The Case for a Vermont Carbon Tax

Rationale

• Simplification– Replace existing energy taxes with a single tax on

carbon content of fuels.

• Behavioral Change– Encourage reduced consumption of fossil fuels and

reduced CO2 emissions.

• Revenue Leveraging– Make use of revenues to purchase energy saving

efficiencies and alternatives to fossil fuels.

Current Energy Taxes

Rate ‘04 Revenue

Gasoline Tax $.19 / gal 71.9

Diesel Tax $.26 / gal 18

Sales Tax on Comm. Energy

5%* (with exceptions)

15

Utilities Gross Receipts

.3-.5% of gross oper. revenue

5.7

Fuel Gross Receipts

.5% on retail sales

5.5

TOTAL 116.1

Carbon Tax: Pro/Con

• PRO• Broad influence-

consumers, transport.• Low transaction costs• Ease of

administration• Produces recyclable

revenue

• CON• Emissions reductions

not predictable• Vulnerable pricing

due to inflation/ price shocks

• Not targeted to reduce all GHG’s.

• Regressive

Carbon Tax Proposal

• $100 per ton tax on carbon content of fuels.

• Applied at point where fuels enter vermont economy.

• Revenues recycled back to taxpayers (individual and commercial).

• Comparable tax on nuclear and large hydro (market competitiveness).

Revenue Estimates

$100/ton + tax on hydro/nukes

Minus existing energy taxes

Total 364,500,000 248,400,000

Residential 112,400,000 76,600,000

Commercial 71,500,000 48,800,000

Industrial 53,000,000 36,100,000

Transportation 127,500,000 86,900,000

Price Effects on Fuels

2004 Increase

Gasoline ($ per gallon) .29 -.19 = +.10 increase

Electricity (cents / kWh) +.01 - existing taxes

Natural gas (cents/ therm)

+17.2 - existing taxes

Fuel Oil ($ per gallon) +.34 - existing taxes

Coal ($ per ton) +76 - existing taxes

Energy Savings and CO2 Reductions

Energy Use (TBTU) 125.56

Energy Saved (TBTU) 4.98

GHG Emissions (CO2 equiv. tons) 9,702,000

GHG Emissions Reduced (CO2 equiv. tons)

386,000

Trading Carbon Offsets

• Emerging markets for emissions/ sequestration trading:– Kyoto Signatory nations– EU cap and trade system (2005)– Chicago Climate Exchange– Northeastern States cap and trade system (2005)

• Allows for trading CO2 emissions with carbon sequestering “sinks.”

• “the biggest commodities market in the world.” -R. Sandor (Northwestern Univ. / CCX)

Carbon Trading Potential for VT Agricultural/Forest Land

• States (NE,AK) have begun quantifying sequestration potential of land.

• VT forests hold a carbon stock of 492.6 MMTC (1997).

• Carbon tax revenues can be used to quantify capacity/pool land holdings/define compliance mechanisms for trading.

• US farmers can sequester 200 MMTC annually / add $4-6 billion gross income (10% increase in average net farm income).