By John McClaughry
Last summer the Joint Fiscal Office awarded a legislatively-mandated contract to Resources for the Future, a Washington consulting firm, “to analyze the costs and benefits for Vermont of adopting and implementing policies to reduce greenhouse gas (GHG) emissions caused by Vermont’s consumption of fossil fuels.”
The firm delivered its 114-page report last month. As befits this complicated subject, it discusses a wide range of alternative choices for legislators concerned about meeting the state’s GHG emission goals. Here are 12 questions and answers about the study. The text in quotes is from the study itself.
1. Why did the legislature commission the Decarbonization Study? For five years a coalition of environmental groups has promoted the enactment of a carbon tax. Its purpose is to drive up the price of fossil fuels – gasoline, diesel, heating oil, natural gas and propane – so that consumers will reduce their consumption of these fuels. The resulting reduction in GHG emissions, the advocates believe, will contribute to a global effort to reduce emissions and thereby reduce projected harmful and possibly catastrophic increases in global temperatures. When the legislature repeatedly failed to enact carbon pricing legislation, the coalition in 2018 got the legislature to earmark $120,000 for the Decarbonization Study.
2. Have the CO2 emission reduction goals set in statute in 2006 been met? No. Today Vermont is emitting well above the 2005 GHG emissions goal, and emissions are rising, instead of dropping toward 58 % below the 2005 level by 2025.
3. Would a carbon tax allow Vermont to meet those goals? “Vermont is unlikely to meet its emissions targets with a carbon-pricing-only strategy unless the carbon price is substantially higher than the prices modeled in this study ($19-$77 per metric ton equivalent).”
4. How much revenue would the carbon taxes modeled in the study bring in? “$74.7-$433.8 million a year in annual revenue in 2025”, depending on coverage (motor fuels, natural gas, heating oil, propane) and exemptions (aviation gas, off-road construction fuel, Federal, state and municipal fuel use etc..) (Electricity is not included in the study.)
5. How would those revenues be used? The study discusses three options. First, a lump sum rebate to every household; second, lowering payroll or income taxes; and third, spending the money on state programs, such as renewable energy, weatherization, public transit, and electric vehicle subsidies.
6. Since the carbon tax would raise the price of gasoline and diesel fuel, would a portion of the proceeds go to the Transportation Fund to support highway and bridge maintenance? That could be a legislative choice under the third option, but the study does not take a position on that.
7. Would a large carbon tax in Vermont drive consumers to adjacent states to get much lower prices on gasoline, diesel and heating oil? The study does not believe that people would do that.
8. Is there any combination of policies that would allow Vermont to meet any of the declared emissions goals? Yes. “Combining moderate carbon pricing and non-pricing policy approaches could reduce emissions to meet Vermont’s US Climate Alliance target… of 32-38% below 2005 levels in 2025.” This would presumably require using most of the carbon tax revenues for subsidies to promote switching away from fossil fuels.
9. What effect do the various levels of carbon taxes have on economic welfare? “When revenues are returned to households via rebates, total economic welfare falls between $7.1 million and $61.2 million in 2025 (in 2015$), depending on the price level and the scope of sectoral coverage.”
10. How does the study overcome these economic welfare losses? By adding in “climate benefits” and “health benefits”. The economic value of both of these calculations – especially the climate part – are admittedly highly debatable. The calculation assumes that Vermonters will agree to let climate benefits projected to accrue elsewhere on the planet compensate for diminished economic welfare here.
11. What is the payoff to Vermonters, who will bear the costs of “decarbonization”? They will get some slight air quality improvements from moving away from fossil fuels for heating and transportation. But “the success of Vermont’s decarbonization strategy will depend on the extent to which it drives action in other states or other countries Vermont cannot solve the climate challenge on its own, but if Vermont’s policy leadership were to inspire increased leadership and policy innovation in other states or nations – it would indeed amount to a significant impact.”
12. And that impact would make up for the much higher tax burden and economic disruption that a carbon tax would impose on Vermonters? (Insert your answer here).
John McClaughry is vice president of the Ethan Allen Institute.