need to look at both sides of the equation.”

Economic estimates

Although I-732 enacts a new tax on energy beginning in 2017 at $15 per ton of CO2 emissions, it’s expected to be revenue neutral. To balance the tax, I-732 is set to reduce the state sales tax by 1 percent, fund the Working Families Rebate and eliminate the business and occupation tax for manufacturers.

“What we’ve found is that for the average family they’ll pay a few hundred dollars more per year in energy costs due the carbon tax, but they’ll save a few hundred dollars per year from the 1 percent reduction in state sales tax,” Massa said. “Businesses also pay sales tax and also will get the same trade-off, especially small businesses with low energy costs.”

The tax cuts identified under I-732 are “intended to protect low- and middle-income persons from the impact of the energy tax,” he said. Per the policy proposal, following 2017 the tax would jump to $25 per ton CO2 in 2018 and annually increase by 3.5 percent plus inflation up to $100 per ton. To reach the full tax, it’s expected to take an estimated 40 years, Massa said.

Relying on estimates provided by the Washington PUD Association, I-732 would increase Clallam PUD’s energy costs between $500,000 and $1.8 million within the first year. By year two, cost estimates range between $900,000 and $3 million. In 2025-2026 the tax liability is projected to be between $1.2 million and $4.1 million.

“My focus is pretty narrow and I’m looking at the impacts to our ratepayers,” Clallam PUD Commissioner Will Purser said.

PUD officials anticipate the energy tax would equate to a 1-4 percent electricity rate increase within its first year.

Despite the projected rate increases, from a “raw economic” perspective I-732 actually favors the utility’s ratepayers, said Mike Doherty, resident and past Clallam County commissioner.

Based on the taxable sales for Clallam County per the Washington State Department of Revenue, he said, there’s more than $9 million in sales tax cuts brought about by I-732.

“If you look at what appears to be the PUD fuel mix that’s on the Department of Commerce website, it looks like at the $25 a ton scenario you would have an impact of about $320,000,” he said.

Comparing the benefits to the taxpayers against the impact on the PUD, Doherty said, “disproportionately, young working families, seniors and the rest of the citizens on fixed incomes are going to have a huge gain.”

Market purchases

The range in increased energy cost projections for Clallam PUD are based on Bonneville Power Administration’s (BPA) need to make open market purchases usually spurred by demands for more electricity, often during times of lower hydropower generation. The electricity purchased to meet demands come from a “pool of unspecified electricity resources” that could be anything from wind, solar or natural gas, Michael Howe, Clallam County PUD communications and government relations manager, said during a May 2 meeting.

“The cost is projected to vary depending on how much hydropower is available and the need for market purchases,” he said. “We are projecting the tax would be imposed on between 4 percent and 14 percent of the electricity we purchase from BPA.”

Clallam PUD supplies its electricity via mainly carbon-free resources, but I-732 assumes some level of carbon dioxide emissions, Howe said. In 2014, Clallam County PUD reported a fuel mix of 88 percent hydro, 9 percent nuclear, 2 percent coal and 1 percent natural gas, according to the Department of Commerce’s Washington State Electric Utility Fuel Mix Disclosure Report.

“The purpose of taxing those non-declared resources is not to punish people consuming clean energy,” Massa said. “It’s to prevent generators of fossil fuels from laundering the power by selling to the open markets and effectively hiding this generation.”

Massa disagrees with the estimated cost impacts by the Washington PUD Association, noting they overestimated by about 18 percent.

“They used a much higher figure for the carbon intensity of those purchases,” he said.

Differences in energy cost impact aside, Simpson said, “the other thing that makes I-732 really difficult” is the utility’s responsibility to collect the tax is based on an estimated amount of CO2 emissions.

“We don’t know what amount of carbon is being emitted for up 18-24 months because it’s calculated by the Department of Commerce,” he said.

Wait and see

Coinciding with the initiative are two other fossil fuel policies aimed for implementation in Washington, including a Clean Power Plan overseen by the U.S. Environmental Protection Agency and a state Clean Air Rule. Both policies are under development by the Washington State Department of Ecology.

Purser had expressed concern about the multiple CO2-focused policies underway, worried they could have a “pancaking” impact, he said.

Instead, Massa said I-732 is both compatible with the Clean Power Plan and a potential Clean Air Rule.

“Under the Clean Power Plan a carbon tax is one way a state can satisfy that plan,” he said. “Second, a carbon tax works differently than the cap. The tax will just reduce emissions by setting a price on the emissions.”

Assuming the carbon tax works as intended, the emissions should automatically trend down and should stay under the cap, he said. For Clallam PUD General Manager Doug Nass, the “big plus” associated with taxing CO2 emissions in Washington is the chance to set an example, “but, we’re 99 percent clean already,” he said.

However, to Massa, the fact that Clallam PUD’s fuel mix is relatively clean is all the more reason the commissioners should support the I-732 given they’ll pay little while helping urge the rest of the state to reduce CO2 emissions.

Nass believes Clallam County PUD can and should do better and continue move toward renewables, but based on the cost estimates from the Washington PUD Association tied to I-732, “we see a major impact to our customers.”

“I’m interested to see what happens in the next few years,” he said. “There might be a lot of people that say if you wait much longer, it’s too late and I guess we’ll see what happens as the years go forward.”

Doherty does believe waiting is too late.

“I would just hope the PUD takes a different vision about climate change — not just your narrow area of utilities, but the bigger picture for people on the Olympic Peninsula,” he said. “We are leaving behind a world that’s in serious problems.”

Reach Alana Linderoth at alinderoth@sequimgazette.com.