Bay Area’s Carbon Tax, the Nation’s First, Rankles Big Oil

It should come as no surprise that the Bay Area, a national hub of cleantech enterprise and environmental policy, has become the first in the country to pass a tax on carbon emissions. The Bay Area Air Quality Management District’s board of directors voted 15-1 yesterday to start charging businesses in the nine counties of the Bay Area region 4.4 cents for every ton of carbon dioxide they emit.

The tax is to go into effect on July 1 and will collect from some 2,500 businesses. The district estimates that the measure will raise $1.1 million, which it says will be used to track and study greenhouse gas emissions in the area. The vast bulk of the fees would be paid by a handful of heavy emitters, including oil refineries, while the majority of the affected businesses would pay less than $1 a year.

For many businesses “tax” is a scary little three-letter word, and can be political suicide for politicians. The Bay Area Air Quality Management District could very well be sued by industry leaders claiming they have no authority to regulate and levee such a tax. The Western States Petroleum Association certainly isn’t pleased:

“We think it’s ill-timed and ill-advised because it raises jurisdictional conflicts with the state climate change law and that creates uncertainty for the business community as to who is in charge,” Dennis Bolt, Manager of the Bay Area district for the Western States Petroleum Association.

Bolt says, “We asked them to put off adoption of the fee until we can sit down with the ARB (Air Resource Board) and then so we can establish the jurisdictional issues. But they decided not to do that.” Bolt says the association has not yet moved to file any legal action. At issue is California’s Assembly Bill No. 32, which precludes anyone but the ARB from regulating greenhouse gases emitted by stationary sources.

But the tax could set a strong example for the state of California and the nation as a whole. While a cap-and-trade system seems to have more traction with business leaders and is far more palatable to politicians, many experts, ranging from Al Gore to former Bush economic adviser Glenn Hubbard, favor a carbon tax over a cap-and-trade approach. A report from the Congressional Budget Office estimates that a carbon tax could yield five times the net benefits of an inflexible carbon cap.

San Francisco Mayor Gavin Newsom has long been talking about reorienting his city’s tax laws to tax carbon emissions while simultaneously rolling back payroll taxes. To the north, British Columbia Finance Minister Carole Taylor unveiled North America’s first carbon tax back in February with a hefty greenhouse gas fee of $10 per ton.

Other local governments have enacted taxes on energy efficiency and electricity use. In the Portland, Ore., area, officials have been discussing a system that gives rewards and collects fees for energy-efficient buildings. And in Boulder, Colo., officials passed a tax on how much electricity residents use.