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March 20, 2017

Biz, environmentalists square off on $525M carbon tax

HBJ PHOTO | Matt Pilon Two carbon-tax proponents include former Department of Energy and Environmental Protection Commissioner Dan Esty (far left) and (center) State Rep. Jonathan Steinberg (D-Westport).
By Matt Pilon

For the past decade, Democratic U.S. Rep. John Larson has regularly lobbied Congress to pass a nationwide tax on carbon emissions, something that had been supported by former Vice President Al Gore.

But the tax, which Larson sees as a way to slow climate change and generate economic benefits, has never gained enough support in the face of political opposition.

Now, lawmakers in Connecticut and two fellow New England states are trying to take matters into their own hands.

Bills before Connecticut, Massachusetts and Rhode Island legislatures would create the first state-level carbon taxes in the country and they're garnering intense opposition from businesses, which say the levy would drive up the price of electricity, natural gas, heating oil, gasoline and propane.

As written, Connecticut's proposed $15-per-ton tax on the carbon emitted by various fossil fuels could generate more than $500 million in the first year, based on 2014 emissions data. That figure could more than double by the fifth year, as the bill allows for annual $5-per-ton tax hikes.

The tax, or fee as some advocates call it, would apply to electricity and natural gas suppliers, including utilities, and virtually every power plant in the state. It would also impact properties — including those owned by manufacturers, universities and hospitals — that have on-site gas-fired combined-heat-and-power plants.

“This is a plan, a principle, whose time has come,” said state Rep. Jonathan Steinberg (D-Westport), who is a key supporter of the carbon tax. “We are actually now in a position to capture the true costs of fossil fuels.”

Utilities, oil dealers, power plant owners and business groups all expressed concern last week about the bill's potential to increase energy prices in the state, which are already among the highest in the nation.

However, advocates point out that the carbon-tax revenues would be returned to employers and residents in the form of “dividends,” helping offset higher costs.

Of the tax revenues collected, 70 percent would be redistributed to individuals and businesses through tax credits or direct checks, while 25 percent would fund energy-efficiency programs that incentivize property owners to adopt cleaner technologies. The remaining 5 percent would fund state administrative costs.

The dividends would generate economic activity, tax proponents say, and reduce reliance on imported fuels, creating jobs in Connecticut.

“We are now spending dollars on an import that supports employment elsewhere,” Massachusetts Sen. Michael Barrett told lawmakers at the Capitol last week. “This will create disposable income in the pockets of local residents.”

A 2014 study by Regional Economic Models Inc. found that a Massachusetts carbon tax could add as many as 10,000 jobs by 2030, and that most households (particularly low-income) and business sectors could be fully reimbursed for the tax. Bigger energy users like construction and manufacturing firms would see a small loss. Meanwhile, the study calculated that a carbon tax would cut emissions by an additional 5 percent to 10 percent by 2040.

Since 2009, Connecticut and eight other eastern states have lowered electricity-related carbon dioxide emissions through a cap-and-trade program called the Regional Greenhouse Gas Initiative (RGGI). A carbon tax, as proposed, would be added on top of costs utilities pay to RGGI. Some in the electricity industry argue that amounts to double taxation.

But environmental groups say more decisive action is needed if Connecticut is going to keep its climate-change pledges. They say a carbon tax must be placed on all fossil fuels, not just electricity generation.

Bill Dornbos, senior attorney and director of the Acadia Center's Connecticut office, an environmental advocacy group, testified last week that it's uncertain whether Connecticut can hit its next emissions milestone — a 10 percent reduction from 1990 levels by 2020.

Uphill climb

The carbon tax's road to approval is complicated.

The Connecticut proposal hinges on both Massachusetts and Rhode Island enacting a tax of at least $10 per ton. Rhode Island's bill also contains a Massachusetts trigger clause. Several carbon-tax proposals have failed in Massachusetts since 2013.

Several states have tried to implement a carbon tax, but none has succeeded (Washington voters turned down a tax last year). But the concept is not untested. Carbon taxes already exist in British Columbia, Alberta, the United Kingdom, France, Sweden, Finland, Ireland and other jurisdictions, according to the nonprofit Carbon Tax Center.

Dan Esty, former commissioner of the state Department of Energy and Environmental Protection, appeared at a press conference last week to advocate for the carbon tax. Why does he think no U.S. state has taken the plunge?

“The single most important thing I learned over my three years as [DEEP commissioner] is that change is really hard to bring about,” Esty said. “And it takes a lot of work to get people focused on new options, even when they know the status quo isn't working.”

Business concerns

The Connecticut Business and Industry Association (CBIA) strongly opposes the tax, going so far as to request that the Environment Committee suspend its rules and remove it from a public hearing agenda (which didn't happen) for fear that news of the proposal could damage the state's reputation and worry business stakeholders inside and outside of Connecticut.

“What I worry about is Connecticut's continued focus … on this issue at a time when we're already the least competitive state with regard to energy costs in the country,” said CBIA lobbyist Eric Brown. “I'm more worried about what signal this sends to the business community in Connecticut, one that is already strained.”

Brown also said he doubts actions by Connecticut or several states alone will be enough to address the planet's warming climate.

State Sen. Ted Kennedy Jr., (D-Branford) co-chair of the Environment Committee, said concerns about energy costs are legitimate, but a carbon tax, which is gaining political momentum, is worth discussing.

“This is not, I think, a [fringe] idea,” Kennedy said. “There may be some merits to this and that's the reason for having a public hearing today.”

Kennedy noted that a group of Republicans, including former Secretary of State James Baker and former U.S. Treasury Secretary Henry Paulson, recently called on the Trump administration to pass a federal carbon tax. The so-called Climate Leadership Council, which says a carbon tax is a market-based solution to climate change, wants a $40-per-ton tax, with taxpayer dividends similar to those in Connecticut's proposal.

“It can unite Democrats and Republicans, market-oriented people, and socially or community-oriented people,” said Barrett, the Massachusetts lawmaker. “It's an approach that can fight climate change without creating the normal divisions we see.”

The Climate Leadership Council's timing may seem peculiar, given that President Donald Trump's Environmental Protection Agency Administrator Scott Pruitt has questioned climate-change science and, as governor of Oklahoma, sued the federal government over Obama's carbon-reducing Clean Power Plan.

For some, the state bills reflect doubt that the Trump administration will consider taxing carbon. “The states are kind of where the action is on a lot of these issues in my view,” Kennedy said.

Congressman Larson said he doesn't think there will be a rush of Republican support anytime soon for a federal carbon tax.

“[Republicans] are for the most part in denial about climate change,” Larson said.

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