SUBJECT: FUEL, Carbon Emissions Tax; License Tax
BILL NUMBER: SB 1463; HB 1459 (Identical)
INTRODUCED BY: SB by K. RHOADS, RUDERMAN, Baker, S. Chang, Harimoto, Keith-Agaran, Shimabukuro; HB by TARNAS, BROWER, ELI, ICHIYAMA, D. KOBAYASHI, C. LEE, LOWEN, MIZUNO, NAKASHIMA, SAY, TODD, Creagan, Morikawa
EXECUTIVE SUMMARY: The bill intends to replace the current barrel tax and fuel tax with a revenue neutral carbon emission tax on the sale of all fuels with carbon content. This bill forces us to rethink how we now tax fossil fuel. The current patchwork of different state and local taxes all applying at once leads to unclear and inconsistent messages sent to the taxpaying public, which is not good for implementing social policy regardless of what the policy is.
SYNOPSIS: Renames chapter 243, HRS, as the Carbon Emissions and Fuel Tax Law.
Amends section 243-3.5, HRS, which now imposes the barrel tax, to a carbon emissions tax calibrated to $6.25 per ton of CO2. The tax is imposed on a distributor of the fuel.
Provides that the tax is distributed as follows:
- $1,290,000 to the environmental response revolving fund (HRS section 128D-2);
- $3,872,000 to the energy security special fund (HRS section 201-12.8);
- $2,582,000 to the energy systems development special fund (HRS section 304A-2169.1);
- $3,872,000 to the agricultural development and food security special fund (HRS section 141-10).
Provides grandfather protection to coal used to fulfill a signed power purchase agreement between an independent power producer and an electric utility that is in effect between June 30, 2015, and September 1, 2022.
Exempts fuel sold for use in and actually delivered to, or sold in, the county of Kalawao.
Amends HRS section 243-4 to delete the state fuel tax and to exempt from county fuel tax gasoline or other aviation fuel sold for use in or used for airplanes, or naphtha sold for use in a power-generating facility.
Makes technical and conforming changes.
Repeals HRS section 235-110.6 (which now provides for a fuel tax credit for commercial fishers).
EFFECTIVE DATE: Applies to taxable years beginning after December 31, 2018.
STAFF COMMENTS: An economist from UHERO, the University of Hawaii Economic Research Organization, recently posted an analysis arguing that strong, decisive action such as a carbon tax is going to be needed if we are going to achieve the greenhouse gas goals. “But without any specifics as to how we are to achieve [greenhouse gas] reductions – through a carbon tax or otherwise – it is largely symbolic,” she argues.
So what is a carbon tax? It is a tax imposed on the carbon content of different fuels. Typically, it is due and payable when the fuel is either extracted and placed into commerce, or when it is imported. At present, neither the U.S. federal government nor any U.S. state has enacted a carbon tax. The city of Boulder, Colorado, enacted one by referendum in 2006; it applies at the rate of $7 per metric ton of CO2 and is imposed on electricity generation only. Several European Union countries, Japan, and South Africa have carbon taxes.
Presently, we have a liquid fuel tax (chapter 243, HRS). Like a carbon tax, the fuel tax is imposed upon import and entry into commerce. So, PFM Group, the consultant employed by the Hawaii Tax Review Commission, in its final report thought that the systems and processes we now have in place to collect fuel tax in Hawaii can be adapted to a carbon tax, and for that reason concluded that a carbon tax would entail “[l]ittle administrative burden.” There are, however, several important differences between the two:
Both the county and state governments are given the power to impose fuel tax. This bill repeals the state fuel tax but does not affect the counties’ power to impose fuel tax.
The fuel tax is now earmarked for Highway Fund use, and the money in that fund is spent by the Department of Transportation. As a result, vehicles that don’t use the highways, such as tractors and other farm machinery, are exempt from fuel tax. A carbon tax would need to apply to both on-road and off-road use, as long as the CO2 generated from burning it gets into the atmosphere.
The potential big losers will be the electric companies, because electric generation accounted for 6.8 million metric tons of CO2 in 2013 out of a total 18.3 million metric tons. However, the electric companies won’t simply absorb the tax, but can be expected to pass on the enhanced costs to anyone who gets an electric bill.
Perhaps it’s good for lawmakers to worry about the end of the world as we know it, which perhaps will be staved off by the social change the tax encourages. But their constituents are worried not about the end of the world, but the end of next week. Will their paychecks be enough to pay the rent, keep the lights on, or feed the family? If the cost of simply driving to work from the suburbs is horrible now, just wait until the tax kicks in.
And if you think the hammer of a carbon tax will fall most heavily on huge, faceless corporations like the electric company, the airlines, or the shippers, think again. Businesses can and will pass on any enhanced costs to their consumers if they hope to continue providing their products or services. That means our already astronomical cost of living could head further up into the stratosphere. In theory, that would not happen under this bill, which is intended to be revenue neutral; but tax rates can be and are adjusted over time.