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Research & Commentary: Regressive Carbon-Dioxide Tax Would Be Harmful to Montana Residents and Businesses

February 11, 2019

Tax Would Begin At $10 Per Ton, Increase by $1 Per Ton Each Year

Research & Commentary: Regressive Carbon-Dioxide Tax Would Be Harmful to Montana Residents and Businesses

Proposals under consideration in Montana would establish a carbon-dioxide tax on “owners of large emission sources” in Big Sky Country.

The purpose of the carbon tax is to decrease carbon-dioxide emissions by levying a tax based on the amount of emissions produced. The proposals would establish a $10-per-ton tax starting in 2020, with the House bill increasing that tax by $1 per ton annually. Roughly $200 million in revenue per year is expected to be raised by the taxes, and the costs incurred by the utilities will be shifted back to consumers.

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.”

2013 report by the National Association of Manufacturers estimated a $20-per-ton carbon-dioxide tax in Montana would result in a 17 percent increase in household utility rates. Additionally, the carbon-dioxide tax would cause the price of natural gas to increase by more than 40 percent and would raise gasoline prices by more than 20 cents per gallon in just the first year alone. Australia established a nationwide carbon-dioxide tax set at $23 (Australian dollars) per ton and repealed it just two years later after it produced the highest quarterly increase in household electricity prices in the country’s history.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 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. 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.”

A 8.92 cents per kilowatt hour, retail electricity prices in Montana are already 14 percent lower than the national average and a 2018 WalletHub study also lists total energy costs in Big Sky Country below the national average. For the benefit of all Montanans, legislators should refrain from taking actions that would cause energy costs to increase. A carbon-dioxide tax would make everything more expensive for working families in Montana, raise costs for businesses, and have an insignificant effect on global CO2 emissions. 

The following documents provide more information on carbon-dioxide taxes and fossil fuels.

The Carbon Tax: Analysis of Six Potential Scenarios
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)
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?
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
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
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
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
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-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.

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.

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 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
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 (IAMs) and cost-benefit analysis (CBA).

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. 


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 Lennie Jarrett, a state government relations manager at The Heartland Institute, at or 312/377-4000.