Flemming: Consultants understate the costs of a carbon tax

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 the hearing the researchers 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 percent of revenue (minus overhead costs) in the form of rebates and programs.” The proposal predicted 5 percent 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 percent 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 10. 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 for the Ethan Allen Institute. Reprinted with permission from the Ethan Allen Institute Blog.

Image courtesy of Public domain

4 thoughts on “Flemming: Consultants understate the costs of a carbon tax

  1. {Drum roll ….]

    Here it comes like it or not. These guys are going to shove a carbon tax of some form or another down the throats of those still in VT. As noted above this has ZERO to do with global warming and everything to do with redistribution of tax dollars forpet projects.

    IF the Dems and Progs/RHINO’s in VT actually wanted to slow global warming down wouldn’t they do EVERYTHING that can done before implementing a tax on fuels to curb climate change. Wouldn’t the tax on hard working folks be the LAST resort? Nope fist thing to implement. Why not FIRST reducing the speed limits on the highways back down to 55. Research has shows that reducing the speed limit to 50 MPH would reduce CO2 emissions by 30%.

    Follow the money… that’s all a carbon tax is. A money grab to benefit the few and enslave the rest.

  2. The carbon tax consultants report is very similar to Vermont education studies conducted by Will Mathis, his conclusions always favor the the big public education monopoly union jobs, ironic he is payed by a Colorado based, teachrts union funded organization. Same story with the carbon tax wackos. Where is the ethics commission on this?

  3. David,
    A great write up.

    The British Columbia carbon tax initially distributed almost all of the carbon tax.

    But shortly thereafter, the rules were changed to set up distribution programs with qualified low-income beneficiaries, and that meant only a part of the carbon tax was returned

    After subtracting the increased administrative costs due to increased program complexity, the returned carbon tax was even less.

    This likely will be the scenario in Vermont

    But Dem/Progs are hell bent to have a carbon tax as an excuse to set up many more distributive government programs to benefit favored voting groups.

    It has nothing to with climate change.

    They just want a CYA report that gives a plausible story they can tout to their constituents

    Never mind that the $125000 report was written by pro RE folks.
    Those folks grind out these reports on a weekly or monthly basis.
    Those reports are long on hypotheticals and short on actuals, such as the actual households of your report.

    You need to expand that report for thé other four groups of households, not just $23000 to $45000.

    • If the effect and the result of a proposed program or tax is predictable (e.g. the Obamacare bankruptcies) it is folly to assume that it is not the planned and intended outcome despite the claims and projections of the perpetrators. Politicians lie. Crisis is to politics like blood is to vampires. If none exist, create one. Political office attracts controlling personalities like playgrounds attract pederasts.

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