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

This research paper analyzes options for using carbon tax revenues to achieve climate goals in Washington State. It warns against focusing solely on the lowest-cost emission reductions, which often leads to pitfalls such as overpayment (economic rents), lack of additionality, and long lead times for project supply. Instead, the authors recommend a strategic approach that targets market failures, promotes social equity and long-term decarbonization, and leverages existing state energy and transportation programs.

• Investing carbon tax revenues in GHG mitigation can be justified politically, as public support for such taxes often depends on the use of revenues, with commitments to clean energy projects typically garnering more support.
• A carbon tax alone may not unlock all cost-effective mitigation opportunities due to 'market failures' (such as the 'split incentive' problem in building efficiency) or because certain sectors, like agriculture and forestry, are difficult to tax.
• Mitigation funding programs generally fall into four goal categories: achieving the cheapest reductions, pursuing social value and economic equity, achieving longer-term climate ambitions (avoiding 'carbon lock-in'), and fostering innovation, jobs, and competitiveness.
• Programs that prioritize the lowest-cost reductions are highly susceptible to 'paying too much rent,' where a single price per ton leads to excessive profit margins for very low-cost projects, wasting the budget.
• A significant challenge in mitigation funding is 'additionality'—ensuring that funded activities would not have occurred without the investment. Low-cost projects are often the riskiest regarding non-additionality.
• Focusing strictly on the lowest-cost emission reductions can lead to 'going off target,' where funds are diverted to projects with little sustainable development value, such as HFC-23 destruction or certain vegetation conservation projects.
• There is a 'supply conundrum' where rigorous standards for additionality and quantification can lead to long ramp-up periods and a limited supply of 'shovel-ready' projects.
• To avoid pitfalls, the authors recommend that Washington be strategic about investments—targeting areas the tax fails to incentivize—and build upon existing clean energy and transportation programs rather than creating entirely new mechanisms.

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} }