The Case for a Vermont Carbon TaxThe Current Mix of Energy TaxesUtilities Gross Receipts Tax- 0.3% of gross operating revenue for natural gas utilities / 0.5% of gross operating revenue for all other utilities. Tax is on utilities that generate, sell, transmit, or distribute electric energy in Vermont. Utilities may be cooperatively, municipally, or privately owned. Revenues from the Utilities Gross Receipts Tax fund the operational activities of the Vermont Department of Public Service (60%) and the Vermont Public Service Board (40%).Gasoline Tax- Gasoline distributors are taxed at a rate of $.19 per gallon sold, plus and addition $.01 per gallon sold dedicated to the Petroleum Cleanup Fund.The Carbon Tax: Pro and ConA $100 per Ton Carbon Tax in Vermont2000 EstimatePrices and RegressivityAgriculturalTransportationResidentialAndrew JopePA 395: Green Tax11/16/04The Case for a Vermont Carbon TaxThe Vermont system of energy taxation is a complex mix of varying tax rates applied at multiples points of exchange in the Vermont economy. The Gasoline Tax and Diesel Tax extract revenue from consumers at the pump, the sales Tax on Commercial Energy from commercial establishments at the point of purchase, the Utilities Gross Receipts Tax from utilities based upon gross operating revenues, and the Fuel Gross Receipts Tax from retailers based upon gross receipts. Further complicating the energy tax scheme is an array of tax exemptions; residential and motor fuels are exempt from thesales tax, as are fuels for industrial and agricultural use. As a result, Vermont’s energy tax revenues are administered by a variety of state departments and agencies, and, through their disparate paths through the state revenue stream, difficult to track and readily quantify.In addition to their complexity, many of Vermont’s energy taxes are counterproductive when assessed against the objective of reducing energy use, especially the consumption of fossil fuels and the greenhouse gas emissions they produce. Taxes on motor and heating fuels have accomplished little in reducing demand and in channeling consumer and commercial behavior away from carbon-based fuels, while their exemptions perversely encourage such consumption. As the scientific evidence supporting global climate change as a direct byproduct of fossil fuel consumption mounts, the tax system’s role in restraining CO2 emissions has been heretofore ineffective.As such, as a measure intended to both simplify the tax code on energy and increase its effectiveness in confronting the realities of climate change, a radical reconsideration of Vermont’s energy taxes is now necessary. Vermont can justifiably pointwith pride to a tradition of environmental stewardship and progressive politics, yet its energy tax structure remains a stagnant remnant of the carbon era that will soon come to pass.Therefore, it is here proposed that Vermont adopt a single energy tax based upon the carbon content of fuels levied at the point where they enter the state’s economy. An analysis of a Vermont carbon tax reveals that it will be easily administered, profoundly impactful in channeling energy consumption away from fossil fuels, and, through the targeted recycling of its revenue, minimally impactful on the state’s economy.The Current Mix of Energy TaxesAs the table below reveals, Vermont’s existing energy taxes in 2004 produced revenues to the state totaling $116.1 million, roughly equivalent to 5.5% of the state’s total revenues. They are applied as follows:Fuel Gross Receipts Tax- 0.5% on retail sales of fuel. Tax is on retail seller of fuels other than motor fuel (home heating oil, kerosene, propane, natural gas, electricity, coal) for sellers receiving more than $10,000 per year in sales for these fuels. Revenues fund the Home Assistance Weatherization Trust, which funds the Weatherization AssistanceProgram. This program, administered by the Office of Economic Opportunity, assists low-income Vermonters in reducing their energy bills through home weatherization.Utilities Gross Receipts Tax- 0.3% of gross operating revenue for natural gas utilities / 0.5% of gross operating revenue for all other utilities. Tax is on utilities that generate, sell, transmit, or distribute electric energy in Vermont. Utilities may be cooperatively, municipally, or privately owned. Revenues from the Utilities Gross Receipts Tax fund theoperational activities of the Vermont Department of Public Service (60%) and the Vermont Public Service Board (40%).Sales Tax on Commercial Energy- 5% sales tax on fuel oil, natural gas, propane, electricity, and wood sold to commercial establishments in Vermont. Fuels used in motor vehicles, and energy used in the residential, agricultural, and industrial sectors are exempted from the tax. Gasoline Tax- Gasoline distributors are taxed at a rate of $.19 per gallon sold, plus and addition $.01 per gallon sold dedicated to the Petroleum Cleanup Fund.Diesel Fuel Tax- Diesel fuel distributors are taxed at a rate of $.16 per gallon sold, plus and addition $.01 per gallon sold dedicated to the Petroleum Cleanup Fund. Diesel vehicles weighing more than 10,000 pounds are taxed at a rate of $.25 per gallon sold, plus and addition $.01 per gallon sold dedicated to the Petroleum Cleanup Fund. Sources: 1. Biennial Report, 2001-2002, Vermont Department of Taxes.2. 2004 Fiscal Facts, Vermont Legislative Joint Fiscal Office.2004 Revenue(in millions)Gasoline Tax 71.9Diesel Tax 18Sales tax on Commercial Energy 15Utilities Gross Receipts 5.7Fuel GrossReceipts 5.5Total 116. 1The Carbon Tax: Pro and ConCarbon taxes are typically levied as a fixed cost per carbon content on fuels or perthe CO2 emissions that they produce. Though carbon taxes in this form have yet to take shape in the United States, eight European countries (Denmark, Finland, Germany, Italy, Netherlands, Norway, Slovenia, Sweden) enacted carbon taxes in the 1990’s, with England following in 2002. France, Belgium, and Luxemburg are currently considering carbon taxes, as is the EU collectively. Current analyses of carbon taxation reveal some impressive results in reducing greenhouse gas emissions. In Denmark, it has been estimated that CO2 emissions will have been reduced by 3.8% in 2005, 2% of which is attributable to the carbon tax, while in Finland, with the highest carbon tax in Europe, CO2 emissions have been reduced by 7% from the introduction of the tax in 1990 through 1998. (Environmental
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