The Case for a Vermont Carbon Tax

1
The Case for a Vermont Carbon Tax
2
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.

3
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
4
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 GHGs.
• Regressive

5
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).

6
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
7
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
8
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
9
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)

10
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).