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 …
w.
I live on the Big Island of Hawaii.
IMO and observed on this island, the state is looking to eliminate gasoline and diesel engines from use by 2030; they simply have not yet told the public. For the past 10 years there has been a major push for homeowners to add solar with battery backup to their homes. In affect Hawaii County (Big Island) is creating Solar Power for the Island at the expense of the homeowner. Solar power generated on each home that is not used by homeowner or stored by the homeowner goes back into the grid. At the same time massive electric infrastructure has taken place such as increasing size and replacing substations. A recent remodel of a country store 25 miles north of Hilo ended up with a new electric recharge station as part of the permit process. There are charging stations popping up around Hilo; Target, Home Depot and others.
Public Education in Hawaii has always suffered at the hands of the Liberal DOE. Teacher shortages are always at critical levels. One of the main reasons for that is the cost of living along side of teacher salaries.
Currently I pay $7.50 for a quality loaf of bread. Gasoline is about $3.80 in Hilo.
Most people do not realize that almost every job in this state is controlled by a union. The history of union organization in Hawaii goes back the start of the sugar cane industry and the importation of Filipino, Japanese and Portuguese people to work the fields. Generational Union membership is a way of life in all walks of life. Hawaii State Government is THE MAIN UNION. It is a union. The average person living here would not have the ability to go against what the union tells them to do. They are sheep.
The population drain talked about above are not people who grew up here. It is people that came here and are leaving because the oppressive tax burden and cost of living.
Readers might be interested to know that the average welfare recipient in Hawaii receives in benefits what it takes a Hawaii teacher earns per year teaching school. I know of a 4th grade classroom teacher who recently gave birth to her first child. Her out of pocket expense was about $3K. That was after she had paid almost $6,500 in per year for Healthcare Ins. She was pissed because at the same time she was giving birth there were 3 parents of students in her classroom giving birth who were on welfare. None of those parents spent a dime out of pocket and each enjoyed an increase in welfare income for the addition of the new child to the family. Oh and by the way, the total number of students in the class was 14 and 7 families were on welfare. Oh, by the way, the teacher did not get a pay increase for the addition of the new child in the family.
IMO, HB2654 will destroy the tourist industry, drive people of island and reduce the quality of life here.
Senator Mazie Hirono fully supports AOC’s Green New deal. When asked about how that proposal might affect Hawaii air travel to the island and shipping, she replied, “We have always found ways to get by in Hawaii”.
Apparently she prefers of live off the land and is willing to give up all products and services that currently arrive her by plane and boat which in fact is 99% of everything.
Welcome of Paradise!
She belongs to the party of stupid. Barely in the top ten.
All true believers should stop exhaling. Now that would make a difference.
When will the State of Hawaii go full and just ban fossil fueled flights? Get rid of all the airports for planes and helicopters?
Seriously, do they think tourists who already pay a huge amount to visit the islands will enjoy paying even more? Might many people just decide to go elsewhere?
I like the fact that this nonsense happens in Hawai. Those islands are not connected t the grid of the Lower 48 and therefore they cannot do all those funny balancing games that avoid grid collapse in mainland US. Everything that goes wrong there will stay there and produce pain on a very localized level. Let Hawaiians pay for a while and see what happens. People learn to be sensible when the wallet drips dry.
Good comment, Rudolf. Hawaii is its own little laboratory.
Comment for Willis:
I believe the Hawaii legislators are assuming tourists will pay most of the tax, as that is the single largest source of state GDP. Anyone who can afford to book a stay at any of the major hotel resorts won’t notice an extra $100 or so tacked on to their trip from the carbon tax. But wealthy tourists also demand first-rate accommodations and amenities and have plenty of other choices if one vacation spot fails to deliver. A record of unreliable power, insufficient hot water, no A/C in the clubhouse after golf, etc. will drive wealthy tourists away almost as quickly an outbreak of coronavirus.
Hawaii has already committed to have 100% renewable power by 2045 and they’re about 13% renewable now. So the carbon tax is one bad idea they’re considering to follow through on another bad idea.