Pacific states push for price on carbon. Is it effective?

National efforts to put a price on carbon in the United States largely petered out years ago, but the climate policy is gaining traction in a handful of states out west.

The governors of California, Washington, and Oregon, along with the premier of British Columbia in Canada, signed an agreement Monday to coordinate efforts to reduce carbon emissions in the region. Washington and Oregon will aim to implement their own pricing structures to mimic those already in place in California and British Columbia. The region, which already has the country's highest penetration of electric cars, also plans to expand use of alternative-fuel vehicles and continue deployment of high-speed rail across the region. 

The agreement is a further blow to coal, which already faces a bleak future in the region, which has moved to clean energy is a big way. The idea is to further discourage the use of carbon-heavy fossil fuels by taxing them or requiring companies to purchase credits based on their emissions levels. Monday's plan outlines lofty goals for states whose combined gross domestic product is $2.8 trillion, the fifth-largest in the world. If successful, it could be a regional model replicable across other parts of the globe, but political and logistical obstacles remain and to implementing such policies, and questions over how effective they are. 

“This is not a revolution,” California Gov. Jerry Brown said at a news briefing in San Francisco, as reported by Bloomberg Businessweek. “You are witnessing an historic, small, but powerful step. It’s only the beginning. You watch. Next year and the year after that and the year after that, this will spread until finally we get a real handle and grasp on what is the world’s greatest existential challenge.” 

British Columbia provides a model. In 2008, the province adopted a carbon tax in an effort to reduce emissions 33 percent below 2007 levels by 2020. Emissions dropped 4.5 percent between 2007 and 2010 – according to the most recent data available – while GDP grew by 5.7 percent. That suggests the tax reduced emissions without a negative impact on economic growth, but it's difficult to directly link the drop in emissions to the implementation of the tax.

What makes British Columbia's system unique is that its revenue-neutral, offsetting the hike in energy prices with cuts to income tax. Since it was first introduced, the carbon tax has returned $500 million more to taxpayers in tax reductions than it has raised in revenue, according to British Columbia's Ministry of Finance.

"That sort of tax shifting regime is the only real feasible blueprint of a carbon pricing strategy that would make sense," says Jeremy Carl, a research fellow at Stanford University's Hoover Institution. "It is a much cleaner way to get at the same result with a lot less abuse."

California signed into law a cap-and-trade scheme in 2006, which requires oil companies, factories, and power plants to hold permits for the carbon pollution they emit. It took effect last year, so analysts say it's too soon to gauge its effects, but some worry the policy will put undue burden on consumers in the form of higher energy costs, without offering offsetting relief. Californians already pay the fourth highest rates for electricity in the US, but their average bills are lower because of lower consumption.

Monday's agreement seeks to unify these policies across California and British Columbia and encourage similar efforts in Washington and Oregon. Those states have seen opposition to carbon pricing and Republican-controlled legislatures are likely to slow if not block the vision of their respective executive branches.

And if the ultimate goal is to fight global climate change, the reductions achieved by even a region as large as the Pacific coast are a drop in the bucket relatively speaking. After all, the region already has a relatively low-carbon economy – in 2011, 80 percent of Oregon's electricity came from hydroelectric and other renewables – and cheap natural gas is already largely pricing out coal power without an explicit tax or cap and trade scheme. 

The hope is Monday's agreement would provide a model for other regions, especially as states gear up to comply with the US Environmental Protection Agency's new carbon limits on new power plants. The agency is also working on standards for existing plants, which will require states' cooperation on curtailing emissions.

"[W]hile the Pacific states are setting out common areas for action, the agreement reinforces the diversity of approaches each will take to achieve their climate goals. Flexibility is key," Kate Larsen, director of climate change at Rhodium Group, a New York-based consultancy, writes in an e-mail. "Maintaining the diversity of approaches, as the agreement does across the Pacific states and BC, will be the key to bringing other states on board over time."