One Governor Blinks on Carbon Tax. Will Northam?

By Steve Haner

The governor of Massachusetts stated yesterday that he and other unnamed governors in Transportation and Climate Initiative states are reconsidering the new carbon tax. Is our Governor Ralph Northam among them? He has a news conference this afternoon and somebody should ask.

From a post late yesterday at the Boston Herald:

“Gov. Charlie Baker said governors are re-evaluating support of a controversial carbon tax designed to limit greenhouse gas emissions as advocates renew calls for its passage.

“We’re living at a point in time right now that’s dramatically different than the point in time we were living in when people’s expectations about miles traveled and all the rest were a lot different,” Baker said Tuesday during a press conference at the State House.

Governors in other states have been shaky on this before, and now it is time to pull the trigger and ask their 2021 legislatures to approve a specific memorandum of understanding (not yet released). The expected goal will be to reduce gasoline and diesel consumption within the 12-state region by 25% over ten years.

As discussed in publications by the Thomas Jefferson Institute for Public Policy, and here on Bacon’s Rebellion, fuel wholesalers would be forced to buy allowances for CO2 in their fuels, which would be passed onto consumers. But a carbon tax alone won’t wean Americans off fossil fuel, so the tax is joined by a steadily declining annual cap in the amount of allowances available. The word for that is rationing.

On Monday, acting in his capacity as a board member for the Jefferson Institute, former Speaker of the House Bill Howell submitted a guest column to the Richmond Times-Dispatch. That same day the Jefferson Institute published a fresh economic analysis that indicated Virginia families would end up paying more than $700 more per year in direct costs for fuel due to the tax, or indirect costs for other goods and services due to the impact of higher fuel costs throughout the supply chain. The higher taxes would take $1 billion off the state’s gross domestic product.

One of the few media stories sparked by the release was in an online outlet called The Center Square. It got this response from Chris Bast, the deputy director at the Virginia Department of Environmental Quality:

“Regionwide, a fully implemented multijurisdictional TCI program … could be expected to deliver billions of dollars in public health benefits and hundreds of millions of dollars in avoided climate damages annually by 2032,” Bast said. “Additionally, regionwide, the program would have a positive impact on GDP, income and jobs, all of which would be greater than business as usual in 2032 and substantially net positive over the 2022-2040 timeframe.”

What it certainly delivers is billions of dollars in fuel taxes over the region, about $65 billion in the first ten years. Advocates have discussed an initial carbon tax that adds 17 cents per gallon, which rises over time. The Thomas Jefferson-requested analysis was based on an average tax of 33 cents per gallon over the first five years. Deep in the TCI’s own data, however, is a spreadsheet that indicates the 25% goal drives a carbon price (or tax) of $22 per ton in 2022 and $35.84 in 2032.

You can see it here. It is also the source of that total tax revenue projection, which is not broken down by state.

Each gallon of gasoline emits 19.6 pounds of CO2, so about 112 gallons used emits that single ton of CO2. That carbon price therefore translates to more like 20 cents per gallon in the first year, and 32 cents per gallon at the tenth year.  Those are in 2017 dollars, not adjusted for inflation, which will raise the actual carbon price.

On a recent TCI conference call one of the social justice advocates complained this is just a very regressive tax on the poor and middle class, raising money to subsidize rich folks who want electric vehicles. Maybe Baker and some of the governors have seen that clip.

It is time to finally fully debate this not in the General Assembly, but among the public which will be paying the bills, and perhaps scrambling to find gasoline at all in a few years if supply truly does get rationed. I’m fired up for that opportunity. A decision by the Governor to avoid or delay that debate would be unfortunate in a way. Good news in other ways.

Next year is the big Virginia election year. Legislators who voted for it already have to defend a massive gasoline and diesel tax increase they imposed for 2020 and 2021 and beyond. The appetite just might not be there to double down on that, especially since the tax revenue to be raised won’t be going to the traditional roadbuilding and maintenance tasks. In fact, as Howell pointed out, funds for those tasks will start to decline again if fuel sales truly do start to shrink.