SALEM — Debate over the controversial proposal to enact a massive new “cap-and-trade” program in Oregon has escalated with major demonstrations at the Capitol for and against the climate bill, Senate Bill 1530.
Advocates say the legislation will slow climate change; opponents say it will raise fuel costs, hurting jobs and the economy.
“Each side has a very different way of looking at things,” said Mazen Malik, senior economist at Oregon’s non-partisan Legislative Revenue Office. “But it seems people on both sides are throwing around numbers. There are so many moving parts to this bill it’s giving me a headache.”
Malik said it’s important for people on both sides to know the facts.
Feb. 6, members of Timber Unity, the rural advocacy group opposing SB 1530, met with Gov. Kate Brown and suggested alternatives to slow climate change without hurting jobs.
Brown’s office confirmed to the Capital Press that Timber Unity’s ideas are being considered and more amendments are underway.
Not a tax, but acts like one
“We don’t need a tax on carbon,” said Jeff Leavy, founding member of Timber Unity. “You see the schemes of the Democrats: taxes, taxes, taxes.”
This sentiment was echoed in protesters’ signs: “No more taxes.”
From a policy standpoint, however, cap and trade is technically not a carbon tax. It’s a pricing program.
“This is not a tax,” said Gilbert Metcalf, associate at the National Bureau of Economic Research and environmental economist at Tufts University. “A carbon tax is a fee on emissions — legislators set the price. This instead puts a cap on carbon and creates allowances that can be bought and sold — and the allowance price is set by the market.”
Technicalities aside, the pricing program would have the same outcomes as a tax: higher prices for fuels and a new source of revenue for the government.
How cap and trade works
Tufts University’s Metcalf explains it this way: Imagine you own a paper mill. Creating paper takes energy, and you emit more greenhouse gases than the allowed cap.
You can either make your operation more efficient, reduce emissions directly, or use the cap-and-trade program, meaning you pay someone else to reduce emissions because you can’t, or won’t, do it yourself.
You might pay a hog farm to capture its methane emissions, or a farmer to plant trees. You’re buying an “allowance” — a right to pollute. One allowance is equivalent to one metric ton of carbon dioxide.
The farm might sell to you because it isn’t using its full pollution “right,” or because it’s investing in “greener” technology. The farm profits from your purchase, and your mill is free to emit more.
State would profit
Trading allowances between businesses is called the “secondary market.” The primary market is the state.
Oregon modeled its plan after California’s, where cap-and-trade auctions have raised $12.5 billion in state revenue since 2012, according to the California Air Resources Board.
If SB 1530 is enacted, when the program begins in 2022, the Oregon government will initially own allowances and sell them to businesses by holding auctions. The government will also give some allowances away.
According to Malik of the Legislative Revenue Office, auction money will go into state funds specified in the bill, including those for highways, climate investments, a greenhouse gas initiative and schools. For example, 25% of the climate fund will support the State Forestry Department’s wildfire mitigation efforts.
After businesses buy allowances from the state, they may sell them to one another, said Malik.
Every year, he said, the state will decide how many allowances to release into the market via auction. The governor’s office confirms that because the standard will be phased in, each year the total number of allowances will shrink and a higher percentage will be sold by the government.
The bill currently does not facilitate allowance trading between states or nations, according to the governor’s office, but it is unclear whether that could change.
The legislation would regulate fuels in the Portland metro region first, starting in 2022. Three years later, the bill would fold in the state’s 19 westernmost counties. The remaining counties would not be regulated unless at least 20 counties joined the program, triggering statewide adoption.
Current proposed amendments could make the trigger number 23 counties and would give some rural areas, including Bend, Klamath Falls and Coos and Curry counties, more time to comply — until 2028 — so industries could brace for regulations.
Minimal environmental impact
By 2035, the bill aims to cut annual emissions from 55 million metric tons to 26 million metric tons, a 53% decrease. By 2050, the bill aims to reach 9 million metric tons, an 84% decrease, according to Carbon Policy Office estimates.
Sen. Herman Baerschiger Jr., R-Grants Pass, the Oregon Senate’s minority leader, said this is an unrealistic goal, and the actual environmental impact would be minimal on the global scale.
According to the International Energy Agency, Oregon produced only 0.13% of global carbon dioxide emissions in 2019.
“A statewide cap-and-trade program in any state is going to have a negligible effect on global emissions,” said economist Metcalf.
Arguments for cap and trade, said Metcalf, are to set an example for other states and to get ahead of what he calls “the inevitable,” a nationwide cap-and-trade program in which states with a head start would have a competitive advantage.
Incentives drive the bill
California’s Legislative Analyst’s Office says the point of cap and trade is to increase gasoline, diesel and energy prices to discourage consumption.
HB 1530’s legislative sponsors say the policy incentivizes businesses to emit less.
But cap and trade’s incentive structures are complex and sometimes work against themselves, according to Metcalf, the economist. The efficacy of the program in reducing greenhouse gas emissions, he said, depends on investors’ eagerness to buy and sell allowances.
Investors won’t attempt risky “green” technologies unless they have confidence they will earn a return. The higher the carbon price, the more confident investors will be, said Metcalf.
But carbon pricing is volatile. According to the World Bank’s 2018 review, the highest carbon price among 40 countries and 20 cities was $16 a ton — not worth the risk for many investors.
Oregon’s Carbon Policy Office noted HB 1530 attempts to deal with this two ways. First, the bill gives the state the right to create floor and ceiling prices on allowances. Second, the state can withhold some allowances, driving up the price.
But, noted economist Malik, higher carbon prices mean a harder hit to consumers’ wallets.
Risk of fraud and cyber theft
Cap and trade, said Metcalf, faces risks of fraud and cyber theft because allowances are valuable assets and administrative systems are underdeveloped.
EU commissioners say more than $49 million in allowances have been stolen by hackers in the Czech Republic, Austria, Poland, Greece and Estonia. Washington’s Center for Clean Air Policy and other organizations have documented alleged fraud in California and other states.
Brown’s office confirmed that cybersecurity and auction-trading platforms will be tied to already-existing programs in other states.
Uncertain fuel prices
Leavy, one of Timber Unity’s founding members, said he believed the measure would raise the price of fuel 72 cents per gallon. Julie Parrish, former legislator and current Timber Unity board member, said she thinks a 22 cent per gallon increase is more likely in the first year.
Both of these numbers come from the Legislative Revenue Office’s calculations for the 2019 cap-and-trade bill.
“It is not a reasonable estimate,” said Amanda Kraus, communications director for the Oregon Senate Majority Office.
Malik of the Legislative Revenue Office said it’s actually too early for either side to make claims about what is or is not a reasonable estimate. The 2020 bill, he said, is much more complex than 2019’s proposal. Calculations can’t be done with basic percentages, he said.
“Last year’s bill was more concrete,” said Malik. “If amendments make this one clearer, that would be a good thing so people know what fuel prices to expect.”
Both proponents and opponents of the plan say transportation and rural industries would be hit hardest.
Kraus of the Senate Majority Office said a companion bill, SB 1580, would provide refunds for low- and middle-income Oregonians to compensate for higher prices.
A statewide vote
Timber Unity leaders say one of their concerns with SB 1530 is that it includes an emergency clause, meaning if it passes both houses, Brown will sign it immediately, with no opportunity for a statewide vote.
Kraus of the Senate Majority Office said the emergency clause exists because climate change is an urgent issue.
“We cannot wait any longer,” said Kraus.
Timber Unity’s members say the measure should be put on the state ballot for voters to decide.
“The people should vote,” said Parrish of Timber Unity.
Last year, protests over similar legislation culminated in Oregon Senate Republicans walking out to deny Democrats a quorum. This year, say legislators and Timber Unity members, that is still a possibility.
“If the people don’t get the right to vote on this, another walkout is the only thing that will block this bill,” said Leavy of Timber Unity.
Sen. Fred Girod, R-Stayton, said if the bill is pushed through without Republican support, another walkout is “pretty much a certainty.”
More than cap and trade
Even if HB 1530 disappeared, said Timber Unity members, the movement would remain active.
Baerschiger said the movement is now about fighting for a way of life, not just opposing a single bill. He said people in the Timber Unity movement are coming to the Capitol to stand for religious freedom, gun rights, working-class interests and other issues.
“This is definitely about more than one bill now,” said Leavy. “When I started this movement, it was so the working people could have a voice in Salem.”
Whatever happens with cap and trade, Timber Unity leaders say they plan to keep working so rural people can have a voice in the Legislature.