A 'Tax' Or 'The Cost Of Pollution'? Mass. Debates Surcharge On Fossil Fuels
Its atomic size and structure make carbon a key component in all forms of life on Earth. But when carbon combines to form fossil fuels and is burned, it creates climate changing emissions that threaten all life on Earth.
That’s why getting carbon out of energy products is a hot topic these days.
In Massachusetts, there’s an effort to have consumers take the lead and make the state the first in the nation to transition to a low-carbon economy.
Discouraging The Demand For Fossil Fuels
The concept for getting carbon out of the energy sources that fuel the state’s economy is simple, says Christopher Knittel, a professor of applied economics at MIT.
“Basic economics tells us that the best way to reduce the demand for something is to raise its price,” he says.
Supply and demand affecting price are laws of economics. Now some legislators and environmentalists want to turn those concepts into state laws designed to discourage the demand for fossil fuels by making them more expensive.
State Rep. Jennifer Benson, of Lunenberg, has filed a bill to do just that.
“People are willing to spend more on carbon-based fuels if they know it’s going toward helping the environment,” Benson says.
If Benson’s bill or a similar proposal in the state Senate are approved, the state would inflate the cost of carbon-burning fuels. But just naming the carbon concept is controversial.
Michael Ferrante, president of the Massachusetts Energy Marketers Association, calls it a tax. “We call it a carbon tax, a carbon fee. Essentially, it’s a tax on a unit of fossil fuel.”
Steven Dodge, executive director of the Massachusetts Petroleum Council, says he won’t be “buttonholed” into calling it a fee or a tax. “It’s an added expense so legislators, regulators, can call it what they want,” he says.
State Rep. Benson disagrees with both assessments.
“Unfortunately, too many people I think just consider it a tax, and they call it a tax and then it’s bad, right?” Benson says. “This is actually an investment opportunity.”
‘The Cost Of Inaction’
Michael Green, executive director of Boston-based Climate Action Business Association, says the damage done by carbon is already a cost to society — just a hidden one.
“We like to think of it as a cost added to pollution,” Green says. “When you compile all of the environmental, health and insurance implications of the future risk of climate change, that’s essentially the cost, per ton, of inaction.”
Massachusetts imports $20 billion worth of fossil fuels a year for heating and transportation. Right now the Environmental Protection Agency estimates the hidden costs of burning it is $40 for every ton of carbon emitted into the air.
“That price exponentially goes up over time,” Green says. “If we get to a point where we’re charging $200 per ton of carbon, then the ship has already sailed on us having a liveable future.”
The bills before the Massachusetts Legislature would create a surcharge that would gradually raise the prices of imported carbon-based fuels. For example, a gallon of gas would increase about 35 cents — but in the end, it shouldn’t cost most people a cent more. To sweeten the deal, every year the state would rebate the cost of the carbon surcharge.
“The formula is fairly simple,” says Marc Breslow, with the group Climate XChange. His group helped write both carbon bills being considered in the Massachusetts Legislature.
Breslow says the amount of the carbon rebates would be determined by the number of people in a family.
If a household has four people, they would get four rebates. If a household has six people and one of them is an infant, Breslow explains, the family would still receive six rebates. And, he says, the same goes for businesses whose rebates are determined based on the company’s number of employees.
“So, if you’re wasting energy, you don’t get a bigger rebate. As a business, you’ve got a big incentive to cut it out,” he said.
Breslow says computer models show that without a carbon mechanism, Massachusetts won’t reach its goal of reducing climate changing emissions by 80 percent by mid-century.
“If somebody comes up with a magic way of driving cars and heating buildings without any emissions that doesn’t cost anything, then maybe that could happen, but no other way,” he says.
The revenue neutral cost-of-carbon proposals are classic behavioral economics. Breslow calls it a market-based method designed to discourage demand and increase energy efficiency.
“Doing carbon pricing, giving everyone the freedom to decide how to reduce their emissions, is the most cost effective way to stop climate change,” Breslow says. “It’s less expensive to do that than to impose a variety of regulations.”
And that appeals to some of the world’s largest oil companies.
Steven Dodge, the Massachusetts Petroleum Council’s executive director, says some big oil companies like ExxonMobil and Shell like putting a price on carbon because it’s simple and predictable. But he says it has to be nationwide, not state by state.
“Some of the proposals that have been filed in Massachusetts, if they were enacted, would make gasoline the most expensive in New England,” Dodge says.
Actually, if Massachusetts’ carbon scheme is enacted, lawmakers in Connecticut and Rhode Island say they’ll pass one too.
But some fossil fuel companies say a carbon mechanism is still not fair.
“One of the reasons we should not have a carbon tax is because we really have made improvements on cleaning the fuel up and taking carbon out,” says Ferrante, the Massachusetts Energy Marketers Association president.
More than a million homes in Massachusetts use fuel oil for heating, and the new formula includes 25 percent clean-burning bio-fuel.
Ferrante warns that pushing up the price of heating oil could hurt people with limited or fixed incomes.
“These folks, they live paycheck to paycheck,” he says. “So [asking] them to pay $200, $300, $400 on the promise they’ll get that back, it’s going to put them behind the eight ball further.”
Rep. Benson is considering paying low-income families in advance, so they’d have money to make changes and reduce carbon emissions. Her bill also contains provisions for monthly rebates for the homeless and people receiving government assistance.
Fighting Carbon — But First, A Fight Over Framing
With these proposals, Massachusetts could be the first state with an economy-wide carbon market mechanism.
British Columbia has had one since 2008, and so far Knittel, the MIT economist, says it’s worked to reduce carbon emissions in the Canadian province.
“And we haven’t seen much seen much ill effects on the British Columbian economy, and perhaps the summary measure of whether it’s succeeding is over 50 percent of British Columbians support the tax, which is quite remarkable for any tax.”
You might say it’s a tax, or maybe a fee or perhaps a price. What an added cost of carbon is called could have dramatic consequence on the public’s acceptance in Massachusetts.
You only have to look to Boston’s Colonial history for a civics lesson in the consequence of fighting words.
The Old West Church in Boston is where the revolutionary phrase “no taxation without representation” was first coined. Today, it’s where those leading the fight against carbon have their offices, and their slogan might be: “Without taxation, sure extinction.”
It doesn’t have the same ring, but as a battle cry it could determine the legislative fate of Massachusetts clean energy future.
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