How Big Oil Blocked the Nation’s Greenest Governor on Climate Change

Source: By Marianne Lavelle, Inside Climate News • Posted: Wednesday, September 11, 2019

Publicly, BP supported carbon pricing. Behind the scenes, it extracted concessions from Gov. Jay Inslee, then dropped its support last minute, emails show.

This story was co-published with The Weather Channel as part of Collateral, a series on climate, data and science. 

It was Valentine’s Day 2018, and Washington Gov. Jay Inslee was about to be jilted.

Few outside Inslee’s circle of advisers knew that one of the nation’s most ardent advocates of climate action had been working for weeks to forge an alliance with one of the state’s leading greenhouse gas polluters—the oil giant BP.

Now, on the day before a key hearing for Inslee’s proposal to enact the nation’s first carbon tax, the kind of comprehensive climate plan he had been talking about since taking office, BP was evasive.

“Will you be testifying tomorrow on behalf of BP?” Chris Davis, Inslee’s senior climate advisor, wrote in an email to the company’s Washington state lobbyist Denny Eliason. “Very needed right now.”

Eliason put him off, indicating he’d know more after an upcoming call. But the next morning, Inslee’s office still had no idea if his proposal would go before the state Senate’s chief tax-writing committee that day with the influential backing of BP. The oil company was the best hope Inslee’s team had for the endorsement of a big business directly affected by the policy—support that could win over conservative Democrats or even Republicans, whose votes Inslee needed for the measure to pass. “Any news?” Davis prodded in another email.

BP’s lobbyist delivered the final brush-off two hours before that afternoon’s hearing. Despite BP’s public support for carbon pricing and the concessions Inslee and Democratic lawmakers had made to win the oil company’s support for their carbon tax proposal, BP wasn’t going along. Eliason said BP would take no position on the bill—a silence that might as well have been a death knell.

The bill failed. And later in the year, BP also played a decisive role in defeating a ballot initiative to adopt a carbon fee in Washington state.

Inslee did score a climate policy victory in April 2019—just as he was beginning his short-lived presidential campaign centered around action on global warming. Inslee signed what his office called “an unprecedented suite of clean energy legislation,” including Washington’s commitment to 100 percent carbon-free electricity. But a crucial piece was missing: the state’s climate program does nothing to curb the fuel burned in cars, trucks, and other transport—BP’s main products, and the state’s largest source of greenhouse gas.

BP sign. Credit: Paul Ellis/AFP/Getty Images

Emails between the governor’s staff and BP provide a revealing window into how oil companies wield their clout in the fight over climate change, even as they publicly support efforts to reduce carbon emissions. Credit: Paul Ellis/AFP/Getty Images

The emails between Davis and Eliason were part of hundreds of emails related to Washington state climate policy obtained by InsideClimate News through a public records request.  The correspondence provides a revealing window into how oil companies wield their clout in the fight over climate change, even as they increasingly publicly support efforts to reduce carbon emissions. While BP, Exxon, ConocoPhillips and others say they favor a price on carbon, their tough stand on the policy details is one reason solutions remain so far out of reach.

Inslee’s fight for climate action in Washington state is a case study of the monumental political challenge that the drive for climate policies faces, even with Democrats in control of both houses of the legislature, a chief executive who has made climate a priority, and a major player in the fossil fuel industry pledging to be a part of the solution.

It is also a cautionary tale and preview of the battle ahead for climate action on a national level, where BP and other big oil companies are staking out a position similar to the one they adopted in Washington state—portraying themselves as partners, not adversaries, in addressing global warming. Based on the record so far, some who have watched the process closely question whether the oil industry can be a trusted ally in enacting a policy that is ambitious enough to effect the rapid, deep economy-wide cuts in carbon emissions that the science demands.

“The oil industry has done this double-speak dance,” said Kristin Eberhard, director of climate and democracy for the Seattle-based nonprofit Sightline Institute, an environmental think tank focused on the Pacific Northwest. “They realize that most Americans know that climate change is happening, and they would look self-serving and out of touch if they tried to deny climate change. So they’ve just turned around and said, ‘We know climate change is happening, we want to take action on it. Oh, but not this action,’ any time action comes up.”

“The problem in Washington,” Eberhard said, “seems to be that BP wasn’t coming to the table to work it out. They were coming to block it.”

BP spokesman Jason Ryan told InsideClimate News in an email that the company was working in earnest to forge an agreement for carbon pricing in Washington, but that it couldn’t be accomplished in the state’s brief 2018 legislative session.

“We are committed to playing our part in advancing the energy transition to a low-carbon future no matter how challenging it is,” Ryan said, pointing to a recent op-ed by Helge Lund, who took over as BP’s chairman last year. “Success will require new levels of collaboration across industry, consumers and governments, aided by technology improvements and well-designed government policies.”

BP points out it was among the oil companies that worked with former California Gov. Jerry Brown on the deal that expanded that state’s cap-and-trade carbon pricing system in 2017—a program that is ahead of its 2020 goals. 

“Our position has been clear,” Ryan said. “A well-designed price on carbon—either a tax or a cap-and-trade system—is the most efficient way to reduce greenhouse gas emissions.”

‘One of the Most Progressive Companies’

Eliason signaled that BP wanted to work with Inslee on a carbon tax in an email to the governor’s chief of staff, David Postman, and his policy director, Keith Phillips, in December 2017. BP “has been one of the more progressive companies when it comes to public policy around carbon reduction,” Eliason wrote.

It was a pivotal moment for Inslee’s long-standing climate agenda.

Democrats had regained control of the state Senate for the first time in five years, although they enjoyed only a single-vote advantage. Inslee agreed with the argument of economists who say an escalating tax on carbon-based fuels like gasoline and coal would help address climate change more effectively and efficiently than government mandates alone.

BP owns the largest of the five oil refineries around Puget Sound—a hub that imports crude from Alaska and Canada, making Washington the nation’s fifth largest oil refining state. On the issue of a carbon tax, its clout could be crucial.

“To be frank, we were looking to get any major business voice who was going to be covered by the program to speak on behalf of the proposal,” Inslee’s climate staffer, Davis, said in an interview. “BP, as a firm at the international level, has claimed it is supportive of carbon pricing and that it wants to go in this direction. It was an obvious target for us to reach out to” for support.

Democratic state Sen. Reuven Carlyle of Seattle, chair of the Washington Senate’s environment committee who would sponsor the carbon tax legislation, also was urging Davis to meet with BP.

“BP is deeply involved in the policy and political exercise of trying to build a framework of carbon pricing that works for them,” Carlyle said in an interview with InsideClimate News. “I think that policy position is sincere. That doesn’t make it easy.”

“I believe they are going through the long process of conversion from a pure fossil fuel company to an energy company,” Carlyle said.

Inslee Compromised, but BP Wasn’t Satisfied

When Davis reached out to the oil company in late 2017, Phil Cochrane, senior director of state and local affairs for BP’s North American fuels division, responded enthusiastically.  “As you may know, BP was one of the first oil and gas companies to recognize the urgency of the climate challenge and we intend to be part of the solution,” Cochrane wrote in an email to Davis. “We support a well designed price on carbon.”

But BP’s ideas of what made for a well-designed price included provisions to lessen the impact on BP.

In the final days of 2017, the oil company sent Inslee’s office a 14-point proposal for ensuring the pain of a tax was spread throughout the economy and that costs were kept down. Importantly, it called for a rollback of other carbon regulations and a prohibition on any other new ones—especially by local governments, which were then eager to enact their own programs to reduce carbon emissions in several corners of Washington state.

The bargain BP was seeking was a miniature version of a proposal that BP and four other oil companies—ConocoPhillips, Exxon, Shell and Total—have endorsed for national action on climate by Congress. Several environmental groups have joined with the oil companies and other businesses in a coalition called the Climate Leadership Council, which is advocating for the approach on Capitol Hill.

Long-time advocates of carbon pricing have been cautiously hopeful about that development, glad for the oil industry’s engagement but wary of the risk of giving too much away in return for its support.

“Anybody who wants to endorse a robustly rising carbon tax that sends a very powerful price signal … would deserve support and praise for doing so,” said Charles Komanoff, an economist who is director of the Carbon Tax Center in New York. But he argues that the carbon tax envisioned in the oil industry-endorsed Climate Leadership Council—starting at $40 per ton and increasing 2 to 5 percent a year—is too modest. “That trajectory is not going to be nearly enough to cut actual demand for petroleum products, or upend the culture of carbon,” Komanoff said.

Chart: Carbon Pricing Plans

In Washington state, Inslee and other advocates of carbon pricing came face-to-face with the question of how much to compromise when dealing with BP.

By February 2018, the governor’s proposal was headed to the state Senate Ways and Means Committee with the vast majority of items on BP’s wish list addressed—but not in ways entirely to BP’s liking.

Lawmakers cut the proposed carbon tax nearly in half from Inslee’s original proposal and set a cap to make sure the price would go no higher than $30 per ton—equivalent to 27 cents per gallon.

The bill contained at least some of the regulatory rollback BP sought, suspending enforcement of Washington’s Clean Air Rule, an escalating cap on greenhouse gas emissions from the state’s largest polluters which Inslee’s administration had put into place in 2016, after his legislative efforts had failed. At that point, Inslee’s Clean Air Rule was in litigation, and its future was uncertain. (A state judge has since put it on hold.)

Inslee’s legislation also had several provisions to hold down costs to industry. It exempted fossil fuels used on-site for manufacturing processes by industries like aluminum and steel, which use large amounts of energy and are especially vulnerable to competition from across state borders. The tax would be levied at the “rack,” or the wholesale terminals that receive gasoline and other fuels from refineries and dispense them to trucks for sale to gas stations and other retailers. That benefited refiners because any fossil fuels they used in their operations would not be taxed.

But BP wanted more. It wanted refineries to be able to reduce their taxes by investing in carbon reduction projects—an approach known as “offsets.” For example, the company was getting credits in California’s cap-and-trade program for investments it was making in forest preservation on Native American land in Washington state. “If we are engaging in projects that result in real carbon reduction. … why should we not get credit against the tax on our products?” Eliason asked in an email.

Davis explained in an email: “Given the significant benefits the refineries gain from both the [energy-intensive, trade-exposed] status and the point of regulation at the rack, the offsets come at far too high a cost from our perspective.”

The final sticking point for BP was over local governments. Seattle, Tacoma, Bellingham, Redmond and other Washington cities have been in the forefront of a national drive for local action on climate. Inslee’s legislation would have preempted cities, counties or any local subdivision from enacting their own carbon taxes. But in BP’s eyes, this was not enough.

Eliason explained the company wanted to see a ban on local governments enacting other climate policies, such as low-carbon fuel standards or renewable portfolio standards. “We see this as a potential threat in Whatcom County,” Eliason wrote, referring to the home of BP’s refinery on the state’s northwestern coast, where the county council had set a 100 percent renewable energy goal several weeks earlier. “We think a carbon tax should be the controlling policy in this space,” he said.

Neither BP nor the industry group of which it was a member, the Western States Petroleum Association, would take a position on Inslee’s carbon tax bill before the Ways and Means Committee, Eliason said. That was meant to be a slight concession to Inslee, better than outright opposition. Eliason said BP would continue to be engaged and said it would send a letter to the members of the committee on “the importance of a legislative solution, the good progress that has occurred to date, and the ways the bill could be further improved.”

“It’s very difficult,” Davis said in a recent interview “There is a ‘go find me another rock’ phenomenon with the major industries, who want to say publicly from their PR perspective that they also believe climate action is crucial, but not at this time, or not this particular proposal.”

Many other Washington businesses, including in agriculture and the pulp and paper industry, actively opposed the legislation. The most important opponent among the legislators was the Democratic chair of the powerful Senate Transportation Committee, Sen. Steve Hobbs, who objected that none of the revenue from the carbon tax was being dedicated to fund transportation projects.

This was more than a mere turf battle. The largest source of money for highway projects in Washington is the state gasoline tax. If the carbon tax worked as expected, it would further put the brakes on already weak gasoline demand, gutting the state transportation budget at a time when Washington faces billions of dollars of projects—some of them court-ordered for protection of the state’s prized salmon. It is just one of the ways dependence on oil is woven tightly into the economy—even in a state like Washington where leaders have tried to prioritize environmental protection.

Hobbs’ defection was all it took to kill the legislation’s chances, with the Democrats’ thin 25-24 majority and no Republicans willing to break ranks with their party. As the legislative session came to a close at the start of March, Carlyle declared that the measure fell “a vote or two short” and it was never brought to the floor.

In 2018 Election, BP Flexed Its Muscle

The next chapter in Washington’s climate policy saga, and BP’s role, played out in the spotlight of the 2018 election. Environmentalists, weary of the legislative stalemate, petitioned successfully for a carbon fee voter initiative on the November ballot. It was a bold gambit, given that taxes are notoriously difficult to pass by voter initiative, and Washington voters already had turned down such a ballot measure only two years earlier.

But environmentalists thought they had a better chance since they were more united than in 2016, when many opposed the measure because it put all the revenue into tax breaks to cushion the blow of higher fuel prices. In 2018, environmentalists were united in a coalition with social justice activists and tribes in a carbon fee plan that would direct revenue into clean energy projects, environmental justice and community assistance—similar, though not identical, to the failed Inslee legislative plan.

That’s when BP demonstrated what its full-force opposition could do.

The oil industry poured $31.2 million into a TV ad-heavy campaign to defeat the measure, more than had ever been spent to defeat a ballot initiative in state history. The ads said the proposal would force Washington consumers to pay billions more for energy, with no guarantee of reductions in greenhouse gases. BP’s $13 million contribution to that effort was more than double the previous record for a single company’s spending on a Washington state ballot initiative.

Chart: Who Poured Money into Opposing Washington's Carbon Fee Referendum?

“We made a difficult decision to oppose [the ballot initiative] because we believed that it would not achieve the economy-wide reductions necessary in Washington state and would set a bad precedent for other states considering such policies,” said Ryan of BP. A key reason for BP’s opposition was that the plan would have exempted several large industrial carbon emitters in the state.

The carbon fee initiative failed, with 57 percent of voters opposed.

The experience—not just the initiative, but the previous failed efforts at carbon pricing—were deeply sobering to many long-time Washington state environmental activists.

“There was a time when I thought the oil industry could be a partner and could navigate the transition to a clean energy future,” said KC Golden, a former director of Washington state’s Energy Policy Office who now serves as senior advisor to the Seattle-based advocacy group Climate Solutions. “But I think that time has passed. The logical fallacy is this: Any climate policy that effectively prevents catastrophic climate chaos would render a huge fraction of their assets—their booked reserves—worthless, and at this point that would have to happen quite quickly. So they may eventually feel compelled to get on board with ‘a’ climate policy, but not one that really does the job. It’s us or them now.”

But for Inslee and his allies in Washington’s legislature, cutting BP out of the process was not an option. “We don’t have the luxury of that kind of position,” said Davis. “We’ve got to talk to everybody. We have to count votes, and we have to think of the perspectives of the people who are going to be hearing from these guys. That doesn’t mean it’s going to be so watered down to get BP’s support it’s not going to be effective. At the end of the day, there are certain things we will insist the policy does. If it doesn’t meet the goals we’re trying to meet, we will move on and wait for another session.”

A Victory, and a Loss

The 2019 legislative session geared up as Inslee was exploring the possibility of a presidential run. Davis said the governor’s team remained eager to enact climate policy, but made a “deliberate pivot” away from carbon pricing.

Davis circulated to his colleagues an article by a University of California, Berkeley environmental law professor, Eric Biber, which captured the rationale. Biber argued that while a price on carbon is needed to tackle climate change, it was a political non-starter. He said it was better to start with regulatory policies—clean energy mandates and the like—even though they were a more costly way of cutting carbon emissions. The hope is that the success of such policies will improve the political prospects for carbon pricing in the future.

Inslee’s team prepared a push for a 100 percent clean electricity mandate, building efficiency standards, new controls on the use of the potent greenhouse gases used in refrigeration, and a low-carbon fuel standard to address the pollution from cars and trucks. This last item was particularly important because in Washington, transportation accounts for more than 40 percent of the state’s carbon emissions.

But while Inslee’s team was switching gears, one key Washington interest was still talking about carbon pricing: BP.

Just five days after the company helped bankroll the campaign to defeat carbon pricing at the ballot, BP lobbyist Eliason forwarded to Carlyle the company’s own draft legislative proposal for carbon pricing in Washington state—this time, through a cap-and-trade program.

BP said it did so because the feedback it was getting from Washington lawmakers was that cap-and-trade might be a more acceptable path than a tax to achieve a price on carbon. At the time the company made a decision to oppose the ballot initiative, Ryan said, it pledged that it would work with the governor and Legislature to pass carbon pricing.

Inslee had tried a cap-and-trade proposal in 2015, and it had been vigorously opposed by the Western States Petroleum Association, of which BP is a member.

Carlyle would introduce cap-and-trade legislation that adopted some—though not all—of BP’s ideas; it sparked discussion, but not enough support to advance in the Washington legislature in 2019. By circulating the cap-and-trade proposal so soon after the defeat of the initiative, though, BP ensured itself a seat at the table as policymakers regrouped.

Carlyle sent an email in late November 2018 to a small circle of legislators and legislative staff, including Inslee’s team, on the need for “a serious, thoughtful dialogue on ‘what’s possible’ on a number of key climate policies.” Just one lobbyist was invited to the meeting: Eliason of BP.

By April, six weeks after Inslee launched his presidential run, he signed a law making Washington the fourth state—behind Hawaii, California, and New Mexico—to set a 100 percent carbon-free electricity goal. The legislature also passed the measures to reduce greenhouse gas emissions from buildings and refrigeration, as well as incentives for electric vehicles, and steps to make it easier for utilities to expand EV infrastructure.

But one piece of Inslee’s package stalled in the legislature: the Low Carbon Fuel Standard to curb pollution from the state’s biggest greenhouse gas polluter—transportation—a sector almost entirely dependent on oil. BP was among the businesses opposing the standard.

Without a policy to curb gasoline and diesel emissions, Washington state is a long way from having the kind of comprehensive climate solution Inslee has been talking about since taking office six years ago.

Inslee did get his chance to draw up a blueprint for such a solution—the six-part climate plan he released over the course of his five-month presidential run. It includes a timeline for 100 percent clean electricity, like the program that has been adopted in Washington. But it also includes measures he has not yet been able to enact, like carbon pricing. Some of the remaining candidates, including Elizabeth Warren and Julian Castro, are openly adopting parts of his platform as a template for their own climate plans.

Having dropped out of the presidential race, Inslee is turning his attention back to Washington state, where he is running for a third term as governor. He acknowledges that he has more work to do there on climate policy.

“The science is clear—we have to transition away from fossil fuels and we have to do it soon,” Inslee said in an email. “Every sector of our economy and every level of government plays a role in that transition. Our state is striding forward, and we will not be daunted or deterred from pursuing the policies necessary to protect Washingtonians and our planet from the ravages of climate change.”