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Research & Commentary: Rhode Island Carbon Tax Proposal Harmful to State Residents

April 26, 2017

Tax Would Start At $15 Per Ton, Increase By $5 Per Ton Each Year

A proposal being considered by the Rhode Island Senate would establish a carbon-dioxide tax on fossil fuels, including gasoline, natural gas, coal, propane, and “any other petroleum product,” starting in 2019. 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 $15 per ton in the first year and increase by at least $5 per ton each subsequent year. However, the tax would not come into effect until neighboring Massachusetts and Connecticut also passed coordinated, virtually identical carbon-dioxide tax legislation.

The proposal would also establish a “clean energy and jobs fund” that would be used to “help residents and employers transition to cleaner energy options and mitigate any potential economic harm from the carbon price imposed” in the bill, including “direct dividends” to both employers and state residents.”

The dividends 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.”

A 2013 study by the National Association of Manufacturers estimated a $20-per-ton carbon-dioxide tax in Rhode Island, which would be reached in 2020 under the proposed bill, would result in a 40 percent increase in the price of natural gas. The study also estimated gasoline prices would be 20 cents per gallon higher and that there would be a 22 percent increase in household utility rates. Incredibly, all this is projected to occur in the first year.

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 state-based carbon tax would have even less impact on global temperatures.

It is likely for these reasons the U.S. public finds the idea of a carbon tax so unpopular. A September 2016 poll conducted by the Energy Policy Institute at the University of Chicago and by the Associated Press-NORC Center for Public Affairs Research revealed 71 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 17.01 cents per kilowatt hour, Rhode Island currently has the second-highest retail electricity prices in the continental United States, according to the U.S. Energy Information Administration. A 2016 WalletHub study also found at $338 a month, Ocean State residents face the third-highest total energy costs in the country, and the Tax Foundation already ranks Rhode Island’s tax climate the country’s 44th worst. A carbon-dioxide tax would make everything more expensive for working families in Rhode Island, 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 about carbon-dioxide taxes.

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?source=policybot
In this paper from 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. Kanppenberger examine carbon-dioxide tax programs in place in Australia and British Columbia and 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?source=policybot
This report from the National Association of Manufacturers evaluates the potential impacts on the U.S. economy from possible future carbon taxes whose revenues would be devoted to a combination of debt and tax rate reduction. The results take into account the varied economic effects of fossil fuel cost increases due to a carbon tax as well as the positive economic effects of the assumption that carbon tax revenues would be used to reduce government debt and federal taxes.

Renewable Energy in Rhode Island: Big Cost, Little Difference
https://www.heartland.org/publications-resources/publications/renewable-energy-in-rhode-island-big-cost-little-difference?source=policybot
This paper from the Rhode Island Center for Freedom and Prosperity looks at the Ocean State’s renewable portfolio standards (RPS) 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.

Dissecting the Carbon Tax
http://www.american.com/archive/2012/july/dissecting-the-carbon-tax
American Enterprise Institute Resident Scholar Kenneth Greene tells how he was first deceived by the supposed economic benefits of carbon taxes and how his views have evolved in light of the dubious track record of other eco-taxes being raided for general spending. 

The Carbon Tax Shell Game
https://www.heartland.org/policy-documents/carbon-tax-shell-game
Oren Cass of the Manhattan Institute says the carbon tax is a shell game. The range of designs, prices, rationales, and claimed benefits varies so widely that assessing the actual 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.

Assessing the Social Costs and Benefits of Regulating Carbon Emissions
https://www.heartland.org/policy-documents/assessing-social-costs-and-benefits-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 in order 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 actually have a net beneficial effect on the environment.

Less Carbon, Higher Prices: How California’s Climate Policies Affect Lower-Income Residents
https://www.heartland.org/policy-documents/less-carbon-higher-prices-how-californias-climate-policies-affect-lower-income-resi
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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Author
Tim Benson joined The Heartland Institute in September 2015 as a policy analyst in the Government Relations Department.
TBenson@heartland.org