McClaughry: What the ESSEX carbon tax would do for Vermont

By John McClaughry

With much fanfare, climate change activists have presented the legislature with two bills (H.791, S.284) to implement their latest (seventh!) version of a Vermont carbon tax. It’s called the ESSEX Plan, which stands for “Economy Strengthening Strategic Energy eXchange.”

They firmly believe that carbon dioxide released by humans burning fossil fuels — gasoline, diesel, heating oil, natural gas and propane — will cause catastrophic climate change a century down the road. The ESSEX Plan is designed to make Vermonters stop burning fossil fuels.

John McClaughry

John McClaughry is vice president of the Ethan Allen Institute.

Let’s take a close look at how this is intended to work.

First, the ESSEX Plan carbon tax, rising steadily over eight years to roughly $240 million a year, will make fossil fuels increasingly expensive and thus uneconomical. People will thus invest in energy efficiency and switch over to alternative energy sources, especially electric vehicles and electric home heating. Ultimately the tax will drive out fossil fuels, except for a few hard-to-replace uses like heavy equipment and aviation fuel.

The ESSEX Plan advocates declare that their plan is “revenue neutral” — 100 percent of the carbon taxes collected will be returned to somebody (not necessarily the people who paid them).

Half of those tax proceeds will find their way to the Public Utility Commission, which will distribute them to electric utilities to reduce electric rates for everybody by at least 27 percent (their estimate).

The state will use the other half of the tax take to provide subsidies to “the most vulnerable and the middle class” through “fully refundable rebates for low income and rural Vermonters.” This is necessary to compensate them for the higher energy costs imposed upon them by the ESSEX Plan.

How will people replace the fossil fuel energy they can’t afford anymore? Some will turn to biomass heating, but most will choose electric heat and vehicles. But the ESSEX Plan doesn’t finance the significant capital costs of those conversions. You can’t afford fossil fuels any more, but financing a switchover to something else is your problem.

Even with more price-driven efficiencies, driving out fossil fuels will require the electric utilities to find lots more power to meet the increased demand. The plan expects this additional electricity to come from sources — wind towers, solar farms and net metering — that are much more expensive than present grid power.

More cheap, renewable Hydro Quebec power would ease this problem, but the ESSEX Plan coalition has demanded that “energy independent Vermont” reduce its reliance on Hydro Quebec to force the utilities to buy more power from wind, solar and (limited) biomass. (The wind and solar investors love this!) The increased reliance on wind and solar, however, introduces serious problems of maintaining the power grid in the face of intermittent and unpredictable wind and solar supply.

With fossil fuel consumption shrinking, carbon tax revenues will shrink, PUC subsidies to utilities will shrink, purchases of high-cost renewable power will increase, and electric rates will start back up.

Eventually, when the carbon tax drives out all fossil fuel and all users have switched (at considerable expense) to higher cost electricity, there’s nothing left to subsidize that electricity. You’re stuck.

This almost certain outcome assumes that legislators will faithfully maintain the promised “revenue neutrality” indefinitely into the future. Anyone familiar with the legislature knows well how tempting it is to pounce upon a revenue stream to finance popular spending. In fact, when first promoting the forerunner of the ESSEX Plan to legislators in 2014, the Energy Independent Vermont coalition archly observed, “Based on legislative priorities, carbon tax revenue could of course also be used for other purposes.”

The most pressing of those purposes would probably be diverting carbon tax revenues from motor fuel sales into the Transportation Fund to pay for badly needed maintenance of highways and bridges, which VTrans estimates faces a 2018 funding shortfall of $227 million. But diverting carbon tax revenues to other state programs would destroy “revenue neutrality,” and raising motor fuel tax rates to reduce the current shortfall would be politically impossible on top of the steadily rising carbon tax on those same fuels.

If imposing an ever-increasing carbon tax on Vermonters would save the planet from climate catastrophe, perhaps Vermont’s sacrifices would be bearable. But no Vermont carbon tax, however painful, will ever produce any detectable effect on climate change, and the eventual higher cost of electricity, forced investments, grid instabilities, cross-border economic effects, administrative complexities, vastly expanded state subsidies, and ever-present threat of political diversion of the revenues all suggest that it’s time to drop this idea, with a thud.

John McClaughry is vice president of the Ethan Allen Institute.

Images courtesy of Wikimedia Commons/Infrogmation and John McClaughry

11 thoughts on “McClaughry: What the ESSEX carbon tax would do for Vermont

  1. If New England were to close its coal, nuclear and gas plants and replaces the electricity with
    – Wind and solar, plus
    – Doubling imports from Hydro-Quebec, plus
    – Increase waste burning by a factor of 5, plus
    – Increase NE generated hydro by 20%,
    NE would need an energy storage capacity of about 8/0.884 = 9.05 TWh.
    This could be pumped hydro reservoirs, about 29 plants, each 100 MW, with upper and lower reservoirs.
    Combined water volume of all reservoirs would be 112 BILLION m3, which would be equivalent to 53 km long x 53 km wide x 40 meter deep.
    The variability and intermittency of wind and solar REQUIRES such storage.
    It is called an “externality”.
    It would cost tens of billions of dollars, which would be charged to ratepayers and taxpayers to make wind and solar “look good”.
    It is all explained in this article

  2. The cost of wind and solar is artificially reduced by very generous subsidies. They also EXCLUDE the costs of EXTERNALITIES, such as:
    – Any peaking, filling-in and balancing performed by the other generators
    – Any battery systems to stabilize distribution grids with many solar systems.
    – Any measures to deal with DUCK curves, such as utility-scale storage and demand management
    – Any grid expansions and augmentations to connect distributed solar systems
    Those costs, as c/kWh, are not easy to quantify, and as a result they are charged to ratepayers via rate schedules, and to taxpayers. Ultimately, they are reflected in the increased costs of goods and services, which usually act as a headwind to economic growth. There is no free lunch.
    For example, to bring wind electricity from the Panhandle in west Texas to population centers in east Texas, $7 billion of transmission was built. The entire cost was “socialized” as a surcharge on residential electric bills.
    It is all explained in this article

  3. As always, I look for a silver lining. The road & bridge maintenance problem will be solved. There will no longer be a need for such infrastructure.

  4. EVs and Plug-in Hybrids in Norway

    As of December 2017, the Norwegian light-duty, plug-in fleet consisted 141,951 plug-in EVs, and 67,171 plug-in hybrids. The fleet included more than 24,000 used plug-in vehicles that were imported.

    Year Plug-in registrations (new and used imports) % of total registrations
    2017 71,737 39.2
    2016 50,875 29.1
    2014 39,632 22.4

    Very High Gasoline Prices: Regarding plug-ins, Norway is a special case. Gasoline prices are about $9 to $10/gallon; 70+% is tax. It has plug-in subsidies up to the armpits. With enough subsidies in rich Norway (household income over $105,000/y), the government can make it look like Norwegians are “voluntarily” buying plug-ins.

    “What we have proven in Norway is, if you give enough subsidies and impose enough restrictions on fossil fuel vehicles, people will buy electric,” says Andreas Halse, the environmental spokesman in Oslo for the opposition Labor party. But he adds: “If we want to continue to be an example for the rest of the world, we need to show how this can be commercial We need to get there, because we can’t rely on public finances forever”, i.e., right now it is a government-organized social program for higher-income households.

    Hans Olav Halvorsen is a government employee who drives the 200 km between Oslo and Lillehammer 2 – 3 times a week. His Tesla Model S is not subject to tolls on the motorway, saving him up to NKr 810 ($105) every week. Charging at one of the 20 Tesla superchargers — there are eight more for other electric cars — is free. More importantly, his Tesla is free from VAT and the high purchase taxes of IC vehicles, such as a BMW — cutting the price roughly in half. “To be honest, the reason for buying the Tesla was a little bit about the environment, but mostly the savings,” he says. “I think most of the owners are thinking about their economy.” According to NEVA, about 72% of buyers are choosing a plug-in for economic reasons, i.e., the generous monetary subsidies, and just 26 per cent for environmental ones.

    Taxes on New Cars, Except Plug-ins: Norway taxes cars more heavily than most European countries. For instance, a BMW 5-series, with a four-liter gas engine, attracts a purchase tax of NKr 230,000, bringing its total cost, including VAT, to about NKr 770,000 ($100,100).

    The basic versions of Tesla’s Model S and Model X, the SUV model, cost about the same, but include no purchase tax, and no 25% VAT.

    A proposal to raise the road tax for plug-ins while cutting it for IC cars caused a crisis in the minority center-right government last year.

    EV drivers may use bus/taxi lanes; a great advantage during peak hour travel on Oslo*.
    EV drivers pay no parking fees, anywhere in the country, except at private garages.
    EV drivers pay no tolls on roads, bridges and ferries; a major saving for many drivers.

    *An Oslo newspaper survey found a total of 829 vehicles used a bus/taxi lane between 7:30 and 8:30 a.m., of which, 618 vehicles were plug-ins (74.5%). Buses were only 7.5% of the traffic, and taxis, two-wheelers and mini-buses made up the rest.

    Driving Range: Norwegians are not fools; they like plug-ins, but they also like driving range. With a plug-in hybrid, you go electric for about 15 – 25 miles and then you go into hybrid mode, like a Prius, to get a range of 550 miles or more. The electric miles/y of EVs is much less than of ICs and plug-in vehicles.

    EVs have outsold plug-in hybrids up till 2016. But during 2017, sales of hybrids almost equaled EVs, and are expected to surpass EV sales in 2018.

  5. Matt Cota, executive director of the Vermont Fuel Dealers Association testified: “Cold climate heat pumps are inadequate during the colder days in winter. Many households with heat pumps found they could not adequately heat their houses. They had to turn off the heat pumps, which are very inefficient in cold weather, and turn on their oil and propane stoves or their wood stoves.”

    Highly Energy-Efficient Houses: About 10 percent of all houses in Vermont are highly energy-efficient houses. Air-source* heat pumps, if of sufficient capacity (they should be sized for the heating demand for worst conditions, i.e., cold days), can extract enough heat from the cold outdoor air to heat those houses, without having to turn on propane furnaces, oil furnaces, and wood stoves.

    * Ground-source heat pumps, use the soil to extract heat. The soil temperature is a near-constant 50 F throughout the year, at about 6 ft below grade, ideal for the highly efficient operation of heat pumps. Such heat pump systems should be installed when a house is built. Such a house could have heated floors using 100 F water. It would need a ventilation system to ensure at least 0.5 air changes per hour to each room.

    Highly energy-efficient houses likely would be candidates for heat pumps, after successful results from:

    1) Initial blower door test to determine existing leakage rate, ft^3/h
    2) Analysis of three years of heating bills to determine the effectiveness of existing insulation
    3) Calculated heating demand reduction from sealing, additional insulation, and from replacement of windows and doors.
    4) After blower door test to determine new leakage rate, ft^3/h

    Average Energy-Efficient and Energy-Hog Houses: About 80 to 90 percent of all houses in Vermont are average energy-efficient and energy-hog houses. If such houses have air-source heat pumps (about $3500/heat pump), their owners, likely to their surprise and dismay, have to turn on their propane furnaces, oil furnaces, and wood stoves to keep warm during cold days in winter, because air-source heat pumps cannot extract enough heat from the cold outdoor air to heat their houses.

    These houses are not candidates for heat pumps, unless very significant energy efficiency upgrades are made, which usually are very costly. The uninformed owners, who installed air-source heat pumps anyway, likely got caught up into the “save the world” mantras, promoted by:

    1) Efficiency Vermont, a quasi-government entity, spending about $70 million per year. By means of clever PR, glossy reports, etc., EV has managed to convinced lay people, the DPS, PUC, and many legislators, heat pumps will save them money, etc.

    2) Installation contractors, approved by Efficiency Vermont. EV does not pay a subsidy to the homeowner, unless EV-approved contractors, who usually charge higher prices than normal, install the heat pumps.

  6. US:
    The number of plug-ins on US roads has increased during the past 6 years.
    Plug-in sales are expected to be about 200,000, or 1.2% of all LDV sales at end 2017.
    Almost half of plug-in sales in 2017 were in California.

    Plug-ins increased from 88 in July 2012 to 1522 in January 2016.
    Pure EVs totaled 330, about 330/1522 = 22% of all plug-ins.
    The plug-in increase was about 1522 – 1113 = 409 from Jan. 2015 to Jan. 2016.
    Total plug-ins could be as much as 2000 at end 2017
    New vehicle registrations were 41000 in 2016.
    Plug-in registration was about 409/41000 = 1.0% of all new vehicle registrations.
    The Comprehensive Energy Plan goal is 4700 new plug-in registrations in 2025. See page 164 of CEP.

    People favor hybrids over EVs, because EVs just do not have the range and are terrible performers under Vermont winter conditions. See below.

    In Vermont, the two vehicles shown in the table totaled about 48% of all plug-in hybrids. The Chevy-Bolt, a pure EV (not a hybrid), was added to the table, because it was the second-best selling EV in the US in 2017.

  7. Let’s put all of the liberal legislators in a running wheel connected to a generator and charge our electric car batteries. We can also harness their hot air to heat our homes.

  8. I picture these schemes like imaginary perpetual-motion machines.
    How many people have said “we connect a motor and a generator with a common shaft. The motor spins the generator, and we use the generator’s output to power the motor. Simple.”
    Sadly that has never worked, because there is always loss due to friction and heat dissipated by electricity flowing through wires. There can be no perpetual motion machine that provides its own power.
    Legislators come up with schemes that have no possibility of succeeding, but they might spin long enough to get away with their cut.
    Too bad the bottom-line reality that CO2 does not significantly contribute to “global warming”, and the fact that the data have been skewed on purpose for the purposes of global government through eco-terrorism, can not be perceived by the stampeding masses.
    I don’t see a good ending to this madness.

  9. If imposing an ” ever-increasing ” carbon tax on Vermonters would save the planet from climate catastrophe,then perhaps Vermont’s ” sacrifices ” would be bearable ??……YEAH .

    But as we all know, this is just another liberal boondoogle, with the little bit of carbon that
    Vermont produces isn’t going to amount to zip…..

    If everyone in the world , yes the world would follow this ” Plan ” , we know that’s not going
    to happen. All this effort is only going to do is make VT unlivable due the the tax increases !!

    These world saviors of VT, can really make a difference, if they move to lets say California or
    New York City or any Major hub.The real winner would be to fix Asia-Pacific regions ?? But
    we know that’s not going to happen.
    As the article suggest, it’s time to drop this idea, with a thud…………………..

  10. John,
    Your article left out one key word
    UNILATERAL carbon tax.
    The only way this makes any sense is on a national basis.

    All electric vehicles are a bummer in Vermont, because of dirt road, snow and ice, cold temperatures. The range of such vehicles would be very much reduced.
    Two of my acquaintances have EV, and after initial enthusiasm, decided to park them for most of the winter months.
    Vermonters have 80% plug in hybrids, and 20% all electric vehicles. That means Vermonters like the 500 mile range of their plug in hybrids, versus the measly range of all electric vehicles.

    Vermont should have a building code requiring all new buildings to be energy surplus.
    They would have solar panels, batteries, and thermal storage, and used so little energy for heating cooling and electricity that they would have electricity left over the charge a plug in hybrid at night.

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