A properly designed carbon tax would improve Vermont’s economy while cutting its carbon emissions, a new analysis shows.
Energy Independent Vermont — a coalition of groups interested in cutting the state’s carbon emissions and moving it off dependence on fossil fuels — released the study this past Thursday, as a kickoff for their campaign for a statewide carbon tax. The modeling was carried out by Regional Economic Models, Inc., (REMI) which has modeled the economic effects of other policies for Vermont state agencies, and has modeled carbon taxes for the state of California and the nation as a whole.
In this case, the goal was to apply a carbon tax to fossil fuels used in Vermont’s transportation and home heating sectors alone, as its power sector is already under the Regional Greenhouse Gas Initiative (RGGI) — a regional cap-and-trade system covering the power generation of several northeastern states.
What REMI found was that a modest carbon tax that began at $5 per metric ton of carbon emissions, and ramped up to $50 dollars per ton over ten years, would actually help most of Vermont’s residents. The state would see over 1,000 new jobs by the 2030s, an increase in its state economy of roughly $40 million annually, and it would cut carbon emissions by more than one million tons per year. In fact, if the tax ramped up to $100 per metric ton (the “Medium” scenario) or $150 per ton (the “High” scenario) the benefits — in terms of job creation, more disposable income for Vermonters, and reduced carbon emissions — would be even greater.
“We have a path forward in Vermont to make the necessary cuts in carbon pollution, and we found one that actually would be good for the state’s economy,” said Ben Walsh, a clean energy advocate with VPIRG, a consumer and environmental organization and one of the members of the coalition. Walsh also pointed to the widespread flooding Hurricane Irene brought to the state in 2011 as a wake-up call on the need for a tax: “More than a dozen towns in Vermont were accessible only by ATV, horseback and helicopter. Literally all roads in or out were washed out,” Walsh explained. “There was about three quarters of a billion dollars in damage to infrastructure in the state, and something like 1,500 homes were severely damaged or destroyed.”
“People understand that we are in for more of that kind of disaster if we and everybody else doesn’t get our act together on climate change.”
The reason the tax actually improved the economy was fairly straightforward: the design would plow all of the revenue back into the state’s economy. Forty-five percent of the revenue would go into refundable tax credits for every adult resident of Vermont, with an additional rebate for low-income residents. Another 45 percent would go into tax cuts for businesses and other entities, and the final 10 percent would go into investment in projects and technologies that would help Vermonters transition off of fossil fuels. REMI’s studies of a carbon tax for California and for the nation found this structure had the same beneficial economic effect, and other analyses and real-world examples suggest the same.
The tax would be applied to fossil fuel distributors themselves, but it’s still possible they could pass along the cost to customers. So the policy recirculates the money to residents, and invests in pushing forward alternatives to fossil fuels, to give Vermonters as much help as possible paying increased fossil fuel costs — or better yet, avoiding those costs entirely. That’s ultimately the main purpose of a carbon tax: to shift the ecology of an entire economy in a greener direction.
As one possibility, Walsh pointed to new technologies like electric heat pumps that are just hitting the market, but that Vermonters could turn to instead of fossil fuels to warm their homes. “If we can shift people from heating with oil or propane or gas to these super-efficient cold-climate heat pumps, you’re cutting people’s energy use, you’re cutting their carbon pollution, and you’re opening up the possibility in the future of powering that heating with renewable electricity,” Walsh explained.
There’s also efficiency and weatherization upgrades: several years ago Vermont’s legislature set up a goal of getting 80,000 Vermont homes properly insulated and upgraded by 2020, and the tax would incentivize that move by both putting a price on carbon emissions and by helping to finance the upgrades and transition for homeowners. “Right now we’re not on track to meet that [80,000 goal],” Walsh said. “This proposal would certainly get us a lot closer to being on track.”
The price on emissions would also incentivize more use of public transportation and car-sharing infrastructure. But Vermont is largely rural, and cars are never going to go out of style there, so the investments would also help promote fuel-efficient vehicles to lower residents’ gasoline fuel bills. “Many Vermonters will still ultimately need to have a vehicle. So we think it makes sense to help them get into the most fuel-efficient vehicle they can find.”
It’s an interesting proposal because it would essentially sit a carbon tax alongside a cap-and-trade system in the state, just to cover different sectors of the economy. RGGI is “a tool that’s designed for the electric sector — it’s designed for large stationary emitters,” said Walsh. “Not for hundreds of thousands of buildings, or the transportation sector which certainly has other logistical issues.” Getting at those smaller, more decentralized changes is a big part of reducing the country’s fossil fuel use, and could serve a crucial role in meeting the goals of the recently-announced deal between the United States and China to jointly reduce their emissions.