The City Is Inching Toward a New Carbon Tax Even as the Portland Clean Energy Fund Is Awash in Cash

The fund has generated far more money than even its most enthusiastic boosters imagined.

Portland city officials tasked with meeting the city’s ambitious carbon reduction goals are attempting to resurrect a tax on smokestack industries.

Documents from the Portland Bureau of Planning and Sustainability show that bureau officials hope to raise about $8 million a year from industrial companies whose factories belch carbon along the Willamette River and near the airport. BPS would use that money to meet its goal of cutting carbon emissions in half by 2030 and reducing them to zero by 2050.

Those goals became more urgent last week, when the United Nations released a doomsday climate report its secretary general called “a code red for humanity.” In a summer of lethal heat and choking wildfires, Portlanders are encountering substantial evidence of climate change.

BPS officials insist they can think globally by taxing locally.

But the bureau’s coffers are already overflowing with the windfall from a different tax that Portland voters approved in 2018.

That tax, the Portland Clean Energy Fund, has generated far more money than even its most enthusiastic boosters imagined: $109 million so far, with another $52 million expected this year.

That’s led some members of a stakeholder group that BPS Commissioner Carmen Rubio convened to ask: Why not tap that existing surplus rather than impose another tax that might have unintended consequences?

It’s not just manufacturing interests asking that question. In fact, WW has obtained a document showing that some members of Rubio’s panel—Democrats who believe lowering emissions should be an urgent priority—want Portland to use PCEF money aggressively to cut emissions.

“It’s an alternative that is worth a longer conversation,” says John Tapogna, president of the consulting firm ECONorthwest and a member of Rubio’s panel. “The tax has brought in far more than voters were led to expect.”

PCEF’s primary goal—like that of the proposed carbon tax—is to reduce carbon emissions, although through grants to nonprofits that will benefit communities of color.

City officials say the idea of dipping into the PCEF is a nonstarter because the ballot measure that created the fund strictly limits its use to grants to nonprofits that will generate green energy projects and jobs for communities of color.

When the PCEF question arose in an Aug. 17 BPS briefing of industry leaders, Kyle Dreiser, the bureau’s point person on the new tax, batted it away. “That money is restricted for community grants,” he said.

The city has tried before to create its own carbon tax, touting what would have been the first such tax by a city in the nation. Late last year, the Bureau of Planning and Sustainability proposed a two-part tax on heavy industry. The idea would have raised about $11 million annually.

Strong opposition from prospective payers, including the two biggest targets of the tax, Evraz Steel and the Owens-Brockway glass plant in North and Northeast Portland, respectively, sidelined that proposal (“Glass Houses,” WW, Jan. 27, 2021).

But the carbon tax is not dead.

Rubio, who took over the bureau in January, has looked for a compromise. After consulting critics of the original proposal, the commissioner convened a workgroup led by her special projects staffer Jillian Schoene that met five times from April through August.

The tentative new idea: Significant industrial polluters would each undergo an emissions audit in preparation for a new tax. That tax would be about $17.70 per ton, the price California has assigned to carbon. That’s less than the $25 per ton embedded in the city’s earlier proposal.

And the new tax is aimed at being more than just what critics earlier called a “cash grab.” Instead of the city keeping all of the tax to pay for new emission reduction programs, the affected companies would get 40% to 60% of the money back to invest in improvements to lower emissions.

Corky Collier, executive director of the Columbia Corridor Association, a trade group that includes most of the city’s heavy industry, gives Rubio high marks for listening to critics and running a collaborative process.

He’s still not sure he likes the carbon tax. While Collier says the idea of companies being allowed to reinvest some of their tax payments is an improvement, it’s not an incentive to reduce pollution.

“Why only give us back 40 to 60 percent?” he asks. “Why not 100%?”

In other words, business leaders are frustrated that the city is still trying to generate more money to fund climate policy rather than creating specific carbon reduction targets.

David Kenney, a spokesman for Evraz Steel, the city’s largest carbon emitter, notes BPS doesn’t really need the money. “It doesn’t make sense given how much money they are sitting on,” he says.

That’s indeed the case. In November 2018, voters passed the Portland Clean Energy Fund to jump-start energy efficiency projects and jobs for Portlanders historically left behind. The chief petitioners promised in the Voters’ Pamphlet the measure “will bring in $30 million every single year.”

It’s done far more than that.

As of July 1 of the current fiscal year, the PCEF had $109 million on hand, according to city officials, and it expects to generate $52 million in new revenue this year.

Most of the tax dollars are sitting unused in a city bank account—and are not going to any green energy projects in the foreseeable future.

The fund distributed about $9 million in grants last year and hopes to hand out $60 million this year. If it succeeds in doing that, PCEF will still have around $100 million sitting in the bank at year’s end.

That’s about 12 times what the Bureau of Planning and Sustainability would raise with the revised carbon tax on heavy industry.

Some members of Rubio’s carbon workgroup noticed the paradox.

A document they put together, written by former Multnomah County Commissioner Jules Bailey and others, suggests borrowing against future receipts from the PCEF tax—but only touching the surplus above the $30 million a year that the fund expected to raise.

Borrowing against future revenues would allow aggressive, immediate investments in carbon reduction—electric vehicle fleets, vast solar arrays, renewable hydrogen, etc.—while also still fulfilling the equity and job creation goals of the ballot measure.

“By bringing the long-run value of PCEF into the present, Portland can ensure the existence of the fund, protect the promise it brings to frontline communities, and invest critical money when it matters most: now,” says the document.

But that idea is going nowhere because of the restrictions on the money, which could only be loosened by a vote of the Portland City Council. Schoene says no talks are scheduled to take any such action.

However, the bureau is still consulting stakeholders about the most effective way to battle the climate emergency, Schoene adds.

“We have shifted away from the original, draft proposal to one in which the city is working with industry [and] large institutions to directly invest in them,” she says, “plans that they have control over, with a shared goal to reduce carbon over time to the benefit of those most impacted by climate change and poor air quality.”

The city will open a 60-day public comment period on the proposal after Labor Day. Schoene says the policy that emerges is unlikely to come before the City Council for a hearing before December.

Collier says members of his association appreciate the city’s willingness to listen—but warns that the city’s search for money it doesn’t need could have unintended consequences.

“If you shun industry in Portland and send companies elsewhere, they are going to be even bigger emitters,” he says. “What you actually do with badly designed policy is increase emissions worldwide.”

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