BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | AJR 43|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: AJR 43
Author: Williams (D)
Amended: 6/13/16 in Assembly
Vote: 21
SENATE GOVERNANCE & FIN. COMMITTEE: 5-1, 8/10/16
AYES: Hertzberg, Beall, Hernandez, Lara, Pavley
NOES: Nguyen
NO VOTE RECORDED: Moorlach
ASSEMBLY FLOOR: 44-29, 6/30/16 - See last page for vote
SUBJECT: Greenhouse gases: climate change
SOURCE: Author
DIGEST: This resolution urges Congress to enact a national
carbon tax.
ANALYSIS:
Existing law:
1)Does not impose a carbon tax under either state or federal
law.
2)Directs the California Air Resources Board (ARB) to administer
AJR 43
Page 2
the Global Warming Solutions Act of 2006, which requires
California to reduce its greenhouse gas (GHG) emissions to
1990 levels by 2020 (AB 32, Nunez, Chapter 288, Statutes of
2006). Under the Act, 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.
This resolution:
1)Urges the United States Congress to enact a tax on
carbon-based fossil fuels without delay.
2)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.
3)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.
4)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.
5)States that United States business should be protected by
using carbon-content-based tariffs and tax refunds.
6)Contains findings supporting its purposes.
7)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
AJR 43
Page 3
Majority Leader of the Senate, and to each Senator and
Representative from California in Congress.
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 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 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 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
AJR 43
Page 4
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.
Carbon taxes are generally considered administratively feasible
and reasonably simple for agencies to enforce compliance, but
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,
and 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. 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
AJR 43
Page 5
taxes, providing compliance assistance, or funding renewable
energy programs.
Setting a rate. Carbon tax rates can be designed to generate
a specific amount of revenue, account for the 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. 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. However, a carbon tax that has
too high of a rate could result in undesirable impacts to
business cost structures and consumer prices.
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, but experts warn that limiting the tax scope could result
in perverse effects, with sources potentially shifting
processes, facility size, or location to avoid taxes. AJR 43
calls for a carbon tax that's collected once, as far upstream
in the economy as practical, or at the port of entry.
AJR 43
Page 6
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. 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 "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 easily be shifted to other jurisdictions.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:NoLocal: No
SUPPORT: (Verified8/10/16)
Citizens Climate Lobby
Community Environmental Council
Friends Committee on Legislation of California
OPPOSITION: (Verified8/10/16)
None received
ARGUMENTS IN SUPPORT: 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,
AJR 43
Page 7
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
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."
ASSEMBLY FLOOR: 44-29, 6/30/16
AYES: Atkins, Bloom, Bonilla, Bonta, Burke, Calderon, Campos,
Chau, Chiu, Chu, Cooley, Dababneh, Dodd, Eggman, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Hadley, Roger Hernández, Holden, Irwin, Jones-Sawyer,
Levine, Lopez, Low, McCarty, Medina, Mullin, Nazarian,
O'Donnell, Quirk, Ridley-Thomas, Santiago, Mark Stone,
Thurmond, Ting, Weber, Williams, Wood, Rendon
NOES: Achadjian, Travis Allen, Arambula, Bigelow, Brough,
Chang, Chávez, Dahle, Frazier, Beth Gaines, Gallagher, Gray,
Grove, Harper, Jones, Kim, Lackey, Linder, Maienschein,
Mathis, Mayes, Obernolte, Olsen, Patterson, Salas, Steinorth,
Wagner, Waldron, Wilk
NO VOTE RECORDED: Alejo, Baker, Brown, Cooper, Daly, Melendez,
Rodriguez
AJR 43
Page 8
Prepared by:Colin Grinnell / GOV. & F. / (916) 651-4119
8/15/16 10:21:01
**** END ****