By John McClaughry
With much fanfare, climate change activists have presented the legislature with two bills (H.791, S.284) to implement their latest (seventh!) version of a Vermont carbon tax. It’s called the ESSEX Plan, which stands for “Economy Strengthening Strategic Energy eXchange.”
They firmly believe that carbon dioxide released by humans burning fossil fuels — gasoline, diesel, heating oil, natural gas and propane — will cause catastrophic climate change a century down the road. The ESSEX Plan is designed to make Vermonters stop burning fossil fuels.
Let’s take a close look at how this is intended to work.
First, the ESSEX Plan carbon tax, rising steadily over eight years to roughly $240 million a year, will make fossil fuels increasingly expensive and thus uneconomical. People will thus invest in energy efficiency and switch over to alternative energy sources, especially electric vehicles and electric home heating. Ultimately the tax will drive out fossil fuels, except for a few hard-to-replace uses like heavy equipment and aviation fuel.
The ESSEX Plan advocates declare that their plan is “revenue neutral” — 100 percent of the carbon taxes collected will be returned to somebody (not necessarily the people who paid them).
Half of those tax proceeds will find their way to the Public Utility Commission, which will distribute them to electric utilities to reduce electric rates for everybody by at least 27 percent (their estimate).
The state will use the other half of the tax take to provide subsidies to “the most vulnerable and the middle class” through “fully refundable rebates for low income and rural Vermonters.” This is necessary to compensate them for the higher energy costs imposed upon them by the ESSEX Plan.
How will people replace the fossil fuel energy they can’t afford anymore? Some will turn to biomass heating, but most will choose electric heat and vehicles. But the ESSEX Plan doesn’t finance the significant capital costs of those conversions. You can’t afford fossil fuels any more, but financing a switchover to something else is your problem.
Even with more price-driven efficiencies, driving out fossil fuels will require the electric utilities to find lots more power to meet the increased demand. The plan expects this additional electricity to come from sources — wind towers, solar farms and net metering — that are much more expensive than present grid power.
More cheap, renewable Hydro Quebec power would ease this problem, but the ESSEX Plan coalition has demanded that “energy independent Vermont” reduce its reliance on Hydro Quebec to force the utilities to buy more power from wind, solar and (limited) biomass. (The wind and solar investors love this!) The increased reliance on wind and solar, however, introduces serious problems of maintaining the power grid in the face of intermittent and unpredictable wind and solar supply.
With fossil fuel consumption shrinking, carbon tax revenues will shrink, PUC subsidies to utilities will shrink, purchases of high-cost renewable power will increase, and electric rates will start back up.
Eventually, when the carbon tax drives out all fossil fuel and all users have switched (at considerable expense) to higher cost electricity, there’s nothing left to subsidize that electricity. You’re stuck.
This almost certain outcome assumes that legislators will faithfully maintain the promised “revenue neutrality” indefinitely into the future. Anyone familiar with the legislature knows well how tempting it is to pounce upon a revenue stream to finance popular spending. In fact, when first promoting the forerunner of the ESSEX Plan to legislators in 2014, the Energy Independent Vermont coalition archly observed, “Based on legislative priorities, carbon tax revenue could of course also be used for other purposes.”
The most pressing of those purposes would probably be diverting carbon tax revenues from motor fuel sales into the Transportation Fund to pay for badly needed maintenance of highways and bridges, which VTrans estimates faces a 2018 funding shortfall of $227 million. But diverting carbon tax revenues to other state programs would destroy “revenue neutrality,” and raising motor fuel tax rates to reduce the current shortfall would be politically impossible on top of the steadily rising carbon tax on those same fuels.
If imposing an ever-increasing carbon tax on Vermonters would save the planet from climate catastrophe, perhaps Vermont’s sacrifices would be bearable. But no Vermont carbon tax, however painful, will ever produce any detectable effect on climate change, and the eventual higher cost of electricity, forced investments, grid instabilities, cross-border economic effects, administrative complexities, vastly expanded state subsidies, and ever-present threat of political diversion of the revenues all suggest that it’s time to drop this idea, with a thud.
John McClaughry is vice president of the Ethan Allen Institute.