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Research & Commentary: Carbon Tax Proposal Is a Bad Idea for Utah

March 12, 2018

Tax Would Start At $15 Per Ton, Cap At $100 Per Ton

proposal under consideration in Utah would establish a carbon-dioxide tax on fossil fuels, which are defined as “a petroleum product, motor fuel, special fuel, aviation fuel, natural gas, petroleum, coal, or any form of solid, liquid, or gaseous fuel derived from these products, including still gas, propane, and petroleum residuals.”

The purpose of the carbon tax is to decrease carbon-dioxide emissions by levying a tax based on the amount of emissions produced. The tax would begin at $10 per ton in 2020, increasing by 3.5 percent each year until it reaches $100 per ton. The proposal would also impose an 8.89-cent-per-gallon gasoline tax in 2020, which would increase by 3.5 percent each year until it reaches 88.9 cents per gallon. Diesel fuel would be taxed at 10.6 cents per gallon in 2020, and would increase by 3.5 percent each year until it reaches $1.02 per gallon. Jet fuel would be taxed at 9.57 cents per gallon in 2020, and like the gasoline and diesel taxes, increase by 3.5 percent each year, until it reaches 95.7 cents per gallon. Natural gas would be taxed at 53.12 cents per 1,000 cubic feet in 2020, increasing by 3.5 percent each year until reaching $5.31 per 1,000 cubic feet.

A Fiscal Note prepared for the program estimates the carbon tax would cost Utah taxpayers $980 million in just its first two years on the books. Unlike many other carbon tax bills proposed in other states, there is no provision to return any collected tax revenue to low-income families or businesses in the form of a rebate or dividend.

These rebates and dividends are important because carbon-dioxide taxes are inherently regressive and disproportionally harm low-income families. The Congressional Budget Office (CBO) found a $28 per ton carbon 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.”

Another problem with a carbon-dioxide tax is any environmental benefits that it might produce would be effectively meaningless without concomitant legislation enacted throughout the rest of the globe. A country-wide carbon tax that completely reduces U.S. emissions to zero by 2050 would only avert global temperature by just 0.2 degrees Celsius by 2100. A state-based carbon tax would have even less impact on global temperature.

It is likely for these reasons the U.S. public finds the idea of a carbon tax so unpopular. An October 2017 poll of 1,038 adults conducted by the Associated Press and the NORC Center for Public Affairs Research for the Energy Policy Institute at the University of Chicago revealed 68 percent of respondents said they were unwilling to pay an extra $20 month on their electric bills to combat climate change, although this amount is “roughly equivalent to what the federal government estimates the damages from climate change would be on each household.”  Further, almost half the respondents, 42 percent, said they would be unwilling to pay even one extra dollar.

At 8.72 cents per kilowatt hour, Utah currently has the 10th-lowest retail electricity prices in the United States, well below the national average, according to the U.S. Energy Information Administration. Also, a 2017 WalletHub study found at $273 per month, Utahans face total energy costs just below the national average, and the Tax Foundation ranks Utah’s tax climate the country’s eighth-best. A carbon-dioxide tax would do nothing to help these rankings, and would make everything more expensive for working families in Utah, who are already pinched by the state’s high costs, leaving them less to spend and save – all without any guaranteed environmental benefits.

The following documents provide more information on carbon taxes.

The Deeply Flawed Conservative Case for a Carbon Tax
In this paper published by the American Enterprise Institute, Benjamin Zycher says the “conservative” Climate Leadership Council’s (CLC) much-hyped carbon-tax proposal is “naïve” and “virtually all of the … assertions in support of its proposal are incorrect or implausible.” The CLC’s plan is “poor conceptually and deeply unserious,” wrote Zycher.

The Case Against a U.S. 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
This report from the National Association of Manufacturers evaluates the potential impacts carbon 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 tax revenues would be used to reduce government debt and federal taxes.

The Carbon Tax Shell Game
Oren Cass of the Manhattan Institute argues the carbon 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. Cass also says carbon-dioxide taxes’ negative fiscal effects are claimed to be offset by efficiency improvements and by promising the revenues will be spent to offset the costs, but he says the same revenues are often promised to different constituencies to accomplish completely different and largely incompatible goals.

Ten State Solutions to Emerging Issues
This Heartland Institute booklet explores solutions to the top public policy issues facing the states in 2018 and beyond in the areas of budget and taxes, education, energy and environment, health care, and constitutional reform. The solutions identified are proven reform ideas that have garnered significant support among the states and with legislators.

Less Carbon, Higher Prices: How California’s Climate Policies Affect Lower-Income Residents
This study from Jonathan Lesser of the Manhattan Institute argues California’s clean power regulations, including the state’s renewable power mandate, is a regressive tax that harms impoverished Californians more than any other group. 

Assessing the Social Costs and Benefits of Regulating Carbon Emissions
The government is required to quantify the costs and benefits of regulations they propose. In the context of regulations pertaining to carbon-dioxide emissions, various agencies have been using differing estimates of the net social cost related to carbon dioxide. In response, an interagency working group (IWG) was created to establish a consistent and objective “social cost of carbon.” The range of estimates of the social cost of carbon produced by the IWG is too narrow and almost certainly biased upwards. Using better models and the most recently available evidence on climate sensitivity, this study from the Reason Foundation finds the range of the social cost of carbon should be revised downwards. The study states carbon-dioxide emissions may have a net beneficial effect on the environment.


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 John Nothdurft, Heartland’s director of government relations, at or 312/377-4000.

Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.