Using carbon tax revenues to help attain climate goals: Insights for Washington State from existing programs

The paper examines how subnational governments, with a focus on Washington State, can effectively use carbon tax revenues for greenhouse gas (GHG) mitigation. It argues against a narrow focus on the lowest-cost reductions, which often leads to pitfalls such as overpayment, lack of additionality, and long ramp-up periods. Instead, it recommends a strategic approach that targets market failures, promotes social equity, and leverages existing state programs to ensure rapid and effective deployment of funds.

• While economists argue that a carbon tax is most efficient when it lets the price signal drive mitigation, there are political and economic justifications for using revenues to fund specific projects, such as building political support through clean energy investments and addressing 'market failures' like the 'split incentive' problem in building efficiency.
• Mitigation funding programs generally fall into four goal categories: achieving the cheapest reductions, pursuing social value and economic equity, meeting long-term climate ambitions, or fostering innovation, jobs, and competitiveness.
• Programs that prioritize the lowest cost per ton of CO2-equivalent are highly susceptible to 'paying too much rent,' where a single price is paid for activities with widely varying costs, leading to excessive profit margins for some developers and wasted budgets.
• A significant risk in mitigation funding is the lack of 'additionality,' where funds are spent on activities that would have occurred regardless of the investment, thereby producing no net GHG reductions.
• Focusing exclusively on the cheapest reductions can lead to 'going off target,' where funds are diverted to low-cost projects that do not support broader sustainable development or long-term decarbonization goals, such as the prevalence of HFC-23 destruction in the CDM or vegetation conservation in Australia's ERF.
• Establishing new funding mechanisms often results in long 'ramp-up' periods—sometimes up to five years—due to the time required to develop standards for quantification and verification.
• Building on existing state programs is recommended as a way to deploy funds more quickly because administrative structures and project pipelines are already in place, as seen in the approaches taken by California and RGGI states.
• To avoid 'biased baselines' and the 'supply conundrum,' the paper suggests that Washington should be strategic by targeting measures that are clearly not cost-effective at current tax levels, such as bus rapid transit (BRT) systems, or those that promote social equity.

APA

Broekhoff, D., Down, A., & Lazarus, M. (2017). Using carbon tax revenues to help attain climate goals: Insights for Washington State from existing programs. Stockholm Environment Institute. https://www.sei.org/mediamanager/documents/Publications/Climate/SEI-WP-2017-05-Using-carbon-tax-revenues-to-achieve-climate-goals.pdf

Chicago

Broekhoff, Derik, Adrian Down, and Michael Lazarus. Using carbon tax revenues to help attain climate goals: Insights for Washington State from existing programs. Stockholm Environment Institute, 2017. https://www.sei.org/mediamanager/documents/Publications/Climate/SEI-WP-2017-05-Using-carbon-tax-revenues-to-achieve-climate-goals.pdf.

Wikipedia

{{cite report |last1=Broekhoff |first1=Derik |last2=Down |first2=Adrian |last3=Lazarus |first3=Michael |title=Using carbon tax revenues to help attain climate goals: Insights for Washington State from existing programs |publisher=Stockholm Environment Institute |date=April 2017 |url=https://www.sei.org/mediamanager/documents/Publications/Climate/SEI-WP-2017-05-Using-carbon-tax-revenues-to-achieve-climate-goals.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{broekhoff2017using, author = {Broekhoff, Derik and Down, Adrian and Lazarus, Michael}, title = {{Using carbon tax revenues to help attain climate goals: Insights for Washington State from existing programs}}, institution = {Stockholm Environment Institute}, year = {2017}, month = apr, url = {https://www.sei.org/mediamanager/documents/Publications/Climate/SEI-WP-2017-05-Using-carbon-tax-revenues-to-achieve-climate-goals.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }