Research & Commentary: ESSEX Carbon Tax Plan a Bad Deal for Vermonters
Tax Proposal Would Start at $5 Per Ton, Cap At $40 Per Ton
A proposal being considered in the Vermont Senate would establish a $40-per-ton carbon-dioxide tax on fossil fuels. The purpose of the carbon tax is to decrease carbon-dioxide emissions by levying a tax based on the amount of emissions produced.
The Economy-Strengthening Strategic Energy Exchange (ESSEX) Act would levy this tax on gasoline, heating oil, natural gas, and propane. ESSEX would begin at $5 per ton in 2018 and increase by $5 per ton each year until 2026, when the tax would reach its cap at $40 per ton. Fifty percent of the collected revenues would be refunded to “working class and rural Vermonters.” “Working class” families with household incomes less than 400 percent of the federal poverty level ($97,356) would receive the rebate, as would “rural Vermonters” with household incomes below $150,000.
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 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.”
An economic analysis of the ESSEX Plan by Jonathan A. Lesser for the Ethan Allen Institute found the proposed tax would increase electricity costs in Vermont. “Rebates on current electricity rates will not compensate for the plan’s call for increased reliance on locally-sourced renewable biofuels and solar power,” Lesser writes. “The latter is currently five times more expensive than the average price of electricity in the New England wholesale electric market. The cost of the former will increase because the demand for biofuels will increase as a consequence of the tax.”
Lesser also notes the ESSEX Plan would have an adverse effect on transportation infrastructure funding, which is already facing a shortfall of $227 million in 2018. “To compensate,” for this drop in funding, Lesser notes, “the state will likely have to increase taxes on motor fuel, levy a tax on miles driven, or raise the state’s income tax. Alternatively, revenues raised by the carbon tax would have to be diverted from the proposed electric rebates, contrary to the plan’s promise of revenue neutrality.”
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. In a December 2015 speech to the U.N. Framework Convention on Climate Change (UNFCCC), former Secretary of State John Kerry said, “The fact is that even if every American citizen biked to work, carpooled to school, used only solar panels to power their homes, if we each planted a dozen trees, if we somehow eliminated all of our domestic greenhouse gas emissions, guess what—that still wouldn’t be enough to offset the carbon pollution coming from the rest of the world.” 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 14.46 cents per kilowatt hour, Vermont currently has the seventh-highest retail electricity prices in the continental United States, according to the U.S. Energy Information Administration. A 2017 WalletHub study also found at $305 a month, Green Mountain State residents face the tenth-highest total energy costs in the country, and the Tax Foundation already ranks Vermont’s tax climate as the fourth-worst in the country. A carbon-dioxide tax would make everything more expensive for working families in Vermont, 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 ESSEX Carbon Tax Plan for Vermont: An Economic Analysis
This economic analysis on behalf of Jonathan A. Lesser for the Ethan Allen Institute finds the ESSEX carbon-dioxide tax plan is premised on vague and incorrect economic assumptions and that enacting it would damage Vermont’s economy, place an undue and unfair burden on lower-income Vermonters, and encourage more people to leave Vermont in search of better economic opportunity.
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.
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.
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