Could A Carbon Tax Work For Vermont?

Nov 3, 2015

To tax, or not to tax? Carbon, that is.

It is a big issue for Vermont lawmakers who are trying to find ways to reduce greenhouse gas emissions. The political prospects of a carbon tax making it through the Vermont Legislature are still far from certain.

But politics aside, do carbon taxes actually work? Would it benefit Vermonters? Or do we need regional cooperation to find success?

For Vermont

At the moment there are a few proposals in the Vermont Legislature that would tax carbon. Dr. Jon Erickson, a professor at the University of Vermont's Gund Institute for Ecological Economics, says they work by encouraging certain types of consumption, and discouraging others.

“The idea would be to place a tax on things that we don't like, that we don't want, so in this case, carbon pollution. And move the tax off of things that we do, so other forms of consumption income or employment.”

Erickson says a tax on carbon would compliment Vermont’s Comprehensive Energy Plan and greenhouse gas targets.

“We should charge more for the things that we want to use less of and so economists universally have been singing this chorus for decades. “

How carbon taxation works around the world

International examples where carbon taxes have been implemented, like British Columbia and Australia, highlight the range of ways a carbon tax can be implemented, and the effect that has on it’s long term success.

British Columbia serves as a fitting example for Vermont, Erickson says, because the tax on carbon was implemented at the provincial and not the national level.

“In 2008 they started taxing carbon, at $10/ton. And then they ratcheted it up to $20/ton,” Erickson explains. “And then in 2012, they got all the way up to $30/ton, which is the equivalent of about $.25/gallon.”

“It took some political will to start taxing carbon. But they did it in a tax shift way. It was a tax revenue neutral strategy by law: they had to reduce taxes elsewhere the equivalent of what they raised [with] taxes on energy,” said Erickson.

"It took some political will to start taxing carbon. But [British Columbia] did it in a tax shift way. It was a tax revenue neutral strategy by law: they had to reduce taxes elsewhere the equivalent of what they raised [with] taxes on energy." - Dr. Jon Erickson, professor at the University of Vermont's Gund Institute for Ecological Economics

On the other end of the scale is Australia. In July 2014, Australia repealed their carbon tax to, “lower costs for Australian businesses and ease cost of living pressures for households.” Erickson says that the tax was repealed not because it was ineffective, but because of the political climate around the law.

“Australia was in my opinion very politically motivated. It was a case of climate politics written large. The tax was working,” Erickson said. “It was reducing the amount of energy that the average person in Australia was using. They didn't, like British Columbia, marry [the carbon tax] with a tax shift, so it was a little less popular than the British Columbia example.”

And Erickson says that since the repeal, “energy-per-person is going back up again. “

Can Vermont make a difference alone?

But would a carbon tax in Vermont really make a difference, if neighboring states hold out?  Erickson says yes, and with a great benefit to the state.

REMI [has] done the math, and they show that [a carbon tax] is a huge net gain to a state like Vermont,” Erickson said. “Even accounting for some of what they would call leakage across state borders.”

And while a national solution would be valuable, Erickson says progress at a federal level has stalled.

“The federal gas tax has been stuck at ¢18.4 for two decades. Despite all of the economic logic, we can't seem to get the political will in Washington to raise this. So states like Vermont, like Washington, like California, like Massachusetts are now actively considering going it alone.”