Carbon tax
File Photo by John Herrick/VTDigger

[L]awmakers this session are gathering information for a debate over a carbon tax next year.

Economists told a panel of lawmakers last week a tax on carbon emissions would grow the state’s economy, close wealth inequality and reduce the state’s greenhouse gas emissions that contribute to climate change.

They also say gasoline retailers and heating fuel dealers may see profit losses, especially in border towns where residents are likely to seek cheaper prices across state lines. Critics of a Vermont carbon tax cite the impact on border economies as a top concern. Gov. Peter Shumlin supports the idea of a regional or national carbon tax, but not a state carbon tax.

Regional Economic Models Inc., a nonpartisan Massachusetts-based consulting firm, studied the impact of a carbon tax on Vermont’s economy. A representative from the firm testified before the House Natural Resources and Energy and Ways and Means committees last week.

“It’s incredibly simple,” said Scott Nystrom of REMI after the testimony. “You apply a sales tax or an excise tax, or a surcharge on carbon dioxide that is extracted at some point in the fossil fuel energy supply chain — be it extraction, refining, wholesaling or retail — and you use the money to cut other taxes.”

Two bills introduced this session, H.395 and H.412, would tax carbon dioxide emissions and other greenhouse gases. Emissions from electricity would be exempt. Proponents of the legislation say they hope to vote on a bill next year.


The primary purpose of a carbon tax is to drive the market away from fossil fuels, proponents say. The revenue would be returned to consumers in the form of tax breaks and investments in renewables and conservation.

Revenue from a $150 per ton tax on carbon emissions would slowly raise up to $700 million in annual revenue before declining due to decreased demand for fossil fuels, according to REMI’s report. The state’s budget for fiscal year 2015 was about $5.6 billion.

Vermont’s CO2 emissions would drop by about 3 million metric tons, according to the report. In 2012, U.S. greenhouse gas emissions totaled 6,526 million metric tons, according to the Environmental Protection Agency.

The tax would create up to 3,000 jobs and increase gross state product by about $150 million per year by 2040, according to the report. Sectors with the largest gains would include construction, manufacturing, health care and social assistance, tourism, arts and entertainment.

Critics of a carbon tax are concerned about the effect it would have on gasoline sellers and fuel dealers. A $150 per ton tax equals a $1.35 increase to a gallon of gasoline.

“One state can’t make it work, unless it’s Hawaii,” said John McClaughry, founder of the Ethan Allen Institute, a Vermont think-tank that promotes free-market values.

McClaughry says it is unclear how much the human consumption of fossil fuels has contributed to climate change. He says the state has not had a scientific debate on climate science.

The REMI report shows that retailers across the state, including gas stations and fuel dealers, would see a net loss in growth due to higher energy costs. The economic REMI model works on counties, but REMI did not break any of the border counties out for the study, Nystrom said. The study results are aggregated for the whole state.

Jim Harrison, president of the Vermont Retail and Grocers Association, which represents gasoline dealers and other retailers, said fueling stations that border New Hampshire have closed following an increase to the gas tax.

“Taxes do make a difference. There will be winners and losers and gasoline retailers will definitely be losers in Vermont,” Harrison said.

Among the losers would be the roughly 4,000 workers in Vermont’s fuel delivery industry, according to Matt Cota, executive director of Vermont Fuel Dealers Association.

But Jon Erickson, a professor at the University of Vermont and a fellow at the Gund Institute for Ecological Economics, said the issue of cross-border economic impacts is a “red herring.”

“In this case you have a small number of losers and a lot of winners in an economic sense,” Erickson said. “You’ve got to look at this in the big picture.”

The net economic benefit would outweigh the costs of a carbon tax, Erickson said, because the taxes could be used to close the state’s growing gap between rich and poor.

Americans pay very low taxes on fossil fuel energy compared with the rest of the world.

Erickson said the U.S. has some of the lowest gasoline prices among wealthy nations. The U.S. gas tax has been at 18.4 cents per gallon for 20 years. Many states, meanwhile, have been increasing gasoline taxes.

“Much of these recent increases in state gas taxes are to plug holes in a growing gap in transportation infrastructure funding. The major difference with carbon pollution tax proposals is the tax shift elements, as well as directed investment in new energy infrastructure,” he said.

Vermont’s effective gasoline tax is about the national average at 48.8 cents per gallon, according to Erickson. In the Northeast, Vermont’s gasoline taxes are below New York, Connecticut and Rhode Island; roughly the same as Maine, about 4 cents higher than Massachusetts, and 6.5 cents higher than New Hampshire, he said.

What to do with the revenue

A carbon tax could help close Vermont’s growing gap between the rich and poor, according to Erickson.

The $150 per ton tax would slowly raise up to $700 million in new revenue at its peak in the 2030s before dropping off.

Low-income families benefit the most from a carbon tax, according to the REMI report. The bottom 20 percent earn up to 1 percent more than their current levels over 20 years. Middle and high income families pay more in the first five years, but then see their income rise less than 1 percent over baseline growth.

Current carbon tax proposals, as modeled by REMI, would return 90 percent of the revenue in the form of individual rebates, low-income supplements, corporate income tax cuts and employment-based rebates. The remaining 10 percent would be invested in renewables and weatherization.

McClaughry, of the Ethan Allen Institute, is among the critics who question whether the revenue would be spent to help low-income residents.

“The 10 percent skim-off is a flashing red light. Every revenue stream in Montpelier is looked upon eagerly toward funding a program that is threatened,” he said.

Democrats and Progressive have introduced carbon tax proposals. Republicans oppose the concept of a carbon tax, even a revenue neutral one, in part because it would increase the cost of living for residents.

A VTDigger poll found 48 percent of respondents support a carbon tax, while 44 percent said they would oppose it.

Clarification: John McClaughry’s statements about climate change were unclear in a previous version of this article.

Twitter: @HerrickJohnny. John Herrick joined VTDigger in June 2013 as an intern working on the searchable campaign finance database and is now VTDigger's energy and environment reporter. He graduated...

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