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Research & Commentary: Renewable Energy Mandate Expansion, Regressive Carbon-Dioxide Tax Would Make Life Harder for Low-Income Bay Staters

February 13, 2019

Proposals Would Set Up A 100 Percent Renewable Energy Mandate & A $20 Per Ton Carbon-Dioxide Tax

Proposals in Massachusetts to establish a strengthened renewable energy mandate and highly regressive carbon-dioxide tax would increase energy costs and harm low-income Bay State residents. 

Companion legislation in the Senate and House of Representatives would strengthen Massachusetts’ Renewable Portfolio Standard. Established in 1997, the Renewable Portfolio Standard requires Massachusetts utilities to acquire 35 percent of their electricity generation from renewable sources by 2030, by requiring said utilities to acquire 100 percent of their generation through renewables by 2045.

Renewable portfolio standards—better referred to as “renewable energy mandates”—force expensive, heavily subsidized, and politically favored electricity sources such as wind and solar on ratepayers and taxpayers while providing few, if any, net environmental benefits.

A study by the liberal Brookings Institution found replacing conventional power with wind power raises electricity prices 50 percent and replacing conventional power with solar power triples electricity costs.

Unsurprisingly, in states with renewable energy mandates, energy rates are rising twice as fast as the national average and states with renewable mandates had electricity prices 26 percent higher than those without one. According to U.S. Energy Information Administration, the 29 states with renewable energy mandates (plus the District of Columbia) had average retail electricity prices of 11.93 cents per kilowatt hour (cents/kWh), while the 21 states without renewable mandates had average retail electricity prices of just 9.38 cents/kWh. 

In just 12 states, the total net cost of the renewable mandates was $5.76 billion in 2016 and will rise to $8.80 billion in 2030, a 2016 study revealed. 

The second proposal would establish a $20-per-ton carbon-dioxide tax on “any greenhouse gas-emitting matter, in addition to natural gas, petroleum, coal, and any solid, liquid or gaseous fuel derived therefrom,” rising by $5 per ton each year until it caps at $40 per ton. A significant portion of revenue raised would be rebated to lower-income Bay State residents for gasoline and heating fuel.

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 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 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 17.12 cents per kilowatt hour, retail electricity prices in Massachusetts are already 63 percent higher than the national average and are the second-highest in the continental United States, so legislators should refrain from taking any action that would cause these prices to increase.

The higher energy costs guaranteed by a switch from fossil fuels to higher-cost “renewable” electricity sources, such as wind or solar, lead to slower economic growth. Affordable energy is the key to productivity growth and the production of virtually all goods and services. At the same time, a carbon-dioxide tax would make everything more expensive for working families in the Bay State, raise costs for businesses, and have an insignificant effect on global carbon dioxide emissions. For the good of all Massachusetts residents, legislators should reject these two proposals and move to abolish the Renewable Portfolio Standard altogether.

The following documents provide more information about carbon-dioxide taxes and renewable energy mandates.

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 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.

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.

Evaluating the Costs and Benefits of Renewable Portfolio Standards
https://www.heartland.org/publications-resources/publications/evaluating-the-costs-and-benefits-of-renewable-portfolio-standards?source=policybot
This paper by Timothy J. Considine, a distinguished professor of energy economics at the School of Energy Resources and the Department of Economics and Finance at the University of Wyoming, examines the renewable portfolio standards (RPS) of 12 different states and concludes while RPS investments stimulate economic activity, the negative economic impacts associated with higher electricity prices offset the claimed economic advantages of these RPS investments.

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-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
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 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.

Ten State Solutions to Emerging Issues
https://www.heartland.org/publications-resources/publications/ten-state-solutions-to-emerging-issues-2018
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
https://www.heartland.org/publications-resources/publications/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.

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.

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 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
https://www.heartland.org/publications-resources/publications/less-carbon-higher-prices-how-californias-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.

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