BILL ANALYSIS Ó
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M. Hertzberg, Chair
2015 - 2016 Regular
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|Bill No: |AJR 43 |Hearing |8/10/16 |
| | |Date: | |
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|Author: |Williams |Tax Levy: |No |
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|Version: |6/13/16 |Fiscal: |No |
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|Consultant|Grinnell |
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Greenhouse gases: climate change
Urges the United States Congress to enact a tax on carbon based
fuels.
Background
First imposed by Scandinavian countries in the early 1990s,
carbon taxes seek to reduce carbon emissions by increasing its
price. While many countries in Europe impose a carbon tax, only
the Canadian provinces of Alberta, British Columbia, and Quebec
currently levy one at a state level or higher in North America.
Representatives in Congress have introduced several bills
enacting a national carbon tax in recent years, but none have
yet been enacted. Recent efforts to enact state-level carbon
taxes are under consideration, and voters in the state of
Washington will consider a state-level carbon tax initiative
this year.
While the structure of carbon taxes vary, they are usually
calculated as a dollar charge per ton of carbon emitted or per
kilowatt of electricity or natural gas provided. The tax is
imposed upon entities that emit carbon, or other greenhouse
gasses (GHGs), such as firms that distribute petroleum, heating
or other fuels, and electric and natural gas utilities. As
such, carbon taxes attempt to increase prices on fossil fuels to
account for its environmental and public health effects, also
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known as its negative externalities, or the societal or economic
costs of a product or service not currently reflected in its
consumer price. By increasing the price of fossil fuels, and
thereby the cost of providing products and services with carbon
as an input, these taxes increase incentives to emit less, and
encourage the development of non-carbon based inputs.
Additionally, consumers will purchase fewer products and
services as producers seek to pass along the carbon tax to
consumers in the form of higher prices, whereas producers that
can supply products and services using less carbon-based energy
need not increase prices as much.
Carbon taxes are generally considered administratively feasible
and reasonably simple for agencies to enforce compliance. The
Congressional Research Service reports that a well-developed
structure for collecting carbon taxes already exists because
approximately 13,000 facilities, comprising 90% of greenhouse
gas emissions, currently report annual emissions to the United
States Environmental Protection Agency. The U.S. Energy
Information Administration tracks the production, import,
export, storage, and consumption of fossil fuel products.
Additionally, refiners and importers of petroleum products
already pay a federal per barrel tax to the Oil Spill Liability
Trust Fund, and coal mine operators also pay a federal per ton
tax to the Black Lung Disability Trust Fund.
Carbon tax proposals must generally address four key issues,
each with significant implications:
Use of proceeds. By increasing its cost of production,
carbon taxes reduce the social and economic costs of GHG
emissions, but also generate revenues to be used for other
purposes, creating a "double dividend." Some proposals
allocate carbon tax proceeds for general government
purposes or to offset other taxes, while others dedicate
them in specific ways, such as cash refunds or rebates to
residents, tax credits or other subsidies for affected
industries to reduce emissions, or financing other
renewable energy policies.
Setting a rate. Carbon tax rates can be designed to
generate a specific amount of revenue, account for the
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entire negative externality or social cost of carbon
emissions, or meet specific targets for emission reductions
over time. Many proposals start at a low rate that
increases over time, thereby allowing affected firms the
time necessary to make capital investments to reduce
emissions and therefore their carbon tax liability, but
delaying some of the carbon tax's benefits.
Point of collection: Carbon taxes can be imposed
"upstream" on suppliers of coal, at natural gas processing
facilities, and at oil refineries, "midstream" on electric
utilities, or "downstream" at energy-using industries,
households, or vehicles, or in some combination thereof.
Tax enforcement agencies can generally ensure more
compliance the fewer the taxpayers they collect from,
especially for carbon taxes, because collecting from every
downstream source such as vehicles and livestock would
likely be infeasible. However, other non-carbon GHG
emissions, such as methane, nitrous oxides, sulfur
hexafluoride are more difficult to verify, which could lead
to higher administrative costs and non-compliance risks if
the tax applied to those emissions too. However, experts
warn that limiting the tax scope could result in perverse
effects, with sources potentially shifting processes,
facility size, or location to avoid taxes.
Border adjustments. Economists state that by increasing
the cost of a key input, carbon taxes shift manufacturing,
jobs, and emissions to nations with less-stringent
controls, especially for energy intensive manufacturers
competing in global markets. These firms and others could
also choose to expand in foreign jurisdictions instead of
in the United States, resulting in emissions "leakages."
Many carbon tax proposals include border adjustments, such
as tariffs, to ensure that firms that export from countries
without carbon taxes do not have a competitive advantage.
Seeking to enact a carbon tax at the federal level, advocates
for the environment want the Legislature to urge Congress to
enact a carbon tax.
Proposed Law
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Assembly Joint Resolution 43 urges the United States Congress to
enact a tax on carbon based fuels without delay. The resolution
states that the tax should be collected once, as far upstream in
the economy as practical, or at the port of entry into the
United States. AJR 43 also provides that all revenues should be
returned to middle and low-income Americans to protect them from
the impact of rising prices due to the tax. The measure also
says that the tax rate should start low and increase steadily
and predictably to achieve the goal of reducing carbon dioxide
emissions in the United States to 80% below 1990 levels by 2050.
Additionally, the resolution states that United States
businesses should be protected by using carbon-content-based
tariffs and tax refunds.
The measure makes legislative findings and declarations
supporting its purposes, and directs the Chief Clerk of the
Assembly to transmit copies of the resolution to the President
and Vice President of the United States, the Speaker of the
House of Representative, the Majority Leader of the Senate, and
to each Senator and Representative from California in Congress.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . According to the author, "Currently at
the federal level there are no statutes addressing carbon levels
in the atmosphere, or the long term effects these levels are
having with global climate change. The measures proposed in
this resolution will benefit the economy, human health, the
environment, and national security, even without consideration
of global temperatures, as a result of correcting market
distortions, reductions in non-greenhouse-gas pollutants,
reducing the outflow of dollars to oil-producing countries and
improvements in the energy security of the United States.
Phased-in carbon fees on greenhouse gas emissions (1) are the
most efficient, transparent, and enforceable mechanism to drive
an effective and fair transition to a domestic-energy economy,
(2) will stimulate investment in alternative-energy
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technologies, and (3) give all businesses powerful incentives to
increase their energy-efficiency and reduce their carbon
footprints in order to remain competitive. Equal monthly
dividends (or "rebates") from carbon fees paid to every American
household can help ensure that families and individuals can
afford the energy they need during the transition to a
greenhouse gas-free economy and the dividends will stimulate the
economy. The weight of scientific evidence indicates that
greenhouse gas emissions from human activities including the
burning of fossil fuels and other sources are causing rising
global temperatures. The weight of scientific evidence also
indicates that a return from the current concentration of more
than 400 parts per million ("ppm") of carbon dioxide ("CO2") in
the atmosphere to 350 ppm CO2 or less is necessary to slow or
stop the rise in global temperatures. Further increases in
global temperatures pose imminent and substantial dangers to
human health, the natural environment, the economy, national
security, and an unacceptable risk of catastrophic impacts to
human civilization."
2. Worth it ? Generally, taxing something results in less of it.
Carbon taxes reduce emissions of greenhouse gasses by
increasing its price, resulting in less social, environmental,
and economic harm from GHGs. However, a carbon tax will also
increase costs for many businesses, which will likely generate
fewer profits unless they can pass along these costs to
consumers by increasing prices. Consumers may then end up
ultimately paying the tax, especially low-income individuals and
families that spend a higher percentage of their incomes on
energy. The Tax Policy Center estimates that a carbon tax of
$20 per ton would account for about 1.8 percent of pretax income
for households in the lowest income quintile, as compared to 0.7
percent in the highest income quintile. However, a carbon tax's
impact would be less regressive to the extent that it reduced
profits rather than increasing prices, and most estimates of the
economic effects of a carbon tax do not include its climate
change benefits. Additionally, many carbon tax proposals,
including the one called for by AJR 43, return carbon tax
revenues to persons of low and moderate income. Experts state
that the ultimate economic effects would depend on a number of
factors, including the magnitude, design, and use of revenues of
the carbon tax. The Committee may wish to consider the economic
and environmental tradeoffs of a national carbon tax.
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3. California knows . Legislation seeking to put a price on
carbon emissions generally falls into two categories: carbon
taxes and cap-and-trade programs. Experts disagree regarding
which of these two approaches is best: advocates for
cap-and-trade argue that carbon taxes are less effective because
they only seek to increase the price of carbon, and do not set
binding emission limits, while carbon tax supporters respond by
arguing that cap-and-trade programs lead to volatility in energy
prices, and add that taxes are more transparent and easier to
administer. In California, the California Air Resources Board
currently administers the Global Warming Solutions Act of 2006,
which requires California to reduce its GHG emissions to 1990
levels by 2020 (AB 32, Nunez, 2006). ARB must adopt regulations
to achieve the maximum technologically feasible and
cost-effective GHG emission reductions, which currently includes
a cap-and-trade program that sets a statewide limit on most
sources of GHGs, allocates or sells allowances to emitters, and
oversees a market for sellers of allowances to connect with
buyers. Additionally, the most significant federal legislation
thus regarding climate change, the American Clean Energy and
Security Act of 2009, created a national cap and trade program.
The House of Representatives approved that bill, but it was
never brought to the Senate Floor. Despite this disagreement,
the two approaches are not mutually exclusive; pending
legislation in Massachusetts and Washington allow a deduction
for carbon tax liability for amounts paid in allowance auctions.
The Committee may wish to consider whether the Legislature
should urge Congress to enact a carbon tax, a national
cap-and-trade program, or some combination thereof.
4. Use of proceeds . AJR 43 calls for a national carbon tax in
which "all revenues are returned to middle and low-income
Americans to protect them from the impact of rising prices due
to the tax," which recognizes that lower income individuals and
families generally spend a larger percentage of their income on
energy than those of higher incomes, and may bear much of a
carbon tax's incidence. However, by requesting the return of
all revenues in this way, AJR 43 rules out other potential uses
of carbon tax revenues, such as reducing the federal budget
deficit, decreasing other taxes, providing compliance
assistance, or funding renewable energy programs. The Committee
may wish to consider the purposes for which national carbon tax
revenues may be used.
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5. Target correct ? While AJR 43 doesn't ask Congress to set a
specific carbon tax rate, it does state that it "should start
low and increase steadily and predictably to achieve the goal of
reducing carbon dioxide emissions in the United States to 80%
below 1990 levels by 2050." The resolution states that climate
scientists state that reductions of that level are necessary to
achieve climate stabilization and avoid cataclysmic climate
change. Any federal legislation implementing a carbon tax
consistent with AJR 43 would likely direct the United States
Department of Treasury to calculate such a tax rate, which could
result in high tax liabilities, and therefore impacts to
business cost structures and consumer prices. The Committee may
wish to consider AJR 43's direction regarding the carbon tax
rate.
6. Border adjustments . One risk of enacting a national carbon
tax is that firms facing a significant tax liability may seek to
shift activity to nations that do not levy one, leading to
reduced employment and economic activity domestically, while
failing to achieve net global emission reductions. To address
this issue, AJR 43 calls for carbon-content-based tariffs and
tax refunds. Border tax adjustments such as tariffs on fuels
and carbon-intensive imports can help reduce these emissions and
employment "leakages," but currently must comply with World
Trade Organization rules. Additionally, some experts state that
border adjustments may not be desirable because most domestic
emissions occur in sectors that cannot be shifted to other
jurisdictions, such as electricity, transportation, and
residential buildings. The Committee may wish to consider
whether carbon-based tariffs and tax refunds are a necessary
part of a national carbon tax.
Assembly Actions
Assembly Natural Resources 7-0
Assembly Floor 44-29
Support and
Opposition (8/4/16)
Support : Citizens Climate Lobby, Friends Committee on
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Legislation of California, Community Environmental Council.
Opposition : Unknown.
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