One of the ongoing debates about Governor Inslee's cap-and-trade proposal is who will end up paying the billions of dollars a year in new costs associated with the proposed system.

Environmental groups like Sightline claim the cap-and-trade bill would make “oil and coal companies” pay for carbon emissions. Governor Inslee's spokesman even told a Seattle radio station that cap-and-trade would "the carbon charge on big companies rather than a gas tax which hits everyone."

Ironically, the economic studies that cap-and-trade advocates cite say exactly the opposite.

For example, Rep. Ross Hunter, chairman of the House Appropriations Committee, said in a recent blog:

Everyone knows that companies pass costs like this down to the consumer. Everyone “knows” lots of things that just aren’t true. Some of the costs will most certainly be passed through to consumers, but not all. The reference I give is to a study of gas taxes, which are much more direct than the proposal here.

The study Rep. Hunter cites, however, makes exactly the opposite argument, saying “consumers will bear the full burden of a state tax” (emphasis mine). The study even notes that a one-cent increase in gas taxes will result in a 1.01 cent increase in the consumer price.

The study, written in part by Washington State University economist Hayley Chouniard, compares gas taxes imposed at the state and at the federal level. I spoke with her about her study and its conclusions.

At the federal level, she said, gas suppliers can’t avoid the tax by going to another state. As a result, she noted, they assume part of the cost to avoid losing customers. When the tax is state-based, however, suppliers can move some of their supply to other states with lower taxes. As a result, they pass along the full cost to in-state consumers or move supply to other states.

Since the Governor’s cap-and-trade proposal is state-based, the full cost of it would be borne by Washington consumers according to this study.

Rep. Hunter then remarks that gas taxes are “much more direct” than cap-and-trade. This is not accurate. Gas taxes are collected at the refiner level or when the fuel is offloaded into the state. Cap-and-trade would be the same, paid not by gas stations or consumers but by refiners or companies that ship oil into the state. The process of collection is virtually identical.

The odd thing about this claim is that if we want to reduce carbon emissions, consumers are the ones most able to reduce emissions effectively. If you want less of something, raise its price (a rule, by the way, which also applies to the minimum wage, which raises the price of creating a job). Yet politicians actively deny consumers will pay much of the price. My personal opinion is that some environmental activists making this claim know it is false, but they repeat it because they simply want the bill to pass.

There is some irony in all of this. Cap-and-trade advocates argue that the incentives of oil companies and consumers who buy gas do not reflect the impact of using the gas. The incentives they argue, are misaligned.

Yet, they rely on a political process where the incentives - promising that consumers will not be hit by the costs - are misaligned, with the goal of giving consumers an incentive to reduce gas consumption.

Ultimately, it is more indication the slogan carved in the door of the Anchorage saloon Chilkoot Charlie’s – “We cheat the other guy and pass the savings on to you” - is often reflected in Washington’s environmental policy.