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Research & Commentary: Connecticut Considers Regressive Carbon-Dioxide Tax and Misguided Energy Extraction Bans

February 21, 2019

There Is No Scientific Justification For Banning Of Fossil-Fuel Development In Connecticut

Multiple proposals in Connecticut to ban all fossil-fuel development and establish a carbon-dioxide tax would increase energy costs and harm low-income Nutmeg State residents. 

The first proposal would ban all “natural gas extraction activities” and “oil extraction activities” throughout the state, as well as the storage and disposal of waste from oil and gas extraction activities. A second proposal parrots this language on waste disposal and storage.

The effort to ban oil and natural gas development, which are based on misplaced fears about hydraulic fracturing, commonly referred to as “fracking,” is very short-sighted. Fracking is the process of extracting natural gas and oil situated several miles beneath the Earth’s surface. Over the past decade, fracking has increased the output of these two vital energy sources by 40 percent and 85 percent, respectively. Furthermore, the fracking industry supports nearly three million U.S. jobs. Thanks to fracking, energy prices have dropped dramatically. Consequently, consumers who use natural gas or oil for their homes, businesses, cars, and boats have saved billions. Even more, fracking has spurred massive economic growth.

Unfortunately, fracking has been maligned because of numerous false claims spouted by fracking opponents, including that the process pollutes the air and water and is increasing health problems such as asthma, birth defects, and cancer. As a result of these efforts, policymakers in several states have chosen to place burdensome and unnecessary restrictions on fracking. Some states have even gone so far to ban fracking, which increases costs for consumers and retards economic growth.

However, despite fear-mongering to the contrary, there is no evidence that seepage of fracking fluids, oil, or natural gas from fracking wells contaminate water sources. A plethora of scientific research, including more than two-dozen peer reviewed studies and analyses released since 2010 and a six-year Environmental Protection Agency (EPA) study released in 2016, have determined the fracking process is not a systemic threat to groundwater sources.

Studies from across the country reveal that air pollution near fracking operations typically poses no danger to human health. Moreover, EPA reports the decades-long decline in national air pollution has continued unabated since fracking became more widespread over the past decade. At the same time, as fracking operations have increased substantially, the prevalence of asthma, birth defects, and cancer have actually decreased. Additionally, the incidence of these health problems in major fracking states, such as Pennsylvania and Texas, is lower than in several states that do not contain significant fracking operations. Lastly, numerous studies demonstrate there is no evidence that the miniscule amounts of chemicals present in fracking fluids cause cancer.

In light of the immense number of studies showing fracking is relatively safe and that it provides substantial economic benefits, lawmakers should not ban fracking, place a moratorium on, or place onerous regulations on drilling activity.

 

A third proposal seeks to set a “carbon [dioxide] pricing structure” in Connecticut. The purpose of the carbon-dioxide tax is to decrease carbon-dioxide emissions by levying a tax based on the amount of emissions produced. 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.”

2013 study by the National Association of Manufacturers estimates a $20-per-ton carbon-dioxide tax in Connecticut, a threshold that would be reached in 2021 under the proposed bill, would result in a 12 percent increase in household electricity rates, and a 40 percent increase in the price of natural gas. The study also estimates a carbon tax would increase prices by 20 cents per gallon. In July 2012, Australia established a nation-wide carbon-dioxide tax set at $23 (Australian dollars) per ton and repealed it just two years later after 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, as Oren Cass, senior fellow at the Manhattan Institute, noted in National Affairs. “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 Cass. “On each of these dimensions, the carbon tax fails.”

At 17.55 cents per kilowatt hour, retail electricity prices in Connecticut are already 67 percent higher than the national average and the highest in the continental United States. A 2018 Wallet Hub study found total energy costs in Connecticut are the second highest in the country, and the Tax Foundation lists the Nutmeg State as having one of the worst business tax climates in the United States.

A carbon-dioxide tax would make everything more expensive for working families in Connecticut, drive up costs for businesses, and have an insignificant effect on global carbon-dioxide emissions, so legislators should oppose any effort to enact one.

The following documents provide more information about hydraulic fracturing and carbon-dioxide taxes.

Debunking Four Persistent Myths about Hydraulic Fracturing
https://www.heartland.org/publications-resources/publications/debunking-four-persistent-myths-about-hydraulic-fracturing
This Heartland Institute Policy Brief by Policy Analyst Timothy Benson and Linnea Lueken, a former Heartland communications intern, outlines the basic elements of the fracking process and then refutes the four most widespread fracking myths, providing lawmakers and the public with the research and data they need to make informed decisions about hydraulic fracturing.

Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers
https://www.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 fuels1 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 (IAMs) and cost-benefit analysis (CBA).

The Social Benefits of Fossil Fuels
https://www.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.

The Local Economic and Welfare Consequences of Hydraulic Fracturing
https://www.heartland.org/publications-resources/publications/the-local-economic-and-welfare-consequences-of-hydraulic-fracturing
This comprehensive study published by the National Bureau of Economic Research says fracking brings, on average, $1,300 to $1,900 in annual benefits to local households, including a 7 percent increase in average income, a 10 percent increase in employment, and a 6 percent increase in housing prices.

Impacts of the Natural Gas and Oil Industry on the U.S. Economy in 2015
https://www.heartland.org/publications-resources/publications/impacts-of-the-natural-gas-and-oil-industry-on-the-us-economy-in-2015
This study, conducted by PricewaterhouseCoopers and commissioned by the American Petroleum Institute, shows that the natural gas and oil industry supported 10.3 million U.S. jobs in 2015. According to the Bureau of Labor Statistics, the average wage paid by the natural gas and oil industry, excluding retail station jobs, was $101,181 in 2016, which is nearly 90 percent more than the national average. The study also shows the natural gas and oil industry has had widespread impacts in each of the 50 states.

What If … America’s Energy Renaissance Never Happened?
https://www.heartland.org/publications-resources/publications/what-ifamericas-energy-renaissance-never-actually-happened
This report by the U.S. Chamber of Commerce’s Institute for 21st Century Energy examines the impact the development of shale oil and gas has had on the United States. The report’s authors found that without the fracking-related “energy renaissance,” 4.3 million jobs in the United States may not have ever been created and $548 billion in annual GDP would have been lost since 2009. The report also found electricity prices would be 31 percent higher and gasoline prices 43 percent higher.

What If … Hydraulic Fracturing Was Banned?
https://www.heartland.org/publications-resources/publications/what-if-hydraulic-fracturing-was-banned
This study is the fourth in a series of studies produced by the U.S. Chamber of Commerce’s Institute for 21st Century Energy. It examines what a nationwide ban on hydraulic fracturing would entail. The report’s authors found by 2022, a ban would cause 14.8 million jobs to “evaporate,” almost double gasoline and electricity prices, and increase natural gas prices by 400 percent. Moreover, cost of living expenses would increase by nearly $4,000 per family, household incomes would be reduced by $873 billion, and GDP would be reduced by $1.6 trillion.

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.

Carbon Taxes: Bad for the People, the Economy, Government Revenues (Guest: Jordan McGillis)
https://www.heartland.org/multimedia/podcasts/carbon-taxes-bad-for-the-people-the-economy-government-revenues-guest-jordan-mcgillis
In this edition of the Heartland Daily Podcast, Jordan McGillis of the Institute for Energy Research (IER) discusses an economic analysis produced for IER of six different possible versions of a tax on carbon dioxide. The study found none of the of the six versions of the tax considered would be revenue neutral or satisfy the requirements of the Paris Climate Agreement, but each of them  would reduce economic growth, impede infrastructure development, and limit the government's ability to meet fiscal obligations and operations. People would stripped of choice and made poorer for no environmental gain.

Does a Carbon Tax Support Prosperity?
https://files.texaspolicy.com/uploads/2018/08/16104452/2018-04-PP-CarbonTaxSupportProsperity-ACEE-CEP-IngramGinn.pdf
This study from the Texas Public Policy Foundation finds that research supporting the imposition of a carbon-dioxide tax are based on modeling with flawed assumptions and the tax itself would cause crippling economic costs. Two real life examples of a carbon-dioxide tax gone wrong in British Columbia and in Australia show that its potential effects include skyrocketing household electricity prices and increasing unemployment. 

The Deeply Flawed Conservative Case for a Carbon Tax
https://www.heartland.org/publications-resources/publications/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-dioxide 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.

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 finds 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. Instead, the paper urges for the data to be considered and applied to the narrative.

The Case Against a U.S. Carbon Tax
https://www.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://www.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.

The Carbon Tax Shell Game
https://www.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.

 

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 Arianna Wilkerson, a state government relations manager at The Heartland Institute, at awilkerson@heartland.org or 312/377-4000.