Politicians wary of suggested heating fuel tax for thermal efficiency programs

Top state politicians are treading carefully around a proposal to levy a tax on home heating fuels to pay for improvements to the thermal efficiency of the state’s residential buildings.

A thermal efficiency task force report due to lawmakers in January recommends an excise tax on fuels as high as 10 cents per gallon.

As first reported by Peter Hirschfield in the Barre-Montpelier Times Argus, a task force looking for ways to facilitate the weatherization of 80,000 homes by 2020 is considering the tax on heating fuels. It would raise $26 million to $45 million per year.

In a Nov. 28 draft summary of preferred funding options, the Thermal Efficiency Taskforce, created by the Public Service Department, cited an energy efficiency excise tax at the top, along with tax credits, as preferable funding mechanisms for statewide thermal efficiency efforts.

Broadly, fossil fuel taxes would be targeted, including fuel oil, kerosene, propane and coal. Biomass and firewood would be exempt; natural gas is already regulated and subject to an energy efficiency tax. Excise taxes ranging from 5 to 10 cents per gallon or therm on fuel oil, kerosene, natural gas and propane are estimated to raise $30 million a year.

House Speaker Shap Smith said he couldn’t comment until he saw a concrete proposal.

Rep. Shap Smith. VTD/Josh Larkin

Rep. Shap Smith. VTD File Photo/Josh Larkin

“I’m always skeptical of the notion of taxing fuel oil in the middle of the winter,” he said. “But if there is a mechanism by which you’re using that to help people save money, and you can really tie those two things together, then I think you can go and make an argument.”

“I’d want to see the proposal before saying yes or no. I think saying no to something even before you see it is irresponsible.”

Gov. Peter Shumlin also said it’d be “premature” for him to take a stance either way. Asked if he’d support a potential tax, he noted that more progress had been made on electrical efficiency than thermal efficiency.

“We’re exploring a number of options to try and figure out how to move the ball on thermal efficiency,” he said, “but it would be premature to suggest that I would support any particular tax or other mechanism to do that. We’re still figuring out how best to get results.”

Shumlin has touted his record so far of not raising broad-based taxes, which he defines as income tax, rooms and meals tax, and sales tax. He said a potential tax on heating fuel wouldn’t be a broad-based tax, since those who use natural gas heating in their homes, for example, wouldn’t be subject to it.

Matt Cota, executive director of the Vermont Fuel Dealers Association and a vocal opponent of the proposal, insisted that an excise tax would amount in practice to a broad-based tax.

“This is a broad-based tax,” he said. “Whether you’re rich, poor, or a business, everyone pays.” Cota estimated that about 170,000 homes in Vermont use heating oil or propane, representing about 70 percent of the housing stock.

Rep. Tony Klein, D-Middlesex, House Natural Resources and Energy Committee chair, also finds discussion about a potential tax slightly premature, but for different reasons. Although Klein championed thermal efficiency, calling it “incredibly important” and an extremely wise investment decision, he said there could be “a whole potpourri of potential funding sources.”

“I would support whatever seems to be the one [funding source] that will accomplish the task, and which people will support,” said Klein. “I don’t care whether it’s a sales tax, a carbon tax, or a gross receipts tax.” But he said that before revenues are discussed, there first needs to be consensus from the public and lawmakers about the importance and necessity of the goal, a consensus which he believes hasn’t yet been reached.

Even before the report arrives on the desks of lawmakers, it’s generated controversy among the authors, thanks to a lone but energetic critic on the taskforce.

Cota, who represents the fuel industry, said that an excise tax would add about $88 in heating expenses per year for the average homeowner, a burden low-income Vermonters could ill afford. He also argued it would drive away businesses from the state.

Vermont Fuel Dealers Association Executive Director Matt Cota. VTD/Josh Larkin

Vermont Fuel Dealers Association Executive Director Matt Cota. VTD File Photo/Josh Larkin

“It’s our position that we should not use a regressive tax that hurts the lowest income Vermonters, in order to fund retrofits for the richest,” said Cota. “Furthermore, this is going to hurt Vermont businesses. Businesses already pay substantial energy taxes in Vermont.”

Cota cited a sales tax, a gross receipts tax, and a petroleum clean-up fee, saying that this could be a fourth energy tax imposed upon businesses. (Homeowners pay the gross receipts tax and petroleum clean-up fee, but have been exempted from paying a sales tax on heating fuel since 1977.) According to Cota’s calculations, businesses could be stuck with 10 percent of all their energy-related spending on taxes.

“With all the other taxes involved in running a business here in Vermont, the last thing business owners need, in the midst of economic struggle, is yet another reason, not to expand, not to locate in Vermont. The last thing we need is another reason for them to leave, but yet that’s what’s being proposed,” he said.

Richard Faesy, a co-founder at energy efficiency consulting and policy firm Energy Futures Group, countered that the 11 cents per gallon cited by Cota may be on the high side. He believes a tax would amount to seven to 10 cents a gallon, and he says fuel price volatility is far more damaging for business decisions than any state tax.

“To think that five or 10 cents is going to drive people out of the state, or move businesses across to New Hampshire is, I think, a little disingenuous.” He said both residents and businesses could see annual savings of about 30 percent in their heat bills after weatherization, with savings accumulating quickly to cover weatherization costs, averaging at about $8,000 per home.

Faesy, who chairs the task force’s finance and funding subcommittee, said that the bulk of the $26 million required in the first fiscal year would go toward refunding an existing incentives program, run by Efficiency Vermont, which provides Vermonters with partial reimbursements if they weatherize their homes. He said doubling the incentives and providing more assistance to middle class Vermonters earning just over key eligibility thresholds is one key area where state investment of that $26 million could help.

Environmental advocacies like VPIRG and the Conservation Law Foundation have come out in support of a potential tax and other funding options under consideration, like a tax credit. Representatives from the two groups maintained that there could be lower tax rates or exemptions for low-income Vermonters, though details of that aren’t hashed out yet.

Read a draft of the full report here. https://www.documentcloud.org/documents/538004-tetf-subcommittee-revised-draft-recommendations.html

Clarification: Homeowners pay the gross receipts tax and petroleum clean-up fee, but have been exempted from paying a sales tax on heating fuel since 1977. We originally reported that homeowners only pay the gross receipts tax. Also, the highest excise tax on fuel oil recommended in the draft thermal efficiency report was about 10 cents. 

Follow Nat on Twitter @natrudy

Comments

  1. Ann Raynolds :

    The Governor and legislature would support THIS tax and NOT support at tax on junk beverages? I guess this requires some opposition for sure!

  2. Elizabeth Templeton :

    When the utilities merged, the now-famous $21million was not distributed to ratepayers because it was going to be used to improve energy efficiency and weatherization programs to consumers. Why a new tax, when that’s the money should be used?

  3. james rice :

    Are they kidding? I just got a propane fuel delivery at $4.32 a gallon after the last delivery came in at $2.60. After raising hell, they reduced the price to $3. Of course, they could not tell me how that higher price was derived.

    A tax on heating fuel? In Vermont? Really.

    Dems can’t tax higher income Vermonters — oh how they suffer — but they can tax this? How about regulating oil and propane companies in Vermont? As the writer above said, how about that $21 million?

  4. Dan Maxon :

    I own a typical, very old home in Vermont and invested in weatherization and heating plant upgrade over the course of two years. A little bit of incentive from VT Gas insured I got a top quality boiler, and programs helping me find a good insulating contractor and doing some of the legwork helped make it happen. My fuel consumption was reduced by over 60%. That’s a very noticeable reduction, and anything we can do to facilitate this happening to any of the many, many un-insulated and leaky homes in Vermont is a good thing in my book.

  5. Jason Farrell :

    I agree with Mr. Cota on a couple of his points.

    For many the definition of a “broad-based tax” is one which they, themselves, find themselves subject to paying. If Mr. Cota’s assertion that 70 percent of Vermont’s houses use heating oil or propane is correct, and if it’s true that natural gas is already regulated and subject to an energy efficiency tax, then there’s no denying that this proposal would represent a broad-based tax. Additionally, there aren’t many businesses I patronize that could avoid such a tax, and I’d speculate that any additional efficiency costs they incur would be factored in to their cost of production and what we pay for their goods or services.

    As importantly, I agree with Mr. Cota’s contention that this proposal could represent “a regressive tax that hurts the lowest income Vermonters, in order to fund retrofits for the richest”. It’s been my observation that, to date, public funding for private solar installations in Vermont supports this assertion. There are many more solar panels installed in communities like Charlotte than in any of its surrounding poorer communities. Granted, the “evidence” I present is limited and anecdotal. I’m not suggesting there hasn’t been some benefit for those with less income. However, without a mechanism for means-testing those applying for subsidy from these programs, and without aggressive campaigns to provide access while promoting these efficiencies to Vermont’s poorest, the divide between the wealthy and those less fortunate will likely continue to grow with each bill (+ additional tax) we pay.

  6. David Healy :

    Why should the state’s energy efficiency program funding only come from a surcharge on electricity? It would seem appropriate to add a tax to fuel oil and propane to support or expand this effort. The return on this investment is huge.

    Another idea worth doing is to tie fuel subsidies to low income families only if the property has been weatherized. If not we are throwing other tax dollars down the drain.

  7. Chuck Lacy :

    We own and live in a 2,800 square foot duplex.

    In 2005, the two units used 1823 gallons of fuel and 5 cords of wood for heat and hot water.

    Beginning in 2006 we launched a campaign to reduce energy costs with a blower door test to check the weatherization. The contractor said things were so bad we lived in the equivalent of a lean to. He said this was typical.

    We weatherized the attic the first year and then one or two sides a year and then the basement last. The total cost was about $14,000. Because we spread the project out over five years the savings from the early work paid for the later work.

    By 2011, we used 647 gallons of fuel and 3 1/2 cords of wood. We were also much more comfortable. At $3.50 per gallon, the reduction in fuel consumption amounts to a savings of over $4,000 and a return on investment of 31%. Plus we use a cord and a half less wood, another $400 in savings.

    This $4,400 annual savings is tax free (we don’t have to earn $6,000 to pay for $4,400 in fuel and wood). The savings from weatherization equals about 2/3 of our property taxes.

    I speculate savings from weatherization is more likely to be spent on things generating local economic activity than fuel oil dollars which mostly zip out of state.

    Hopefully, more people with access to some financing will take advantage of the opportunity to weatherize. I think more weatehrization business will help contractors get more efficient and develop new techniques.

    I feel the state would be better off if we can figure out how to weatherize homes of people without access to financing. Can the banks loan against future savings?

    I don’t know if a fuel tax is the right thing, but for many people, the opportunity for a better standard of living and increased winter comfort through weatherizarion, is greater than what can be done about health care and property taxes. It is worth pushing.

  8. walter moses :

    Who is sitting on the 21 million given to the merged utilities CVPS and GMP by “our” (ha ha) public service board? Where did that money go if it is not available for this project? Could we have an answer. Mary Powell? Dorothy? Mr. Costello? Governor Shumlin? ANYBODY? Hey, Shap? ??? How about you, Larry Reilly????

  9. Arthur Hamlin :

    I believe this is a broad based tax as it affects over 70% of Vermonters and Governor Shumlin would be breaking his promise if he approves this plan.

    The middle class is already paying twice on the $21 million that GMP stole from ratepayers with the State’s blessing, plus additional fees to subsidize low income and elderly customers electric bills. If it weren’t for all these additional fees and taxes I might be able to afford to weatherize out house. But not if this goes through.

  10. Jon Edwards :

    Chuck Lacey – Congratulations on the results from your efficiency campaign. It would be a huge step forward if everyone were able to achieve that result in Vermont. I also had a blower-door test which resulted in sealing and insulation and ventilation improvements. That — along with a wood insert and cellular shades on all glass windows — has produced similar savings. The project cost about $12,500, and is well worth it. I took advantage of efficiency Vermont’s generous $3000 incentive but still needed to come out of pocket to finance the project. Not everyone can lay out that kind of money.

    Fortunately, we’re seeing PACE districts slowly start-up… which provide financing by a lien on the property. This can make a real difference in Vermont. See http://www.efficiencyvermont.com/for_our_partners/PACE/PACE_General_Info/pace.aspx

  11. Willem Post :

    What Vermont needs a statewide, strict, thermal and electrical energy code that sets limits on the Btu/year/sq ft for heating cooling and electricity of a residence or other buildings.
    Instead of wasting money on expensive wind and solar projects that produce expensive, variable, intermittent, junk energy, it would be much less costly to use those funds for weatherizing existing buildings, which, as the above examples show, yields a greater reduction of energy costs than any wind and solar projects.
    Taxing fuel oil and propane would have the greatest impact on lower income households living in substandard houses.

    Not only are their heating bills already too high because of their greater consumption, but now they will be taxed as well on their higher consumption.
    To make the tax more equitable, the first 500 gallon of fuel oil should be exempt from any taxes.

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