Samuel Ghazey: How a tax can help Vermont’s people, economy and climate

Editor’s note: This commentary is by Samuel Ghazey, who is a junior studying natural resource economics at the University of Vermont. He lives in Burlington.

[M]arkets work best when they are efficient – a theory that has held consistent in economics since the start of the discipline – but not when products in the economy do not reflect their true costs of production. A perfect example of this is the price we pay for fossil fuels. The market failure that has arisen from their inefficient pricing has been noted as the largest market failure the global economy has seen.

But what price are we indirectly paying for through the underpricing of things such as gasoline and heating oil?

The American Security Project estimates that the economic cost of climate change, in a “business as usual scenario,” will cost the state of Vermont around $700 million of gross state product and 5,000 jobs between 2010 and 2050, most greatly impacting our state’s maple, dairy, and skiing operations.

With the 4-5 degree Celsius rise in temperature, Vermont is slated to lose some of its maple, birch and beech species, together with many coniferous species. This major shift of habitat will cause the state to lose many of its favorite fauna as well, such as the moose, the brook trout, and arguably the state’s most beautiful songbird, the Bicknell’s thrush.

The externalization of the costs incurred from the emissions of CO2 from the combustion of fossil fuels has allowed greater consumption within our economy and has allowed us to become dependent on the resources to function. What is required to avoid many of the projected repercussions of climate change is for us to begin to internalize the costs of climate change into the price we pay for the commodities that are causing them. This would allow cleaner and more efficient energy sources to compete fairly in the market, where they can undercut the dirty fuels by simply carrying a lower relative price.

We rely heavily on fuel for transportation due to the scarcity of public transportation and the high demand for heat for our homes during the winters. Wouldn’t another tax on fuels just raise the price Vermonters pay already? Won’t the lower income earners be affected drastically by this policy?

Yes. However, what is important is not the price change itself, but the benefits of the change to Vermont’s economy.

Regional Economic Models Inc. released a report of the effects of a carbon tax and dividend program for the state of Vermont. With a tax at about $5 per ton of CO2 (which equals roughly $0.05 a gallon) and a growth rate of $5 per year, their model takes 90 percent of the revenue to provide corporate income tax cuts; individual and employment-based rebate credits, and additional low-income supplements. In fact, the extra low-income supplements would offset any regressive nature of the tax. The policy would also provide more than 1,000 new jobs, grow the Gross State Product by more than $40 million annually, increase disposable income for each income class, and reduce the state’s CO2 emissions by more than one million tons per year.

The remaining 10 percent of the tax revenue could then be used for investing in efficiency and renewable energy programs such as insulating and weatherizing homes, tax credits for solar energy and electrifying our transportation services.

By relieving Vermonters of taxes like the corporate and income tax, which hurt things such as job creation and economic growth — and investing more in fuel efficiency and renewable energy — the very necessary transition to a low-carbon economy will be smoother than anyone could have hoped. When Vermont proves that enacting such a tax can yield positive benefits for the economy and the environment, it will only make sense for other states to follow suit. Such a policy can be the solution we have been looking for to truly hedge against the effects of climate change. But is Vermont ready to make the move?