Carbon Tax
Andrew Jope
PA 395 – Green Tax
September 14, 2004
What is a Carbon Tax?
• Excise tax levied on fossil fuels in
proportion to the CO2 emissions which they
produce, roughly equivalent to carbon
content.
• Assessed as $ per ton of carbon or $ per ton
of CO2 emissions.
• Currently no carbon tax at the federal or
state level in the US.
States Considering Carbon Taxes
• Maine – convened tax-shifting advisory
committee
• Michigan – industry tax credits for energy
conservation, fleets of alternative fuel cars,
purchase/installation of recycling equipment
• Minnesota – 1996 Economic Efficiency and
Pollution Reduction Act – Pollution tax offset by
$1.5 billion/year reduction in payroll and property
tax. Defeated in committee. Public support for tax
shift , opposed by Teamsters, airline and mining
industries.
States Considering Carbon Taxes
(Cont.)
• Oregon – 1998 Governor convenes
Environmental Taxation Subcommittee.
• Vermont – 1996 – Act 60 adds $.04/gallon
in state gas tax to fund education.
Policy window in late 1990’s closed with
little success.
Federal Excise Tax Rates on Fuel
FUEL
CENTS/GALLON
Gasoline
18.4
Ethanol/Gas Blend
13.2 – 15.4
Diesel Fuel
24.4
Ethanol
13.15
Methanol
12.35
Liquefied Petroleum Gas
13.6
Compressed Natural Gas
4.854
Liquefied Natural Gas
11.9
Aviation Gasoline
19.4
Aviation Jet Fuel
21.9
Vermont Fuel Taxes
CATEGORY
Sales and Use
Motor Vehicles
Diesel Fuel
Gasoline
FUEL
Gas (Propane/Natural)
Electricity
Coal
RATE
.05%
.05%
.05%
Heating Oil/Kerosene
Purchase
Short Term Rental
.05%
6%
5%
Vehicles<10,000 lbs.
Vehicles>10,000 lbs.
$.17
$.26
$.20
Cap + Trade vs. Carbon TaxCase for Cap + Trade
• Fixes amount of CO2 emitted, allows price
to float.
• Enable reductions where least costly.
• More appealing to private industry.
• Can be designed to deal with all GHG’s
defined in Kyoto.
• Permit prices adjust automatically to
inflation/price shocks.
Cap + Trade vs. Carbon TaxCase for Carbon Tax
• Taxes externalities directly/sends clear price
signals.
• Influences broader scope of behaviorsconsumers, transportation + service sectors.
• Fewer transaction costs in implementation.
• Permanent incentive to reduce emissions
and innovate.
• Earns revenue / able to be recycled.
Northeastern States Approach
• 9 States committed to regional strategy to
reduce CO2
(NY,CT,VT,NH,DE,ME,NJ,PA,MA,RI)
• Will establish emissions trading for power
producers.
• April, 2005 – agreement to be finalized.
Issues –
Competitive Disadvantage
• Globally – Industrial relocation to
developing countries follows labor costs,
NOT ENERGY COSTS.
• State to State – More problematic. Easier
and less costly to relocate to another state
Issues – Regressivity
• Carbon tax applied in isolation IS
REGRESSIVE (transportation/residential
costs).
• Can be addressed through revenue recycling
(progressive income tax restructuring, direct
benefit payments, etc.)
Issues –
Winners and Losers
• WINNERS
Nuclear Industry (Vermont Yankee)
Hydropower (Hydro Quebec)
• LOSERS
Traditional Industry
Agriculture
 Forgive portion of tax liability? (Scandinavian
model)?
Issues –
Timing and Adjustment
• Short term costs to workers and communities.
• Phase in over time – allow industry to adjust at
rate closer to traditional market conditions.
• Recycle revenue to buffer adjustment costsworker retraining, partial compensation, efficiency
subsidies.
• Index to inflation – tax base shrinks by design.
Is it Right for Vermont?
• Rural state with little industry and power
production.
• CO2 Emissions
47% Transportation
20% Residential
33% Commercial, industrial, utilities
• 70% of air pollution from gasoline combustion –
dispersed sources, hard to regulate.
• A new policy window? (VT Yankee 2012 / Hydro
Quebec 2016)