Truth About Carbon Taxes – Connecticut

Cost of Tax

TOTAL IMPACT OF TAX IN CONNECTICUT

According to the U.S. Energy Information Administration, Connecticut has done a great job already, reducing its carbon dioxide emissions. As can be seen on this EIA chart, Connecticut’s CO2 emissions have dropped 18.4% from the year 2000 to 2014 (latest year data available). Assuming our current emissions are holding at 2014 levels, that means the $15/ton carbon tax will be applied to 35.1 million metric tons of CO2 emissions (or their equivalent) which is 38.6 million U.S. tons (note the legislation says the tax is applied “per ton” of CO2, not “per metric ton” so we assume it’s a U.S. ton which weighs slightly more than a metric ton). After the tax first goes into effect in 2019, it increases $5/ton per year (a so-called arithmetic increase) thereafter, forever. Here’s the amount Connecticut citizens and businesses will be paying, in aggregate, shown out to 2050:

As one politician allegedly said, “a billion here, a billion there, and soon you’re talking real money.”

ENERGY TAX IS REGRESSIVE

“Low-income, households of color, multifamily and renting households spend a much larger percentage of their income on energy bills than the average family,” according to the Natural Resources Defense Council. An across-the-board energy tax is therefore “regressive,” i.e. “African-American and Latino households and renters in multifamily buildings who pay a disproportionate amount of their income for energy” will be greater impacted by such a tax than average- or high-income earners. Moreover, low-income families will have less means to change their energy use to lower-taxed fuels, which are prohibitively expensive to convert to. Now there is a rebate scheme proposed in the legislation where some 50% of the tax will be rebated to individual consumers. But this is a flat rebate where everyone receives the same amount, regardless of income and regardless of energy consumption. So a low-income, high-cost energy user will likely receive as a rebate far less than the tax imposed on them. This is a regressive tax. And as we know, the state has an abysmal history of keeping tax money to balance its budget by raiding trust funds that are supposed to be allocated to consumers or special projects, like transportation.

IMPACT ON ECONOMY

This website describes many of the direct cost impacts the proposed carbon tax will have. But how will it impact the economy as a whole?

Reporting in 2013, the National Association of Manufacturers (NAM) produced a study here on the effects of a carbon tax on Connecticut’s economy. The tax they looked at was $20/ton of CO2 produced, increasing 4% per year. So while initially larger than the $15/ton being proposed in this year, the current plan would grow much faster, increasing to $60/ton within 10 years while the NAM study assumes the tax will only be $24.23/ton within 10 years (growing 4% per year from a $20/ton start). Even with the tax at less than half what the 2019 bill proposes, NAM forecasts Connecticut will lose 18,000 jobs by year 10 of the tax and economic output will decline .3 percent. We can only assume that with the current bill at over twice the NAM rate, these numbers could do twice the damage that NAM forecasts.

Costs & Benefits

Will the benefits of this carbon tax outweigh the costs laid out in this website? If they don’t, then this is just a “feel good” act that will cost taxpayers billions of dollars and drive companies and jobs out of the state.

Presumably, the purpose of this tax is to change consumption behavior in Connecticut. But we’ve seen huge variations in energy commodity prices that haven’t affected consumption. The EIA, for example, shows that gasoline consumption in Connecticut in 2015 was the same as in 2011, despite prices being more than $1/gallon less. Energy consumption is fairly inelastic. Because of the partial refund residents and businesses will receive under this tax scheme, the incentive to stop using fuels will be reduced as well, which means people will be paying ever higher prices for fuel, which is inflationary. Further inflation will result as the price of every product sold in Connecticut increases as merchants and manufacturers increase prices to account for the carbon tax.

Furthermore, even if this tax resulted in changes in consumption behavior in Connecticut, such changes will have no impact on climate change. As reported in U.S. News & World Report, the Intergovernmental Panel on Climate Change (IPCC) Assessment Report claims that even if the U.S. as a whole stopped emitting all carbon dioxide emissions immediately, the ultimate impact on projected global temperature rise would be a reduction of only about 0.08°C by the year 2050. China and India will dominate global carbon emissions for the next century, and there’s little the U.S., let alone Connecticut can do, to affect this. A Princeton University study likewise predicted that even if all countries stopped emitting CO2 entirely, the Earth would continue to gradually warm, before cooling off.

Connecticut is already doing a good job reducing its carbon footprint, without a carbon tax. As mentioned above, CO2e emissions, as reported by EIA, were 35.1 million metric tons in 2014. That’s down 18.4% from 2000. And the U.S. as a whole is down 7.5% over the same period. This tax is expensive, regressive, and does nothing to help the environment.

Sources
Carbon dioxide emissions by fuel type: EIA
Distillate fuel consumption in Connecticut: EIA
Gasoline sales in Connecticut: EIA
Avg. gasoline consumption per driver: The Motley Fool
Natural gas consumption in CT: EIA
CT energy consumption in BTUs: EIA
State carbon comparisons: EIA