In December 2015 a revenue neutral carbon tax initiative1 (I-732) was submitted to the Washington State legislature.2 If approved by either the Legislature, or at the ballot box, it will be the first economy wide carbon tax in the United States. I-732 is similar to the 2008 British Columbia (BC) Carbon Tax Act, the first economy wide carbon tax policy in North America focused on reducing carbon dioxide (CO2) emissions. However, the Washington carbon tax is economically broader based and more aggressive than the BC carbon tax: it will start at $15 dollars per metric ton (MT) in 2017, increase to $25 in 2018, and then increase 3.5 percent per year in real terms thereafter. This paper evaluates the impact of the proposed Washington State carbon tax, and several alternative scenarios, on energy prices and consumption, as well as CO2 emissions using the updated Carbon Tax Analysis Model (CTAM).3 Washington State developed CTAM in 2011 to forecast the impact of various proposed tax policies on state and national carbon dioxide (CO2) emissions from carbon-based fuel combustion. CTAM is a straightforward spreadsheet based model that estimates the impact of carbon taxes on retail energy prices, energy demand, CO2 emissions, and state revenues by applying long-term price elasticities of demand. The key inputs to CTAM are the price elasticity of demand table, long-term energy price and consumption forecasts derived from the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook publication,4 historical EIA state sector level energy consumption and electric power sales5 by fuel type. Using CTAM we developed and evaluated four scenarios: the proposed Washington State carbon tax, and three alternative scenarios that included the proposed carbon tax plus an increasing number of exogenous complementary CO2 emission reduction policies.
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