A proposed $80 per ton Carbon-Dioxide and Gas Tax Would Be a Big Burden for Hawaii Families and Businesses
Guest analysis by Tim Benson [see update at the end]
Companion legislation introduced in the Hawaii State Legislature would establish a carbon-dioxide tax on all fossil fuels emitted or sold by distributors in the Aloha State. The tax would begin at $40 per ton in 2021, incrementally rising to $80 per ton in 2030.
The legislation also includes a “state environmental response, energy, carbon emissions, and food security tax” that would be charged “on each barrel or fractional part of a barrel of petroleum product sold by a distributor to any retail dealer or end user of petroleum product, other than a refiner.” This tax would also incrementally increase through 2030. For example, the tax on gasoline would begin at $8.22 per barrel in 2021 and top out at $23.16 in 2030, while diesel fuel would begin at $10.35 per barrel in 2021 and run to $26.34 in 2030. (Propane and butane would go from $10.47 to $20.94, kerosene from $16.38 to $32.76, jet fuel from $16.07 to $32.15, and aviation gas from $14.03 to $28.07, respectively.)
Included in the carbon-dioxide tax portion of the bill is a tax credit intended to “mitigate the effect of a … tax on lower income taxpayers.” Single tax filers making less than $20,000 a year would receive a $250 tax credit while married filers in the same bracket would receive $500. These credits would gradually decrease the further up you go on the income ladder. The smallest credit would be $50 for single filers earning $50,000 to $60,000 a year and $100 for married filers making $60,000 to $75,000.
These credits 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 report by the National Association of Manufacturers estimates a $20-per-ton carbon-dioxide tax in Hawaii would result in a 5.3 percent increase in household electricity rates. Additionally, the tax would raise gasoline prices by more than 20 cents per gallon in just the first year alone. In July 2012, Australia established a nation-wide carbon-dioxide tax set at $23 (Australian dollars) per ton and repealed it just two years later after it produced the highest quarterly increase in household electricity prices in the country’s history.
One other substantial problem with the carbon-dioxide tax is that it would produce an insignificant environmental benefit, as a country-wide carbon tax that completely reduces U.S. emissions to zero by 2050 would only avert global temperature by just 0.2 degrees Celsius by 2100. A state-based carbon dioxide tax would have even less impact on global temperature. As Oren Cass, senior fellow at the Manhattan Institute, noted in National Affairs, “The effectiveness of a carbon tax as a matter of environmental policy [depends] not only on how it would directly alter the trajectory of [local] emissions but also on its ability to affect global emissions by driving globally applicable technological innovation or by influencing the behavior of foreign governments,” wrote Cass. “On each of these dimensions, the carbon tax fails.”
At 29.18 cents per kilowatt hour, retail electricity prices in Hawaii are already 178 percent higher than the national average and are by far the highest of any state in the country. Therefore, Hawaii legislators should refrain from taking any action that would increase these costs, especially when Hawaii’s overall tax climate is already relative heavy. A carbon-dioxide tax would make everything more expensive for working families in Hawaii, drive up costs for businesses, and have an insignificant effect on global carbon dioxide emissions.
Tim Benson is a policy analyst in the Government Relations Department at The Heartland Institute based in Chicago.
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.
[UPDATE by Willis] I trust that Tim won’t mind if I add a few facts to his most excellent analysis.
Here’s how this farrago works out for the poor shlubs in Hawaii.
The per-barrel gasoline tax plus the per-ton CO2 tax adds up to a tax of $0.57 per gallon on day one, increasing to $1.29 per gallon by 2030. And that’s on top of a current gas price of $4.00 per gallon …
Average miles driven in Hawaii is less than on the mainland, at 11,100 miles/year. The average MPG for cars on the road is about 16 MPG.
This means the average car in Hawaii will use 694 gallons per year. So the first year the gasoline tax will be $395, increasing to $894 per year in 2030.
Next, the per-ton carbon tax is going to increase electricity prices by 10.6% in year one, going up to 21.2% in 2030. The average monthly electric bill in Hawaii is $203. So in year one, the electricity tax will be $258, increasing to $516 in 2030.
So all up, between gasoline and electricity, a single person owning a car will pay on the order of $654 more in year one, rising to $1,411 in 2030.
And to offset that … they are offering a $250 tax rebate to people making less than $20,000. Of course, at the Hawaiian minimum wage ($10.10/hr) on a full-time job you make $20,200, so most of the poor folks will pay the $654 and get $200 back.
And the median income for a single person in Hawaii is $63,137 … which means that they would pay the full tax and get nothing back.
The median income for a renter in Hawaii is $32,000 per year … so they’d pay $654 and get $150 back.
Finally, what good will all of this virtue signaling do? Well … likely none. Consider the following:
In the study, Espey examined 101 different studies and found that in the short-run (defined as 1 year or less), the average price-elasticity of demand for gasoline is -0.26. That is, a 10% hike in the price of gasoline lowers quantity demanded by 2.6%.
However, folks in Hawaii already drive less, so more of their driving is not optional. Let’s say miles driven goes down by 2.5% per 10% increase in gasoline price. So the tax might, and I emphasize might, reduce miles driven by 4% in year one, rising to 8% by 2030. And this, in turn, would reduce US CO2 emissions by 0.003% in year 1, and 0.006% in 2030.
Three to six-thousandths of one measly percent of US CO2 emissions … be still, my beating heart …
In other words, it’s just a money-grabbing feel-good gimmick by the State of Hawaii.
We now return you to your regularly scheduled programming …