Last week, the Northwest Economic Research Center (NERC), based at Portland State University, released its study of the projected impacts of a carbon tax if it were to be imposed in Oregon. Because it is difficult to measure the amount of carbon released in every process, the study assumes the tax would only be applied to energy-related greenhouse gas emissions, which account for an estimated 83% of total greenhouse gas emissions.
The researchers estimated economic results for a variety of carbon tax levels, ranging from $10/ton of CO2 to $150/ton of CO2, and found that each $1/ton of CO2 in tax led to gas price increases of about $0.01 per gallon. Thus, for a mid-range carbon tax level of $60/ton, gas prices would be projected to rise by $0.60 per gallon. Because different regions have different electricity sources, some of which may not produce greenhouse gases, it is more difficult to give a per-unit cost; however, at a carbon tax level of $60/ton, electricity costs might rise by about 10%.
The carbon tax is designed to be revenue neutral, meaning that the tax revenues must be redistributed back to taxpayers in the form of tax cuts or refunds. Revenue from the gas portion of the tax would go to the State Highway Fund, as is mandated by Oregon law. The remainder of the revenue would be split 70%-30% toward corporate and personal income tax cuts. Under some scenarios, the revenue gained from the carbon tax would allow corporate income taxes to be entirely eliminated.
According to NERC’s research, Oregon’s economy would see a noticeable difference in output as the result of the tax; retail and service industries are most impacted, with reductions in jobs and production. For Oregon’s overall economy, NERC predicts a mid-range carbon tax level of $60/ton and a 70%-30% revenue split between corporate and personal income tax cuts will decrease Oregon’s output by 0.5% each year and cut employment by 8,000 jobs. Because more than 80% of CO2 emissions are in the Metro and Valley regions, their local economies would be most affected.
Proponents of a carbon tax in Oregon point out the success of British Columbia’s carbon tax, which was implemented in 2008. However, British Columbia’s electricity production is more than 86% hydroelectric. That is significantly greater than Oregon, where hydroelectric power produces only 75% of electricity. Thus, more of Oregon’s energy relies on carbon-producing processes; the carbon tax will have a wider impact in Oregon than in British Columbia at raising energy prices.
Additionally, all of the taxes analyzed in NERC’s research found that, to have a meaningful impact on carbon reduction, the carbon tax would have to cost between $30/ton and $150/ton. This is greater than British Columbia’s tax, about $26/ton in U.S. dollars. While British Columbia’s overall economy has not faced serious consequences from the tax, it is difficult to know if Oregon’s economy would fare as well with a higher tax.
As legislators consider the possibility of implementing a carbon tax in Oregon, it is important to continue to evaluate its potential benefits, costs, and economic implications.