Denver passed a sales tax for climate. Is it working?

By Avery Ellfeldt | 09/16/2022 06:40 AM EDT

Money from the sales tax has boosted Denver’s annual spending on climate from $4 million to about $45 million. The proceeds help fund efforts such as rebates for e-bikes and green workforce development programs.

Thousands of activists march on downtown Denver during the 2017 climate protests that coincided with former President Donald Trump's 100th day in office.

Thousands of activists march on downtown Denver during the 2017 climate protests that coincided with former President Donald Trump's 100th day in office. Marc Piscotty/Getty Images

DENVER — Starting at 6 a.m., five days a week, Deloris Jones picks people up and takes them wherever they need to go — for free.

And sometimes she does it in an electric vehicle.

Jones, 58, is one of six drivers employed by the city of Denver to power a “micro transit” system in the neighborhood of Montbello. Tucked in the city’s northeast corner, residents there face significant barriers to accessing the regional transit system — and even getting to and from key points in the neighborhood.


So the Denver Department of Transportation and Infrastructure in 2021 established the “Montbello Connector,” a free ride-share service that currently consists of an electric sedan; one hybrid vehicle; and a gas-powered, wheelchair-accessible van. The goal was to help residents move about the area at a lower financial and environmental cost.

“They say how it helps them, especially the ones that don’t have a car, [with] groceries and stuff like that,” Jones said in an interview this week. “It helps them get to the store, the doctor, friends.”

Funding the effort in part: climate-concerned voters in the Mile High City, which in recent years has seen record-breaking temperatures and wildfires in the mountains to the west. A new tax in Denver has increased by roughly ten-fold the amount of money the city spends on climate action. It’s one of the most prominent examples of a growing movement by U.S. cities and towns to fund more robust responses to global warming.

Denver residents in 2020 voted to boost local sales tax by 0.25 percent to raise a projected $40 million annually for climate spending, with half of those funds going to lower-income communities (Climatewire, Nov. 4, 2020).

The increase took effect in January 2021. In the months since, it’s raised a whopping $67 million, some of which already is flowing into projects such as green workforce development programs and the Montbello ride-share service.

Proponents of the effort say other cities and towns should look at what’s happening in Denver. The climate sales tax program, they say, has helped circumvent the challenges that many municipalities face when financing climate action.

Among them: restrictive budgets amid multiple ongoing crises, difficulty attracting public and private investment, and — in some cases — opposition from carbon-intensive industries.

In many cities, “there just isn’t this big chunk of unspent money ready to go to help solve the issues around the changing climate,” said Jim Petterson, vice president of the Mountain West region at the Trust for Public Land.

“So going to the voters to have those funds dedicated, so that it is walled off from the vagaries of annual appropriations, is a very useful tool,” added Petterson, who has worked with Denver and other cities on similar ballot initiatives.

‘Willing to pay for it’

The Denver City Council voted Monday to expand the city's free micro transit system to a second neighborhood.
The Denver City Council voted Monday to expand the city’s free micro transit system to a second neighborhood. The service aims to provide residents with cheaper — and lower carbon — access to transportation in areas where public transit is difficult to access.
| Avery Ellfeldt/E&E News

Denver’s Climate Protection Fund was born of a grassroots effort to raise money for climate action — through the initial approach was structured around a carbon tax. The idea was to put a measure on the 2019 ballot to tax the electricity and natural gas used by local utility customers.

The mayor and utility — Xcel Energy Inc. — opposed the idea, said Jolon Clark, a City Council member who sponsored the final ballot initiative. So the city went back to the drawing board and created the Denver Office of Climate Action, Sustainability and Resiliency, as well as a climate action task force made up of residents, community groups, environmentalists and industry experts.

The task force later presented a list of recommendations to the city, including the sales tax. By November of 2020, the measure was on the ballot — and passed with around 64 percent of the vote.

At that point, Clark said that city officials had a clear mandate from voters: “they want us to do this work and they’re willing to pay for it.”

In its first year, the sales tax generated more than $41 million, all of which goes directly into Denver’s climate action office. The office spent just under $1.5 million of that bucket in 2021 due to authorization delays and complicated contracting processes, according to the agency’s latest annual report.

But Grace Rink, the executive director of the city’s climate office, said a different figure — the amount of dollars “committed” by the end of 2021 — provides a better picture of the fund’s progress and potential impact: $57.6 million.

“By committed, we mean that either we had a contract in hand, or a contract was in process or at least we had put an [request for proposal] out to bid,” Rink said in an interview.

“At this point in the year, we are well into the spending,” she added. “So this next year’s report will show a significant increase in the actual dollars going out to the community.”

‘Game changer’

A climate tax passed by Denver voters in 2020 is helping fund a free ride hailing service for residents in the neighborhood of Montbello.
A climate tax passed by Denver voters in 2020 is helping fund a free ride hailing service for residents in the neighborhood of Montbello. The “micro transit” service is made up of an electric sedan, hybrid minivan and gas powered, 12 passenger vehicle.
| Avery Ellfeldt/E&E News

So where are the dollars going? For the most part, right back to taxpayers.

To be sure, several million dollars from the fund have been committed to administrative purposes. Rink said the fund has transformed Denver’s ability to address climate change, because it increased the city’s climate budget from $4 million to about $45 million and boosted the climate action office from 10 people to 40 people.

The rest of the money, though, is supposed to go to projects that address issues such as sustainable transportation, climate justice, renewable energy and building emissions.

Among the most popular programs so far have been two types of consumer rebates, Rink said.

The first kind of rebates are for electric bikes. All Denver residents are eligible to receive a $400 rebate to cut the cost of purchasing an e-bike. And there are $1,200 rebates available for residents who can submit proof of income at or below 80 percent of the area median.

“That one spread like wildfire, the first round sold out in days,” Rink said. She said that more than 3,000 people have bought e-bikes through the program since April.

The second type of rebate are front-loaded vouchers to help residents cut the cost of swapping out an old, gas-powered furnace for an air source heat pump. About 350 heat pumps have been financed in the first round of that program. By way of comparison, Rink said the local utility has offered similar rebates for years but never saw much interest.

“They interpreted the low uptake to mean there wasn’t the market for it. What our program showed is there is definitely a market for it, you just have to give people more of a discount and then they’ll buy,” she added.

A whopping $17 million will be used to boost renewable energy adoption via community solar projects, incentives for nonprofit organizations to adopt solar, battery storage and electric vehicle charging equipment, among other efforts. And $9.5 million will go to projects that target the planet-warming emissions released by buildings and homes, including by incentivizing the local building sector to decarbonize both existing and new properties.

A $1.4 million chunk, meanwhile, went to the project in Montbello to fund the purchase of the EV in the program’s fleet. Between October and mid-August, the micro transit system had provided more than 24,200 rides to more than 33,800 passengers, said Vanessa Lacayo, a spokesperson for the Department of Transportation and Infrastructure.

Those numbers stand to balloon, by a lot. The City Council on Monday voted to expand the existing service in Montbello — and create an entirely new operation in a different neighborhood. There, too, the Climate Protection Fund would foot the bill for an EV.

Alana Miller, who directs Colorado climate policy at the Natural Resources Defense Council, and has served as an adviser to the city of Denver, called the fund a “game changer.”

“What is really important is that in Denver, it becomes a dedicated source,” she said. “In some cities, [city] council decides what a priority is and then decides to fund it or not. And that just makes it hard to plan for initiatives that we know, based on data, that we need.”

‘We’re going to see more of it’

To be sure, Denver isn’t the only place using innovative techniques to generate climate finance.

Observers say they expect more cities to begin exploring similar options due to intensifying climate impacts and ongoing funding challenges. Another potential incentive will be the billions of dollars made available for local investment by the federal climate spending package signed into law last month by President Joe Biden.

“We just had the climate legislation pass at the national level, so I think we’re going to see more of it because the threats and challenges of the changing climate are becoming much more tangible and real for people,” said Petterson, of the Trust for Public Land.

“And they understand the connection between their quality of life and their safety, and how some of these dollars might be spent,” he added.

According to Gernot Wagner, a climate economist at Columbia Business School, there are the two primary avenues cities have long used to raise revenue for particular investments: increasing the budget by raising taxes, or borrowing money through issuing municipal bonds.

What’s new, Wagner said, is politicians having the “gumption to come out and say we want to do something about climate change. And in order for us to act, we need to raise the funds. And then very directly calling it a climate tax, or a green fund, or a climate bond, or a green bond.”

Take the city of Portland. Sixty-five percent of voters there passed a ballot initiative in 2018 that created a fund dedicated to decarbonization and equity goals. But rather than implement a sales tax increase, which consumers shoulder, the measure raised retail tax — which applies to major corporations.

In Cincinnati, meanwhile, voters in 2020 backed a 0.8 percent sales tax increase to improve public transit specifically. That effort and others like it — including one in San Antonio — may not target “climate broadly, but it seeks to reduce emissions from transportation, which for many cities is the leading or second leading source of emissions,” said Miller, of NRDC.

Then there are bonds. Residents of New York state in November will vote on a ballot measure, dubbed the “Clean Water, Clean Air and Green Jobs Bond Act,” that aims to raise more than $4 billion from financial markets for environmental investments.

Priscilla Negreiros, who manages the Climate Policy Initiative’s Cities Climate Finance Alliance, doesn’t believe there is “one solution” to climate action at the local level, given the many differences in cities’ tax systems, sentiments toward climate change and more.

But having a fund dedicated to the issue is a smart move, given that “it’s very easy to deprioritze climate action when it’s standing side-by-side with other essential services,” she said.

Petterson argued these types of efforts won’t stop there — and offered a point of proof. His organization is in talks with several municipalities about these types of solutions, and “one major city on the coast” that is seeking funding options to cope with sea-level rise. As he sees it, efforts to address gaps in climate spending don’t have to be marketed solely as climate action — a framing that may not garner widespread support in some jurisdictions.

“The things that we’re solving for are not just related to emissions. They’re related to easing flooding, making sure that we can breathe and our kids won’t be sick from bad air. That we have clean water or access to rivers,” Petterson said. “Those things people respond to all over the country.”

Correction: An earlier version of this story included an incorrect name for the Natural Resources Defense Council.