How a Carbon Tax in This Tiny State Would Cut Pollution and Add Thousands of Jobs

A properly designed carbon tax would improve Vermont’s economy while cutting its carbon emissions, a new analysis shows.

Energy Independent Vermont — a coalition of groups interested in cutting the state’s carbon emissions and moving it off dependence on fossil fuels — released the study this past Thursday, as a kickoff for their campaign for a statewide carbon tax.  The modeling was carried out by Regional Economic Models, Inc., (REMI) which has modeled the economic effects of other policies for Vermont state agencies, and has modeled carbon taxes for the state of California and the nation as a whole.

In this case, the goal was to apply a carbon tax to fossil fuels used in Vermont’s transportation and home heating sectors alone, as its power sector is already under the Regional Greenhouse Gas Initiative (RGGI) — a regional cap-and-trade system covering the power generation of several northeastern states.
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The reason the tax actually improved the economy was fairly straightforward:  the design would plow all of the revenue back into the state’s economy.  Forty-five percent of the revenue would go into refundable tax credits for every adult resident of Vermont, with an additional rebate for low-income residents.  Another 45 percent would go into tax cuts for businesses and other entities, and the final 10 percent would go into investment in projects and technologies that would help Vermonters transition off of fossil fuels.  REMI’s studies of a carbon tax for California and for the nation found this structure had the same beneficial economic effect, and other analyses and real-world examples suggest the same.
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It’s an interesting proposal because it would essentially sit a carbon tax alongside a cap-and-trade system in the state, just to cover different sectors of the economy.  RGGI is “a tool that’s designed for the electric sector — it’s designed for large stationary emitters,” said Walsh.  “Not for hundreds of thousands of buildings, or the transportation sector which certainly has other logistical issues.”  Getting at those smaller, more decentralized changes is a big part of reducing the country’s fossil fuel use, and could serve a crucial role in meeting the goals of the recently-announced deal between the United States and China to jointly reduce their emissions.

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