Legislation in the Massachusetts Senate would implement a carbon-dioxide tax beginning in 2023 on the “transportation sector,” 2024 for the “heating and cooling of commercial, institutional, and industrial buildings,” 2025 for “industrial processes,” and 2028 for “residential heating and cooling.”
The tax would begin at “not less than” $15 per ton in the first year, and rise by $5 per ton annually until reaching a $60 per ton cap. Each sector of the tax would also contain “rebates or refunds to residents and employers of the commonwealth in proportion to the monies collected.”
These rebates are necessary because carbon-dioxide taxes are inherently regressive and disproportionally harm low-income families. The Congressional Budget Office (CBO) found a $28 per ton carbon dioxide tax would result in energy costs being 250 percent higher for the poorest one-fifth of households than the richest one-fifth of households.
CBO reports the reason for cost discrepancy is “a carbon tax would increase the prices of fossil fuels in direct proportion to their carbon content. Higher fuel prices, in turn, would raise production costs and ultimately drive up prices for goods and services throughout the economy … Low-income households spend a larger share of their income on goods and services whose prices would increase the most, such as electricity and transportation.”
A 2019 study from the Beacon Hill Institute for Public Policy Research (BHI) found a similarly-priced proposed carbon-dioxide tax bill ($20-per-ton starting price and a $40-per-ton tax cap) introduced in the Massachusetts Legislature that year would have raised taxes in Massachusetts by $1.25 billion in 2022, costing each household $755, an equivalent to a 7.4 percent increase in the commonwealth’s income tax. By 2026, this tax increase would have risen to $2.54 billion, or $1,263 per household.
BHI also estimated the tax would have caused a loss of $2.25 billion in state production in 2022, as well as a loss of $1.95 billion in disposable income and $925 million in private investment. Most importantly, they estimated the tax would have resulted in the loss of more than 11,000 jobs in 2022, with this number rising to more than 18,000 in 2026.
A 2013 report from the National Association of Manufacturers estimated a $20-per-ton carbon-dioxide tax in Massachusetts would result in a 40 percent increase in the price of natural gas. The report also estimated gasoline prices would be more than 20 cents per gallon higher and there would be an 11 percent increase in household utility rates in the first year alone. In July 2012, Australia established a national carbon-dioxide tax set at $23 (Australian dollars) per ton and repealed it just two years later because it produced the highest quarterly increase in household electricity prices in the country’s history.
One other substantial problem with the carbon-dioxide tax is that it would produce an insignificant environmental benefit. The 2019 proposed tax bill would have theoretically only reduced carbon dioxide emissions by only a miniscule 0.0027 percent in 2022. As the BHI study notes, “any proposed carbon tax in Massachusetts would have negligible effects on global emissions. Massachusetts [greenhouse gas] emissions subject to the proposed carbon taxes are only 0.12 percent of global [greenhouse gas] emissions, which grew at a rate of 1.2 percent between 2016 and 2017. The global growth of [greenhouse gas] emissions between 2016 and 2017 was ten times greater than the Massachusetts emissions subject to the carbon tax.”
“The effectiveness of a carbon tax as a matter of environmental policy [depends] not only on how it would directly alter the trajectory of [local] emissions but also on its ability to affect global emissions by driving globally applicable technological innovation or by influencing the behavior of foreign governments,” wrote Oren Cass of the Manhattan Institute in 2015. “On each of these dimensions, the carbon tax fails.”
At 18.40 cents per kilowatt hour, retail electricity prices in Massachusetts are already 75 percent higher than the national average and are the third-highest in the continental United States, just behind neighboring Connecticut and Rhode Island. Moreover, according to a 2020 Wallet Hub study, Massachusetts already has the second-highest total energy costs in the country. Therefore, legislators should refrain from taking any action that would increase these costs.
A carbon-dioxide tax would make everything more expensive for working families in Massachusetts, drive up costs for businesses, and have an insignificant effect on global carbon dioxide emissions. There is no justification for this tax in the Bay State, especially so at a time when families and businesses are still reeling from the strained economic conditions created in the wake of the COVID-19 pandemic.
The following documents provide more information about carbon dioxide taxes.
The Proposed Massachusetts Carbon Tax: A High-Cost, Low-Benefit Policy
http://www.beaconhill.org//BHIStudies/ClimateChange/2019-0709CarbonTaxStudybyBHI%20-FAF.pdf
This study from the Beacon Hill Institute for Public Policy Research uses the DICE economic assessment model to determine the impact of a proposed carbon dioxide tax in Massachusetts. They conclude would have insignificant impact on global carbon dioxide emissions and would cause serious economic harm to the commonwealth.
The Case Against a Carbon Tax
https://www.instituteforenergyresearch.org/wp-content/uploads/2019/04/Carbon-Tax-Policy-BriefFinalText-1.pdf
This paper from Jordan MacGillis of the Institute for Energy Research argues carbon dioxide taxes are unjustified and unwise. He contends these taxes have demonstrated themselves to be costly and incapable of constraining governments from implementing and maintaining other burdensome regulations and taxes. He also notes the United States is better off without one.
The Carbon Tax: Analysis of Six Potential Scenarios
https://www.instituteforenergyresearch.org/wp-content/uploads/2018/10/The-Carbon-Tax-Analysis-of-Six-Potential-Scenarios_Final.pdf
This study commissioned by the Institute for Energy Research and conducted by Capital Alpha Partners uses standard scoring conventions to evaluate and model the economic impacts of carbon taxes set at a variety of dollar figures, with different phase-in durations, and with an array of revenue-recycling strategies. It finds a carbon dioxide tax will not be pro-growth, is not an efficient revenue raiser for tax reform, depresses GDP and introduces with long-term fiscal challenges playing particular stress on the states, and is inconsistent with meeting the long-term Paris Agreement emissions reduction goals.
The Carbon Tax Shell Game
https://heartland.org/publications-resources/publications/the-carbon-tax-shell-game
Oren Cass of the Manhattan Institute argues the carbon dioxide tax is a shell game. The range of designs, prices, rationales, and claimed benefits varies so widely that assessing the validity of most proposals is nearly impossible to accomplish. In this article for National Affairs, Cass says the effect of carbon dioxide taxes on emissions has proven to be insubstantial, a fact he says is ignored by the tax’s proponents when promoting its purported benefits.
The Case Against a U.S. Carbon Tax
https://heartland.org/publications-resources/publications/the-case-against-a-us-carbon-tax
In this paper from the Cato Institute, Robert P. Murphy, Patrick J. Michaels, and Paul C. Knappenberger examine carbon dioxide tax programs in place in Australia and British Columbia and consider whether similar programs would be successful in the United States. They conclude, “In theory and in practice, economic analysis shows that the case for a U.S. carbon tax is weaker than its most vocal supporters have led the public to believe.”
Economic Outcomes of a U.S. Carbon Tax
https://heartland.org/publications-resources/publications/economic-outcomes-of-a–us-carbon-tax
This report from the National Association of Manufacturers evaluates the potential impacts carbon dioxide taxes whose revenues would be devoted to a combination of debt and tax rate reduction would have on the U.S. economy. The results consider the varied economic effects of fossil-fuel cost increases caused by carbon taxes, as well as the positive economic effects of the assumption that carbon dioxide tax revenues would be used to reduce government debt and federal taxes.
Legislating Energy Poverty: A Case Study of How California’s and New York’s Climate Change Policies Are Increasing Energy Costs and Hurting the Economy
https://www.pacificresearch.org/wp-content/uploads/2018/12/LegislatingEnergy_F_Web.pdf
This analysis from Wayne Winegarden of the Pacific Research Institute shows the big government approach to fighting climate change taken by California and New York hits working class and minority communities the hardest. The paper reviews the impact of global warming policies adopted in California and New York, such as unrealistic renewable energy goals, strict low carbon fuel standards, and costly subsidies for buying higher-priced electric cars and installing solar panels. The report’s authors found that collectively these expensive and burdensome policies are dramatically increasing the energy burdens of their respective state residents.
The U.S. Leads the World in Clean Air: The Case for Environmental Optimism
https://files.texaspolicy.com/uploads/2018/11/27165514/2018-11-RR-US-Leads-the-World-in-Clean-Air-ACEE-White.pdf
This paper from the Texas Public Policy Foundation examines how the United States achieved robust economic growth while dramatically reducing emissions of air pollutants. The paper states that these achievements should be celebrated as a public policy success story, but instead the prevailing narrative among political and environmental leaders is one of environmental decline that can only be reversed with a more stringent regulatory approach. The paper urges for the data to be considered and applied to the narrative.
The Social Benefits of Fossil Fuels
https://heartland.org/publications-resources/publications/the-social-benefits-of-fossil-fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.
Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers
https://heartland.org/publications-resources/publications/climate-change-reconsidered-ii-fossil-fuels—summary-for-policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models and cost-benefit analysis.
Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.
The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Heartland’s Government Relations department, at [email protected] or 312/377-4000.
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
