The Case for a VT Carbon Tax

Rationale Simplification –Replace existing energy taxes with a single tax on carbon content of fuels. Behavioral Change –Encourage reduced consumption of fossil fuels and reduced CO2 emissions. Revenue Leveraging –Make use of revenues to purchase energy saving efficiencies and stimulate growth.

Current Energy Taxes Rate‘04 Revenue Gasoline Tax$.19 / gal71.9 Diesel Tax$.16 / gal18 Sales Tax on Comm. Energy 5%* (with exceptions) 15 Utilities Gross Receipts.3-.5% of gross oper. revenue 5.7 Fuel Gross Receipts.5% on retail sales 5.5 TOTAL116.1

Carbon Tax: Pro/Con PRO Broad influence- consumers, transport. Low transaction costs Ease of administration Produces recyclable revenue CON Emissions reductions not predictable Vulnerable pricing due to inflation/ price shocks Not targeted to reduce all GHG’s. Regressive

Carbon Tax Proposal $100 per ton tax on carbon content of fuels. Applied at point where fuels enter Vermont economy. Revenues recycled back to taxpayers (individual and commercial). Comparable tax on nuclear and large hydro (market competitiveness).

Revenue Estimates $100/ton + tax on hydro/nukes Minus existing energy taxes Total 364,500, ,400,000 Residential 112,400,000 76,600,000 Commercial 71,500,000 48,800,000 Industrial 53,000,000 36,100,000 Transportation 127,500,000 86,900,000

Price Effects on Fuels 2004 Estimate Gasoline ($ per gallon) =.10 net increase Electricity (cents / kWh).01 (less existing) Natural gas (cents/ therm) 17.2 (less existing) Fuel Oil ($ per gallon).34 (less existing) Coal ($ per ton)76 (less existing)

Energy Savings and CO2 Reductions Energy Use (TBTU) Energy Saved (TBTU)4.98 GHG Emissions (CO2 equiv. tons) 9,702,000 GHG Emissions Reduced (CO2 equiv. tons) 386,000

2004 Energy Tax Revenues (Existing) 2004 Total energy revenue: $259,269,147

Energy Tax Revenues (Including Carbon Tax) 2004 Revised Energy Revenue: $521,540,000

Energy Tax Revenues (Including Carbon Tax)

Trading Carbon Offsets Emerging markets for emissions/ sequestration trading: –Kyoto Signatory nations –EU cap and trade system (2005) –Chicago Climate Exchange –Northeastern States cap and trade system (2005) Allows for trading CO2 emissions with carbon sequestering “sinks.” “the biggest commodities market in the world.” -R. Sandor (Northwestern Univ. / CCX)

Carbon Trading Potential for VT Agricultural/Forest Land States (NE,AK) have begun quantifying sequestration potential of land. VT forests hold a carbon stock of MMTC (1997). Carbon tax revenues can be used to quantify capacity/pool land holdings/define compliance mechanisms for trading. US farmers can sequester 200 MMTC annually / add $4-6 billion gross income (10% increase in average net farm income).