Consultants Understate the Costs of a Carbon Tax

January 24, 2019

By David Flemming

On Tuesday in Montpelier, two pro-renewable energy consultants commissioned to study the effects of a carbon tax in Vermont met with legislators from two House committees at a joint hearing. The gist of their report was, predictably, that a Carbon Tax would have a minimal impact on Vermonters, and in some cases people would actually benefit from such a tax/rebate scheme.

But at one point, Wesley Look, one of the consultants, stated that “the ESSEX Plan could be administratively quite complex.” This is classic understatement. The ESSEX Carbon Tax plan calls for the state to collect an excise tax on fossil fuels, then redistribute the revenue raised through a series of rebates for low income and rural Vermonters (which Vermonters would have to apply for), and subsidized electric rates managed by the state’s several electric utilities. The cost to oversee something this complex will be substaintial.

So I was surprised to see that there was no mention of administrative costs in his 146 page report. In fact, in today’s hearing the researches were asked directly and admitted forthrightly that they did not consider administrative costs when calculating the impact of the tax. Such a glaring oversight has to call into question the overall usefulness of this document that cost Vermont taxpayers $125,000.

Rhode Island’s 2015 plan for a carbon tax sounds similar to Vermont’s, in that it planned to “return 100% of revenue (minus overhead costs) in the form of rebates and programs.” The R.I. proposal predicted 5% of revenues would go toward “administrative overhead costs” if it had been passed, and Rhode Island’s plan didn’t include the complexity of partnering with electric utilities.

Connecticut’s 2017 carbon tax proposal called for “not more than five per cent shall be used to pay for administrative costs.” Massachusetts does not give a cost estimate, but at least it admits that carbon tax would have administrative costs, while hoping to keep them “presumably low.” British Columbia’s carbon tax was promised to be revenue neutral before its passage in 2008, but it has become “revenue-negative because of administrative costs.”

If the consultants’ estimate of $33 million raised in carbon tax revenue for Year 1 of the ESSEX Carbon Tax is correct, a 5% administrative cost would cost around $2 million to pay for the program (no estimate was given here). But, this estimate is likely low because all the logistics to administer the program need to be in place on day one, while the revenue won’t be at full strength until year ten. Therefore, it is conceivable that in its early phases the ESSEX Carbon Tax will cost more to collect than it brings in.

Vermont has already paid $120,000 for the analysis of the tax, but the report didn’t even attempt to analyze the situations facing real Vermont households. The consultants put a quarter million Vermont households into 5 income groups. They took the second lowest of those income groups, the Vermont household making $23,000-$45,000 and said that the average household in that group would receive $24 in 2020. There are at least two problems with that figure of $24. First, there is no mention of the drastic difference in fossil fuel consumption among this group of Vermont households in this income range. Second, there is no mention of the administrative costs that would be taken out of that $24.

Last year, the Ethan Allen Institute did not need $120,000 to address these questions. Among our six ESSEX Carbon Tax Profiles we looked at three actual households in the $23,000-$45,000 range, rather than the singular abstract household. The results were discouraging: the most fortunate household would stand to lose $9 in 2020 while the most negatively impaced household would lose $85. To say nothing of much larger amounts that would be lost in the later years of the program.

David Flemming is a policy analyst at the Ethan Allen Institute

{ 6 comments… read them below or add one }

Dan Perry January 24, 2019 at 5:56 pm

Thank you for article. If I understand it correctly I would have like a 24cent per gallon tax on propane ,so with my usage of just over 20,000 gals a year that’s $4,800 increase. Now to paint the picture I have about 2,600 gals is residential balance is business use. We need to find more ways to reduce our expenses and not more ways to generate revenue. Thanks Dan

Reply

Rob January 25, 2019 at 3:19 pm

Your math sounds correct Dan. And it is pretty alarming. If you wanted to get a more precise estimate (with rebates), we’d be happy to help. You would just need to answer this survey:
https://www.surveymonkey.com/r/3XVLWMN

Reply

Deanne January 26, 2019 at 1:09 am

And that’s just for your propane, not gas for your vehicles or any other fuel you use. That is insane.

How do these people get elected to office? Are they really so ignorant? No, I suppose I know the answer to that. They have an agenda, so you do whatever you need to do to get your hare-brained idea implemented, no matter what. Don’t try to get down to the actual facts – in fact, gloss over anything that might cause doubts in people’s minda. Conveniently avoid the hard questions about costs and effects.

Reply

mike January 26, 2019 at 12:44 am

“Admiistratively complex”? Hang on to you walet folks, that’s a code phrase for tax, tax, tax.

Reply

Allan Morrie January 26, 2019 at 3:10 am

When and if 5his 5ax passes, watch the number of people who will move out of state! Vermont is one of the highest taxed state in the nation, along with the highest state for the basic needs.
If this tax, no matter what you call it, is passed, watch the number of people who leave the state ( if they can afford it ). I for one would seriously think about leaving. Our representatives do not represent thre citizens of Vermont, bur only their own and the lobbyists interests!!

Reply

Allan Morrie January 26, 2019 at 3:31 am

When and if this tax passes, watch the number of people who will move out of state! Vermont is one of the highest taxed states in the nation, along with the highest state for the basic needs.
If this tax, no matter what you call it, is passed, watch the number of people who leave the state ( if they can afford it ). I for one would seriously think about leaving. Our representatives do not represent thre citizens of Vermont, but only their own and the lobbyists interests!!

Reply

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