Carbon tax could be tough sell on Beacon Hill
Environmentalists got what they wanted last month with the release of a state study that lays the intellectual groundwork for a multibillion dollar “carbon tax” on gasoline, heating oil, natural gas, and other fossil fuels blamed for accelerating climate change.
Using the study’s findings, environmentalists are planning to renew a push this year to pass a carbon tax in Massachusetts, after previous attempts faltered on Beacon Hill. State Senator Michael Barrett, Democrat of Lexington, said he will file carbon tax legislation later this month.
Then comes the hard part: Persuading skeptical lawmakers and residents that increasing gasoline and heating oil prices by a minimum of 27 cents per gallon and monthly natural gas bills by 12 percent is the politically and economically right thing to do.
Keep in mind, the Legislature only reluctantly approved a 3 cents per gallon increase in the state’s gas tax two years ago and voters two months ago repealed a measure that tied future gas-tax increases to the rate of inflation.
Add skyrocketing electricity prices, and it’s not exactly a friendly climate for those wanting to tax fossil fuels into near oblivion in Massachusetts.
“The idea of a ‘carbon tax’ opens up a huge public policy question involving hundreds of moving pieces,” said Michael Widmer, president of the Massachusetts Taxpayers Foundation, a business-backed fiscal watchdog group. “It won’t happen overnight. It will take a lot of time and a lot of debate to convince people.”
The carbon tax is considered by policy analysts as a blunt but effective instrument to discourage the use of fossil fuels, which emit so-called greenhouse gases, such as carbon dioxide, that contribute to global warming. Supporters of such a tax concede that heavily taxing gasoline, heating oil, and natural gas would by itself spur fierce opposition, but they propose offsetting the costs with tax breaks or direct rebates to taxpayers.
Such a plan, supporters say, would cut carbon emissions by as much as 5 to 10 percent a year while minimizing the potential economic harm.
This “revenue neutral” approach is modeled on British Columbia, Canada, which in 2008 implemented a carbon tax while deeply cutting individual and corporate income taxes. The province today has the lowest personal income tax in Canada and one of the lowest corporate income taxes in North America — and it has cut fuel consumption by 16 percent, according to published reports
“We really see a revenue-neutral carbon tax as a transformative policy,” said Rebecca Morris, spokeswoman for Climate XChange, a local environmental advocacy group.
The state study, which cost $150,000 to produce, recommended direct rebates to residents. It estimated a carbon tax, based on pricing carbon emissions at $30 per metric ton, would raise about $1.75 billion a year, which translates into a 27 cents per gallon jump in gasoline and heating oil prices, a 12 percent rise in natural gas prices, and unspecified increases in electricity rates.
Revenues would soar even higher if carbon emissions are priced above $30 per metric ton, as is the case in Sweden, which has a $168 per ton tax and keeps the revenues for other government programs. A total of 14 countries have variations of a carbon tax, some with offsetting tax cuts and rebates, others without.
No state in America has an economywide carbon tax.
The Massachusetts study — conducted by a team of energy and economic consulting firms hired by the state Department of Energy Resources — projected that the state might experience small job and income gains as a result of revenue-neutral carbon taxes, largely through consumers and businesses buying less energy produced in other states and countries. That would mean more money staying in the Massachusetts economy and spent on goods and services from local firms, the report concluded.
Mark Zandi, chief economist at Moody’s Analytics, an economic research firm in West Chester, Pa., said it’s possible to craft a revenue-neutral carbon tax that minimizes harm to an economy. “A carbon tax is a great idea to reduce carbon emissions and cut your dependence on foreign oil, assuming it’s done right,” said Zandi.
But the state report also noted that energy-intensive industries, such as transportation, manufacturing, construction, and utilities, would probably see job and income losses. Michael Ferrante, president of Massachusetts Energy Marketers Association, a trade group for heating oil dealers and wholesalers, said it doesn’t make sense to impose a new tax on fossil fuels when Massachusetts consumers and businesses already pay some of highest energy prices in the nation.
He added that he believes lawmakers would ultimately abandon carbon tax offsets and spend the revenues on other programs.
“That’s the most laughable aspect of this entire thing,” he said. “The ‘revenue neutral’ idea is just a Trojan horse to get the tax passed. They want to tax [fossil fuels] out of existence.”
Governor-elect Charlie Baker, whose inauguration is Thursday, has yet to take a position on the findings of the carbon tax study. During the recent gubernatorial campaign. Baker was asked at an environmental forum if he would support an “economywide,” revenue-neutral carbon tax.
Baker praised efforts to lower carbon emissions, but said he didn’t want to “do anything that profoundly disadvantages the economy, the citizens, the businesses of Massachusetts relative to other states.”
It wasn’t an outright rejection of a carbon tax — but not an endorsement either.