Washington's Climate Strategies Waste 95 Out of Every 100 Dollars

January 2, 2013

As the governor and legislature debate various environmental proposals for 2013, here is one fact they should keep in mind: many of the State of Washington's climate policies waste about 99 percent of the money spent to cut carbon emissions. Even those policies that perform better than that standard are only slightly better, missing huge opportunities to reduce carbon emissions.

That result comes from a new analysis of Washington's climate strategies compared to California's new cap-and-trade system. Given the high cost and unpopularity of cap-and-trade, it is surprising to learn our state's strategies are many times less effective at reducing carbon. That, however, is what the data demonstrate.

Put in simple terms, the strategies advocated by the Washington Conservation Voters yield about $1 of environmental benefit for every $100 they spend.

Any serious effort to reduce carbon emissions must begin with eliminating the most wasteful climate programs and focusing on those that yield more environmental benefit.  Looking at three strategies demonstrates why. Compare the prices Washington pays to California's cost per ton of CO2 reduction of $10.09 in the recent auction.

 

Washington Solar Subsidies: 99.5% Waste

Washington state subsidizes solar power at the rate of 15 cents per kilowatt hour (kWh) up to $5,000 a year. For every kWh of energy we use in Washington, we emit 0.298 lbs. of CO2. If we spend 15 cents per kWh to switch to a zero-emission source (which, technically, solar is not...but we'll give it the benefit of the doubt for this discussion), it costs us $1,107.38 per ton of CO2 avoided. If the solar panels are manufactured in Washington state, the subsidy goes up to 36 cents per kWh, driving the cost to $2,657.72. If the whole solar energy system is built in Washington, the government subsidy goes up to 54 cents per kWh, for the outrageous sum of $3,986.58 per ton of CO2 avoided.

When comparing to California's carbon price, Washington spends $100 to get $1 worth of environmental benefit. If the entire solar energy system is built in Washington state, we spend $100 to get 25 cents of benefit for the planet. Put another way, California's cumbersome cap-and-trade system is still up to 398 times more effective at reducing carbon as Washington's solar subsidies.

 

Initiative 937 - Renewable Energy Mandate: 87% Waste

The numbers are pretty bad for our renewable portfolio standard, enacted by Initiative 937, although less stark. Wind power costs about 5 1/2 cents more per kWh than average wholesale energy costs in Washington state. Replacing a kWh of energy in Washington state with a kWh of wind yields a cost of $406.04 per ton of CO2 avoided.

Wind power, however, more typically replaces potential new energy sources, not existing sources, and these are likely to be natural gas powered. Currently, wind costs about 3.5 cents more per kWh than natural gas (although this number could go down as natural gas supply grows). With that price differential, I-937 costs about $79.01 per ton of CO2 avoided. This is dramatically better than wasteful solar subsidies, but is still eight times more expensive than California's cap-and-trade system, meaning that we waste $87 out of every $100 we spend on shifting from natural gas to wind.

There is another irony here. Washington Conservation Voters claim that by "sending less of our paychecks to oil and coal companies, we can keep those energy dollars circulating through our state’s economy."  Wrong.  No wind turbines are built in Washington state, so all money spend on wind energy generation goes out of state as well.

In fact, many of the turbines aren't even built in the United States. Natural gas, on the other hand, comes from the United States and Canada. Unless you have an irrational fear of our friendly hockey-loving, beer-drinking neighbors to the north, there should be no reason you should prefer wind turbines to natural gas.

Lastly, I'll say that I love Oregonians, Canadians, Europeans and even Chinese (whom the greens seem to consistently demonize). I am glad to share the benefits of prosperity and a cleaner world with any person, regardless of the accident of the geography of their birth.

 

Electric Car Tax Exemption: 96% Waste

Since Washington's electricity production is nearly carbon-free already, it makes more sense to focus on reducing transportation-related carbon emissions. Washington's electric-car sales tax exemption, however, is extremely expensive.

For example, if we purchased a Nissan Leaf, we would save $3,528 on the base price of $36,000. Ironically, beginning in 2013 the state then turns around and imposes a fee of $100 a year on electric vehicle owners in lieu of gas taxes, putting the benefit over ten years at $2,528.

Assuming Leaf owners would have instead purchased an average new car with 27.3 MPG, the Nissan Leaf would reduce CO2 emissions by 37.11 metric tons over 10 years. Also, assuming one-third of Nissan Leafs would not have been purchased without the sales tax exemption, the cost per ton of CO2 reduced amounts to $189.22. That translates to about $5 of environmental benefit for every $100 spent when compared to California's cap-and-trade price.

It is unlikely the sales tax exemption makes much of a difference in sales of the Nissan Leaf. Leaf buyers on average earn $125,000 a year, meaning they are among the top 10 percent of wealthiest people in the U.S. This isn't to say they are completely price insensitive, but analysts believe the tax exemption isn't driving sales. Studies have demonstrated, for instance, that people are willing to spend thousands more (up to $7,000) for a Prius simply because it boosts their public image. The fact that those who benefit from these subsidies are among the most wealthy also shows the policy is not only environmentally regressive, but socially regressive because it taxes the poor to subsidize the rich.

 

These numbers demonstrate that pushing for more of the same ineffective policies, as the Washington Conservation Voters have called for, is tremendously wasteful both to the economy and the environment. Consider that we could be getting 100 times as much in carbon emissions reductions as we are today simply by matching the California price.

I want to make it clear that I don't support cap-and-trade. The experiences of Europe and California demonstrate that politics and crony capitalism play a greater role in cap-and-trade than sound environmental strategy. It is a major reason most of Europe is failing to meet the CO2 reduction targets in the Kyoto Protocol. That same heavy political influence is why Washington’s policies are so wasteful and harmful to the environment.

To make a real impact on carbon emissions in 2013, the legislature should first ensure we are spending our money wisely. Reducing waste should be at the center of any environmental strategy. Given the amount of waste in our climate policy, there is a tremendous opportunity to do good for the environment, and make this a cleaner world for everyone.