Carbon taxes inch ahead

Author:

Publication August 9, 2018

Carbon taxes remain in the spotlight, although only dimly so.          

No action is expected in the near term. However, growing budget deficits may leave the US government with few other good options to fund the government in the long run.

US House of Representatives passed a sense of Congress resolution on July 19 that any tax on carbon emissions would be bad for the US economy and families. The vote was 229-180.

Rep. Carlos Curbelo (R-Florida) introduced a 71-page bill four days later that would impose carbon taxes in three places. The bill is H.R. 6463.

First, a tax would be imposed on fossil fuels of $24 a metric ton of carbon dioxide equivalent emissions starting in 2020. The rate would increase each year by inflation as measured by the consumer price index plus two percentage points. The tax would have to be paid by the owner of the fossil fuels at the point of taxation. That is the point of sale for natural gas used in a power plant. It is the mine mouth or coal wash plant for coal. It is the refinery for petroleum products.

The IRS and Environmental Protection Agency would report annually on emissions from use of fossil fuels. The goal is to reduce carbon dioxide emissions by 27% below 2005 levels by 2025 and by 29% by 2030. If emissions are not on track to reach these levels at two-year intervals starting at the end of 2022, then the tax rate would increase by another $2 per metric ton.

The tax paid would be refunded in two situations. Manufacturers who incorporate fossil fuel into products in a way that the emissions will be reduced or eliminated would be able to get a refund of the taxes paid on the fuel. Refunds would also be paid to fuel users who sequester the emissions or use the fuel for enhanced oil recovery.

Second, taxes would be imposed at the same rate on industrial process greenhouse gas emissions by certain categories of fuel users. The categories include iron and steel mills, underground coal mines, refineries, cement and petrochemical plants, aluminum smelters, semiconductor manufacturers and “electrical transmission and distribution” companies. A facility would have to emit more than 25,000 metric tons a year to be subject to tax. The tax would have to be paid by the “owner or operator.”

Third, taxes at the same rate would have to be paid on non-fossil-fuel greenhouse gas emissions by manufacturers of eight products. The products include fuel ethanol, biodiesel and “solid biomass fuels.” In the case of biomass fuels, the tax would be collected from the power plant owner or operator. The power plant would have to emit more than 25,000 metric tons of CO2 a year to be subject to tax.

The bill offers a variety of carrots in an effort to win political support. It would prevent the Environmental Protection Agency from regulating greenhouse gas emissions from facilities that are subject to the carbon tax. It would repeal federal excise taxes on gasoline, diesel and aviation fuels. It would allow companies to offset any payments they have to make at the state level on account of the same emissions, but under a sliding scale that would start at full credit in 2020 and then drop to 80%, 60%, 40% and 20% credit in each of the next four years.

Imported fossil fuels, ethanol, biodiesel, biomass and other covered products would be subject to a tax at the US border to eliminate any competitive advantage.

Meanwhile, Canada is having to modify a planned backstop carbon tax so as to avoid crippling Canadian manufacturers after the US imposed import tariffs on various Canadian goods, rolled back US environmental regulations and reduced the US corporate income tax rate to 21%.

Canadian provinces have until the fall to submit plans for reducing carbon emissions. Provinces that fail to adopt plans by the end of 2018 will be subject to a national carbon tax that starts at C$10 a metric ton and increases to $C50 a metric ton by 2022. The Trudeau government announced plans in late July to ease the burden. Only excess emissions above a specified industry average would be subject to tax. The starting point for measuring what is considered “excess” was originally 70% of average emissions for the particular industry sector. The threshold will be increased to 90% for industries that are subject to significant international competition from countries where there is no carbon tax, and to 80% for other industries.

Saskatchewan has sued to block the program. Doug Ford, the new Ontario premier, said in July that Ontario will join with Saskatchewan in that effort.


Practice area:

Industry:

Recent publications

Subscribe and stay up to date with the latest legal news, information and events...