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What a Carbon Tax Would Mean for Colorado

Is an energy tax the right way to address global warming?


With climate change dominating the political agenda of many, both in the Colorado legislature and at the national level, the specter of a tax on energy has re-emerged.

While some believe taxing carbon dioxide can address the issue of global warming without an expansion of government, the tax would just be a stepping stone to the $93 trillion Green New Deal. Carbon tax proposals are almost always falsely labeled as commonsense, middle ground solutions, but the claim that a tax on energy would satisfy all parties does not stand up to scrutiny.

Across the West, whenever an energy tax has been put in front of the voters, it has failed miserably  ̶  most recently in the state of Washington last fall. But now, energy tax proponents like the Climate Leadership Council (CLC) and others, claim to have a new framework of politically-viable energy taxes. This framework seeks to draw widespread support for a tax on energy by promising the proceeds will be divvied out to American households in the form of quarterly federal checks.

While this sounds great (who doesn’t like free money?), it really means diminished economic opportunity, higher gasoline prices, rising home heating and air conditioning costs and more expensive goods and services across the board.

Poorer households will be most harmed by a carbon tax because a larger portion of their budgets are spent to pay their utility bills and fill their gas tanks. In the tax-and-rebate model, the harm caused by increased costs and reduced choices to individuals would be significant and the widespread economic impact of this policy would be severe. Moreover, the entire approach falsely assumes that the government will not take a portion of the proceeds before passing some of the back to the citizens.

Research from Capital Alpha Partners shows just how damaging an energy tax would be. Their findings confirm the cost of this tax will fall largely upon existing owners of fixed capital and fossil fuel supplies— the latter being Colorado’s energy produces and the service and supply companies that support them.

A Colorado Oil and Gas Association (COGA) report, compiled by an economist from the University of Colorado Denver, says the state’s oil and gas sector employed about 30,000 people in 2017, created about 51,000 additional jobs and added about $13.5 billion to Colorado’s economy.

And according to Vital for Colorado – a coalition of non-oil and gas businesses that support responsible energy development – oil and gas generates more than $600 million per-year in revenue for K-12 and higher education in Colorado. Conservatively, these diverse revenue streams poured more than $3.3 billion into K-12 and higher education between fiscal year 2012-13 and fiscal year 2016-17. Vital points out that these totals do not include severance tax revenues, which are used to support other public projects and services such as parks, roads and first responders.

That means a tax on energy imposes static costs and revenue burdens on state and local governments. The Capital Alpha Partners analysis finds the average annual burden on the Centennial State during the first ten years of a carbon tax would range from $335 million to $546 million depending on the ultimate rate of taxation.

To account for this loss and to balance its budget, Colorado can be expected to raise taxes, reduce services, or most likely of all, demand revenue sharing from the federal government, thereby eroding the plan’s capacity to rebate all carbon tax proceeds to taxpayers.

The solution doesn’t sit with a government-led tax and dividend scheme, but rather with innovative engineers and entrepreneurs who continue to use technology to produce the energy we need and protect the environment Coloradans love.  If air quality is a concern, Americans will be pleased to learn that we're breathing cleaner air today than we were in the past.

Perhaps the most compelling data can be found in the Environmental Protection Agency’s (EPA) annual report entitled, Our Nation's Air. The EPA’s data shows that since 1970 the U.S. has experienced substantial economic growth and increased population  ̶ and Americans drive more than ever. At the same time, we have reduced 73% of all harmful air pollution during that same time frame.

An energy tax won’t help people, especially those who have the least among us, and it won’t help the environment in any measurable way. Coloradans should reject energy taxes at any level of government. As everyone learned from last year’s ballot box battle royale, harming energy has a negative trickle-down effect that hurts everyone.  A carbon tax on Coloradans would have a similar result.

Thomas J. Pyle is president at the Institute for Energy Research, a non-profit energy policy think tank.

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