Since the new CO2 tax went into effect in Washington State earlier this year, gas prices have risen 25 cents a gallon compared to other West Coast states.
The latest data released yesterday shows that despite the governor’s protests, the CO2 tax is working as expected, pushing up fossil fuel prices, encouraging people to switch to alternative energy sources.
To calculate the impact and distinguish it from standard price fluctuations, let’s look at the work of carbon tax proponent and environmental economist Yoram Bauman. He created a formula to estimate the increase due to the new CO2 tax. Yoram’s formula uses weekly gas price data from the US Energy Information Administration. We’re comparing regular gasoline prices in Washington to West Coast prices minus California. We excluded California because they have a similar CO2 tax and their prices are more volatile. As Bauman explains in this tweet the gap between prices in Washington and other West Coast states is smaller and more stable, making it a more suitable baseline for comparison.
Calculations can be found in this public spreadsheet.
Price data from AAA is used to validate the 25 cents per gallon estimate. For example, according to AAA, gas prices in Washington have risen by 17 cents a gallon over the past month. Over the same period, average gas prices in Oregon fell 7 cents a gallon. Compared to Oregon, gas prices in Washington are now 24 cents a gallon higher than they were a month ago.
The numbers are similar for Idaho. Gasoline prices in Idaho have fallen about 12 cents a gallon over the past month. Compared to Idaho, gas prices in Washington are now 29 cents a gallon higher than they were a month ago.
This shouldn’t come as a surprise. The very purpose of CO2 taxes is to raise the price of fossil fuels. As the Fiscal Policy Center, run by the center-left Urban Institute and the Brookings Institution, points out, the goal of taxing CO2 emissions is to encourage “people, businesses and government to emit less.” Raising prices isn’t a side effect of Washington’s CO2 tax — it’s the goal.
Not surprisingly, Gov. Inslee denies that taxes are responsible for the surge in gas prices in Washington.
During a press conference last week, he blamed the war in Ukraine for raising gas prices in “Arkansas, New York and Connecticut.” It doesn’t explain why prices rose in Washington state while prices fell in neighboring states, unless the impact of the war in Ukraine is being felt here. AND, as President Biden noted, gas prices nationwide have been declining since summer. The impact of the Russian invasion on Ukraine has dissipated.
Echoing Department of the Environment officials two weeks ago, the governor also blamed the oil companies for the hike, saying they had “jacked up” prices to boost profits. If this is the case, then oil companies are choosing to limit their profits to the state of Washington, refusing to increase profits in Idaho, Oregon and the rest of the West Coast.
The rise in prices reflects the increase in spending in Washington, which is what we predicted last year. We just followed the example of the state of California and energy experts. When she announced her desire to adopt a cap-and-invest system like in Washington, New York Governor Kathy Hochul made her first decision to create a rebate program to “reduce consumer spending”. Only in Washington State do politicians deny that CO2 taxes are driving up gas prices.
And if that wasn’t enough, I even asked ChatGPT, “Does capping and investing in CO2 increase gas prices?” Evidence that AI is getting smarter (or fairer) than some politicians, it says: “A system to cap and invest CO2 emissions is also likely to drive up the price of gasoline.” Frankly, it gives a very brief and precise description of the program, almost identical to the explanation of the Department of Ecology.
The actual price of CO2 taxes will not be known until the end of February, when the Department of the Environment will hold the first auction of CO2 permits. Until then, fuel distributors had to guess at the cost because environmental officials were unable to get the system in place before the tax went into effect. An increase of 25 cents per gallon implies a surcharge of about $31 per metric tonne of CO2. This is more than the floor price of $22 per tonne of CO2, but still lower than the price estimated by the Department of the Environment and futures markets. If these estimates are correct, gas prices will be even higher.
There is a risk associated with CO2 and climate change, and we have long argued that creating incentives to reduce risk is a good thing. We have also been very clear that the costs of this policy should be offset by tax cuts and that the cost increases should be small. The current policy fails both of these tests.
We will continue to monitor the impact of the state tax on CO2 emissions as gas price data is released.