Carbon pricing combined with other climate policies could enable Vermont to reduce greenhouse gas emissions without negatively impacting lower income residents or the state’s economy, according to a new report.
Wesley Look and Marc Hafstead of Resources for the Future, the research firm hired by the Legislature’s Joint Fiscal Office to conduct the study, provided an overview to a packed joint committee meeting Tuesday afternoon.
The consultants looked at how well different pricing policies, including taxes and cap and trade, would help Vermont meet its greenhouse gas emissions reductions goal of a 26-28 percent reduction below 2005 levels by 2025. The study also examined the economic impacts of those policies on the state and individual Vermonters of different income levels.
Although the state’s greenhouse gas emissions have been rising in the past few years, emissions are predicted to start declining in coming years without additional policies — but not enough to meet any of the state’s reduction goals, said the consultants.
The pricing policies the consultants looked at were: the ESSEX Plan, the Western Climate Initiative, the Transportation and Climate Initiative, which Vermont joined this December, and a “high carbon price” starting at $60 in 2020.
Carbon pricing on its own would not enable Vermont to meet its reduction goals, mainly because most of the state’s emissions come from the “least elastic” fuel sectors of transportation and heating, said Look.
“As prices change, people are least likely to change their behavior patterns,” he said.
But when combined with a slate of other policies recommended by the governor’s climate action commission, like doubling funding for building weatherization and incentivizing electric vehicles, carbon pricing could enable Vermont reduce emissions more than 30 percent below 2005 levels by 2025.
Depending on the specific policy, carbon pricing could generate between $74.7 million and $433.8 million annually in 2025. Hafstead said that “what you do with the revenue tends to be very important for the environmental and economic impacts of carbon pricing.”
If the revenue were returned as direct rebates or credits on electrical bills, Vermonters who make $45,000 or below would, on average, see an economic benefit from the pricing despite higher fuel costs. Under the ESSEX plan, Vermonters making $70,000 or less would be see a slight economic benefit. Higher income Vermonters would be most negatively impacted by carbon pricing.
Under all scenarios, the impact to the state’s GDP and employment would be minimal, although the consultants said that the ESSEX plan, which lowers electricity costs, could be more beneficial for businesses.
The report quantifies climate and health benefits, such as improved air quality, from pricing policies, finding that those outstrip economic impact of policies by $7-17 million.
Rep. Paul Lefebvre, R-Newark, asked the consultants whether they had looked at impacts to rural, lower income Vermonters. Hafstead responded that the consultants had calculated impact by income and by region, but did not have the data to examine both simultaneously.
“We do find that rural households are on average slightly worse off from the policy than the Chittenden County residents,” Hafstead said.
The consultants added that rebates could be targeted to, say, provide greater rebates more for rural residents who likely spend more money on driving.
Neither House Speaker Mitzi Johnson, D-South Hero, not Senate leader Tim Ashe, D-Chittenden, have indicated an appetite for carbon tax legislation during this legislative session.
Ashe said during a public conversation with VTDigger on Tuesday that he felt that the Transportation and Climate Initiative being negotiated by Vermont and a number of other northeastern states was a more promising solution.
“It’s unsatisfying in some ways to those who want action next month because it’s something that’s being negotiated for the next year,” he said of the interstate plan, adding that some of his colleagues were likely to keep pushing for a carbon tax.
“I’m sure it will be proposed by some,” he said. “As I said I support a regional approach, which I think is in the best interest of the state.”
House and Senate committees will invite Look and Hafstead for more detailed discussions of their report in the days ahead.