Climate Change & Real Estate

While solving the state’s budget shortfall and complying with the Supreme Court’s McCleary education funding decision top the list for the 2015 Legislature, Governor Jay Inslee will be pushing hard to get his top issue—addressing global climate change—into the mix.  While Governor Inslee’s major climate change proposal will be a new state-based carbon pricing system, the broader climate and energy issue will also include proposals that could directly impact the real estate industry and homeowners.

In 2014, Governor Inslee created the Climate Emissions Reductions Task Force (“CERT”)* to provide recommendations on a state system that would impose a price on carbon emissions, through either a carbon tax or a “cap and trade” system.  Underlying the CERT process is the question of whether Washington State can meet the standard adopted by the Legislature in 2008 of reducing carbon emissions to 1990 levels by 2020.  While those emission reduction targets are not enforceable against the state, individuals, or businesses, they are viewed by climate change activists as meaningful benchmarks of state progress on the issue.  The CERT did not recommend a specific carbon pricing mechanism, but its report will be further refined to produce a legislative proposal prior to January 2015.  

Critics of the 2014 CERT process stress that the group’s charter was predetermined by Governor Inslee.  Rather than assessing whether a carbon pricing system should be created and whether it would create benefits exceeding costs or produce any measurable difference in climate change, the CERT structure presupposed that a state-based carbon pricing system would be imposed—and the question was solely how it would be designed.

For Washington’s business and utility community, the CERT process has not convinced them of the need to create a state-based carbon pricing system.   “Washington State has shown that it is a national leader in reducing carbon emissions.  We are a leading state in virtually every category relating to carbon emissions, such as reliance on renewable energy sources, use of mass transit, and carbon emissions per capita.  One of our major objections to imposing government-run carbon pricing is that we have yet to see any real analysis of the economic impacts or whether such a program would add to what we are already accomplishing,” said Brandon Houskeeper, Government Affairs Director for the Association of Washington Business.  For more information about Washington State statistics on carbon emissions and other environmental metrics, see AWB’s 2014 Greenbook at http://www.awb.org/greenbookinfo/

Electric utilities, who in other states and nationally are often the primary target of carbon emission regulations, also stress that because of Washington’s hydropower resources, the global climate change issue is different in Washington State than elsewhere. “A key point that should not be missed is that our state’s reliance on carbon-free hydropower as our main electricity source makes us vastly different from other states or countries that rely on coal.  There are some areas where carbon reductions are possible in the state, but electricity production really isn’t one of them,” said Dave Warren, Energy Services Director for the Washington PUD Association.   

In addition to the debate over the need for and merits of different carbon pricing concepts, the politicization of the issue will likely create substantial headwind in the State Senate.  

During the 2014 election season, Governor Inslee turned to California hedgefund billionaire-turned climate change activist Tom Steyer to fund campaigns in battleground districts.  Steyer, through various PACs, spent over $1 million against State Senate Republicans Doug Ericksen, Andy Hill, and Steve O’Ban, in hopes of creating new State Senate majority inclined to support Inslee’s climate change agenda.  All three State Senate members targeted by Steyer were reelected, and Senate Republicans will maintain control of their chamber through the Majority Coalition Caucus.  And the skepticism of imposing a state-based carbon pricing system is bipartisan, as some Democrats question the need for such a system and how it would impact Washington’s citizens and businesses.  

Carbon tax or cap and trade proposals will also be complicated by transportation and gas tax issues, which is not surprising given that transportation-based emissions are a major area of focus given our state’s low-carbon energy sector.   These include the strong level of support for a major transportation package, which would be funded by a 10-cent gas tax increase.  A carbon tax, if approved by the Legislature, would also cause an increase in gas prices—but without providing any funding for priority transportation projects.  In addition to proposals to the Legislature, Governor Inslee is also considering whether to mandate a low carbon fuel standard through executive action.  Like a carbon tax, a low carbon fuel standard would also increase gas prices, and rivalling economic studies show the impacts to be somewhere between 3 cents to over $1 dollar per gallon of gas.  Given these difficulties, Governor Inslee has recently indicated willingness to dedicate some of the revenues from a carbon tax to fund basic education or major infrastructure projects around the state.  In the background, climate activists have already circulated information about a possible statewide initiative for the 2015 or 2016 ballot, if the Legislature does not act.  

While many carbon emission reduction proposals will not directly affect the real estate industry, other related proposals could.  The Legislature will consider extending tax incentives for residential solar systems, and allowing third-party leasing of solar systems to homeowners, which in other states has resulted in a huge increase in residential solar installations.  Energy efficiency advocates may continue to seek increasing energy efficiency standards through the State Energy Code or through transactional requirements such as point of sale energy audit requirements.  REALTORS® will continue stressing the energy efficiency gains already made under recent legislation and energy codes, and support incentives rather than regulation.  “In King County, both REALTORS® and their clients have shown an increased support for energy efficiency programs.  There are a number of great programs with both utilities and energy service providers that homeowners can utilize.  We support these efforts, rather than ideas involving point of sale mandates or other regulatory measures that hurt transactions,” said Randy Bannecker, a government affairs specialist who covers energy issues for the Seattle-King County Association of REALTORS®.

Real estate transactions and issues affecting owners of homes and commercial real estate will be Washington REALTORS® primary focus on energy and climate issues during the 2015 Legislature.  

“REALTORS® have actively supported the AWB’s (Association of Washington Business) efforts on issues relating to creating a cap and trade or carbon tax system, and we want to make sure that our state’s approach to climate and energy protects our business environment.  But we will prioritize our efforts on energy and climate proposals that directly impact housing, commercial development and real estate transactions,” said 2015 Legislative Steering Chair Debbie Matteson.  

At press time, Governor Inslee announced he will propose legislation establishing a carbon emission cap and trade system, under which industrial and commercial facilities with the largest carbon emissions would purchase carbon emission allowances that would be reduced over time.  This program would generate approximately $1 billion per year for education, transportation, and other programs.  The proposal also includes a number of clean energy, energy efficiency, and other statutory changes and funding to reduce carbon emissions.  For more information, see here: http://www.governor.wa.gov/issues/climate/waleg15.aspx

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