Climate taxes, Denver and Boulder

Boulder voters will be asked to enlarge the city budget to $6.5 million. Denver now has $40 million to tackle emissions.

Boulder was first in Colorado — and very likely the country — to institute what can be considered a carbon tax. That was in 2007, and the tax on consumption of electricity since then has yielded $22 million to assist energy efficiency upgrades, develop local solar energy projects, and in other ways has enabled Boulder to move the needle on the energy transition.

Denver in 2020 adopted a tax that is not strictly levied on carbon but which has much the same intent as that of Boulder: to move the needle on emissions. Both cities have been in the news lately.

Boulder wants to replace the existing “climate action plan tax,” which is to expire in March 2023, and a supplemental utility occupation tax with one overarching tax. This new tax would in yield $6.5 million a year, compared to $3.9 million from the existing taxes. The new climate tax would simplify the city’s investments in climate-change work and, more importantly, provide money for more substantial work to “align with the scale of investment necessary,” according to a statement by the city climate office.

The precise use of that money has not been identified, but the city has said the ongoing and new projects could include assistance in energy efficiency upgrades, creation of microgrids and energy storage projects, and building electrification, among a dozen or so possible uses.

With the Marshall Fire still searing in memories, the city’s proposal also identifies possible funding for wildfire resilience. This could be used to support vegetative management, fence reconstruction, and roofing and siding replacement. It would also allow strategic undergrounding of power lines. It’s not clear yet that power lines had anything to do with the cause and spread of the Marshall Fire, but the risk of electrical wires in causing fire is a major consideration for utilities. See: “Red flag warnings on the rise in Colorado.”

The proposal would give the city bonding authority, which would allow the city to issue debt that would be repaid with future revenues from the new climate tax. See the city’s FAQ here.

Will this pass? In late spring, Magellan Strategies conducted on-line and telephone surveys of 1,180 people on behalf of the city. The survey showed 78% support for the proposed climate tax. More than half of those polled (58%) said they were “extremely worried” about climate change, and a little over a third (36%) identified the changing climate as the single most important issue facing the city.

The proposed tax—applicable to both electrical and gas sales by Xcel Energy—would raise taxes in only a minor way for homes but more so for commercial customers and particularly so for industrial.

For example, residential customers currently pay $42.95 but will pay $49.66 under the proposed tax. Commercial customers currently pay $292.42 but will be required to pay an average $487.37 annually. Industrial customers would see increases from $1,084 to about $1,807.

Leslie Glustrom, who has been involved in all things having to do with the energy transition in Boulder for about the last 20 years, supports the expanded effort but cautions that value of the tax depends on what projects are chosen for funding. In short, how effectively can the money be used to achieve action?

In March, the editorial advisory board for the Boulder Daily Camera shared opinions. One of them, Hernan Villanueva, also points to problems of documenting causality. “It’s not clear whether the overall drop in emissions in the U.S. is because of taxes in cities like Boulder, or if they’re due to technological advances such as efficient engines and a shift to electric vehicles.”

Boulder, with its quest to municipalize electricity, was at the epicenter of the movement that caused Xcel Energy, the city’s electrical supplier, to embrace renewable energy, she points out. Now, with Xcel at the lead, electrical utilities that deliver 99% of the state’s electricity have embraced strategies that will reduce carbon emissions of electricity 80% by 2030 and, in some cases, even more.

As such, the new climate tax can less properly be called a carbon tax. That will be increasingly true as Xcel decarbonizes its electrical generation. Notably, however, this tax will be imposed on natural gas.

Denver did not adopt its climate tax until 2020, but nearly two-thirds of city voters then approved a 0.25% increase in sales taxes. The taxes yield $40 million a year to “mitigate the causes of climate change,” more than 10 times what was previously available for such work. A city task force estimates that the climate investments will yield at least a fourfold return and possibly close to sevenfold return in averted impacts and savings.

Governing Magazine conducted a Q&A with Grace Rink, who was appointed director of the city’s new Office of Climate Action, Sustainability and Resilience in 2020. She had previous experience in a multinational consulting firm, AECOM, where she had assisted teams in green building, water conservation emissions reduction, and other sustainability programs. Much of her work was in metropolitan Chicago and, more broadly, in Illinois.

The magazine’s Carl Smith wanted to know why a city needed a chief climate officer.

“The work we do requires a lot of collaboration across agencies,” she replied.

“There’s no one agency that can own all of the policy work as well as the implementation, especially when it comes to infrastructure. The idea is that there should be somebody coordinating all that – a chief who reports to the mayor, regardless of where they’re located in the hierarchy.”

Oddly, though, in her interview, Rink seems to overlook Boulder’s pioneering work, instead pointing to Portland as being the only other city that has a “taxpayer-supported fund specifically for climate action.”

At what size does a city have the scale to justify having a climate officer? In her previous role as a consultant, she worked with “plenty of smaller cities where it would not have made any sense for them to employ their own person – not just financially, but the scale or the scope of their city wasn’t big enough to justify it,” she answered.

“But for a collection of smaller cities in the same region, contiguous to each other, or within, say, a 40- or 50-square-mile area, it would make sense to band together and have one person doing this work for them.”

She acknowledged challenges in that cities tend to have their own building codes, zoning, and other elements of governance.

“If smaller cities are interested in doing this, finding just one partner to collaborate with or even one subject is a start. Waste management is a good one. It can be streamlined and shared across communities and costs can be reduced for cities, residents and businesses.”

Seemingly in response to Glustrom’s concerns in Boulder about leveraging tax dollars to maximum effect, Rink says Denver tries to “focus our energies where we really have control – building codes and zoning codes, roadway decisions and electric vehicle charging.”

Grace Rink

Rink goes on to say this:

“If you want to get your city to net zero, you do that through the building code, and we’re working on that right now. In Denver 65% of our greenhouse gas emissions come from space and water heating in our buildings and homes. We’ve done it in two ways. One was in November 2021, when the City Council passed a policy we recommended, the Energize Denver building performance policy. It requires all of our commercial buildings that are 25,000 square feet and larger to reduce the emissions from their energy use to nearly net-zero by2040. Most buildings will have to reduce at least 30% by 2030.

It’s key to say ‘emissions’ and not just energy. We’re really looking at a wholesale transition from a natural gas space and water heating to electrified space and water heating. The reason that will work in Denver is that our electrical utility, Xcel Energy, has already committed that 80% of its electrical grid will be powered by renewable sources by 2030. They’ve estimated it might be as high as 85%.

Then we look at new construction. By 2050, 40% of the buildings and homes in Denver will have been built since 2021. That’s a lot of buildings.

We are just introducing the final proposals to get electrification and minimum solar requirements into the building code. Denver’s building code is updated every three years, and there are about three code cycles between now and 2030. Our goal is that by 2030, the building code will require that all new construction buildings and homes have to be net zero. They’ll accomplish that through their design.”

For the full interview, which I recommend, see: “Why would a city need a chief climate officer.”

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