With climate change re-emerging as a political driver for Democrats, both in the Colorado Legislature and at the national level, the specter of a tax on carbon dioxide has emerged.
While some believe carbon dioxide taxes can address the climate issue without an expansion of government, they would really just be a stepping stone to the $93 trillion Green New Deal. Carbon tax proposals are almost always falsely labeled as commonsense, middle ground solutions, but the claim that a tax on energy would satisfy all parties does not stand up to any scrutiny.
If you look across the West, whenever an energy tax has been put to a vote, it has failed miserably, and multiple times — most recently in the State of Washington last fall.
But now, energy tax proponents like the Climate Leadership Council (CLC) and others, have emerged claiming to have a new framework of politically-viable energy taxes.
This framework seeks to draw widespread support for a tax on energy by promising the proceeds will be divvied out to American households in the form of quarterly checks.
While this sounds great (who doesn’t like free money!), it really means increased energy costs, diminished economic opportunity, higher gasoline costs, higher home heating costs, and more expensive goods and services.
Poorer households will be most harmed by a carbon tax because they spend a larger portion of their budgets on energy. In the tax-and-rebate model, the harm caused by increased costs and reduced choices to individuals would be significant and the widespread economic impact of this policy would be severe.
Moreover, the entire approach falsely assumes that the government will not take a portion of the proceeds before passing some of the back to the citizens.
Research from Capital Alpha Partners shows just how damaging an energy tax would be. Specifically, in Colorado, a carbon tax would result in an economic lag, lost jobs, and a smaller state budget to help with essential government services like improving infrastructure.
To make matters worse, a tax on energy imposes static costs and revenue burdens on state and local governments.
The analysis finds the average annual burden on the Centennial State during the first 10 years of a carbon tax would range from $335 million to $546 million depending on the ultimate rate of taxation.
By siphoning wealth from our economy and redistributing it, the tax-and-rebate plan would introduce unavoidable economic drag.
To account for this loss and to balance its budget, Colorado can be expected to raise taxes, reduce services, or most likely of all, demand revenue sharing from the federal government, thereby eroding the plan’s capacity to rebate all carbon tax proceeds to taxpayers.
Despite these high costs, the tax doesn’t go nearly as far toward reducing carbon emissions as advocates would have you believe. The Capital Alpha study finds that none of the modeled carbon tax scenarios, including that most similar to the CLC plan, is consistent with meeting long-term U.S. obligations under the Paris Agreement as a standalone policy.
The disastrous economic impact such a policy would have puts a final nail in the coffin of an energy tax on carbon dioxide emissions.
Proposed tax-and-rebate schemes would not only fail to deliver on promises of growth, they would pass along significant costs that state governments simply can’t afford.
Such taxes are massive drains on economic prosperity and would pose a threat to Colorado’s economic future. Shuffling around wealth in the form of a so-called dividend won’t help.
Thomas J. Pyle is president at the Institute for Energy Research, a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets.