Carbon Taxes Move to the Gas Pump

Imagine this: A regime of rising carbon taxes and tightening emission allowances extending from Virginia’s Cumberland Gap to the Canadian maritime coastline. It covers coal, natural gas, gasoline, diesel fuel, fuel oil, compressed natural gas, wood and biomass fuel, in all the various ways they are now used. If energy from those sources remains cheap and plentiful, the process has failed.

The vision could be reality if Virginia goes forward with joining the Regional Greenhouse Gas Initiative and its related Transportation and Climate Initiative. They must be evaluated together.

Just as the RGGI seeks to impose a carbon tax and ever-reducing carbon cap on Virginia’s electricity generators, the Transportation and Climate Initiative would do the same to Virginia’s distributors of gasoline and diesel fuel. They would also need to buy carbon allowances to stay in business, costs ultimately passed to consumers.

It has barely been a year since Governor Ralph Northam’s administration announced it was adding Virginia to the TCI regional compact negotiations. RGGI is established but TCI is just getting off the ground, with the initial multi-state memorandum of understanding still being developed.

On October 1 a proposed TCI framework was released. The target date for imposing the carbon taxes on fuels is 2022, setting maximum allowance figures per state which will start to decline from there.

Careful readers will notice the TCI framework is devoid of data on what the starting allowance for Virginia emissions from transportation fuels might be, how steeply those caps would decline, and what prices might be imposed in the allowance trading scheme that will make the system work more smoothly. But on examination it is simply the Regional Greenhouse Gas Initiative for cars and other vehicles, with enforcement focused on fuel wholesalers rather than electricity generators.

After all, other fuel taxes are collected at the wholesale terminal, or “at the rack,” so it makes sense to collect this one from distributors, as well.

With the proposed carbon tax on fossil fuels for electricity, Virginians have received an independent consumer cost analysis from the State Corporation Commission charged with regulating that industry. Now that the proposed TCI framework is out for public comment until November 5, some impact projections may surface. But they will be guesses, because the gap between allowed supply and consumer demand will drive the allowance price, and TCI hasn’t set the allowances.

Comments on the framework are being welcomed through an on-line portal. There is enough detail in the framework and an earlier Georgetown University Climate Center report that comments should come flooding in, unless this process remains below the radar screen with affected citizens and businesses. It might not just be about gasoline, diesel and vehicles on highways.

While most of the high-level discussion focuses on the most common motor fuels, the underlying Georgetown research extended to aviation fuels, E85 blend, propane and compressed natural gas used in vehicles. It also examines heating oil, a much more common commodity in the northeastern states than in Virginia. The shrinking cap on fuel sales, reinforced with a growing allowance price, could impact the fuels for farming, landscaping and other off-the-road uses such as manufacturing. All CO2 from fuel is equal in regulators eyes.

Two things about the framework document betray that large sums of money will change hands.

First, there is a strong rhetorical emphasis across the process on equity and social justice. Just as with electricity, transportation costs take a larger share of income from lower-income families. The organizers stress the need to relieve that burden, or to use the funds collected through the allowance process to provide additional transportation options.

The second giveaway is the constant discussion of “proceeds” and how they will be used by the various states involved. This is from the framework document, with emphasis added:

“Each TCI jurisdiction has different transportation needs and unique authorities; therefore, each jurisdiction would independently decide how proceeds are invested to achieve carbon emission reductions and other policy goals—like improved air quality and more affordable access to transportation. Additionally, jurisdictions may identify shared priorities for investment of proceeds including to maximize the efficiency of the regional program and to ensure greater benefits. TCI jurisdictions are committed to equity and meaningful community engagement when making new investment decisions and conducting program review….”

The phrase “carbon tax” is carefully avoided, just as it is avoided by advocates for Virginia’s membership in the RGGI compact on electricity generation. But those concerned about CO2 and its potential impact on global climate have long advocated a carbon tax, a welcome admission that taxation does change human behavior. Higher costs for gasoline and diesel create incentives to switch to electric vehicles, or at least the most efficient combustion engines. The cap and trade process works.

The process works best when states do not try to go it alone. The other TCI participating states are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island and Vermont. With Pennsylvania’s recent announcement it will join RGGI, the alignment between the two compacts is complete – from Cumberland Gap to Canada.


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About Stephen D. Haner

Steve Haner is Senior Fellow for State and Local Tax Policy for the Thomas Jefferson Institute for Public Policy. He is a former reporter, lobbyist, state employee and political advisor, with an emphasis on tax and business issues. He may be reached at blackwalnut140@live.com.
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One Response to Carbon Taxes Move to the Gas Pump

  1. John says:

    What about the “compact” clause in the constitution? Has congress approved this compact?

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