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. 

Nat Rudarakanchana

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