NOTES-Green Taxes Report

¹ Television interview with Paul Volcker, with Charlie Rose, The Charlie Rose Show June 22, 1992; M. Feldstein, "The Case for a World Carbon Tax", Wall Street Journal. June 4, 1992. Cited by Frank Muller and J. Andrew Hoerner, Greening State Energy Taxes: Carbon Taxes for Revenue and the Environment. Center for Global Change. November 1993.

² Letter from Chris Calwell. Natural Resources Defense Council. July 1, 1993.

³ Landfill Taxes. Minnesota Statutes. Section 115A.923. Enacted in 1989. Initial 50 cents per cubic yard tax boosted to $2 per cubic yard in l990. $3.06 million raised in fiscal year l988, $2.8 million in l989, $3 million in l990. Hazardous Waste Generation Tax. Minnesota Statutes. Section 115B.22. Enacted in 1983. Long term containment without treatment is taxed at a rate of 32 cents per gallon of liquid or $32 per cubic yard of solid. Long term containment after treatment is taxed at l6 cents per gallon of liquid or $l6 per cubic yard of solid. Land treatment is taxed at $32 per cubic yard. Other treatment is 8 cents per gallon of liquid or $8 per cubic yard of solid. Collected $l.36 million in fiscal year l988, $749,000 in l989, $553,000 in 1990.

⁴ During its first few years, Proposition 99 took in almost $700 million a year. In 1995 it will bring in about $446 million. The breakdown of surtax revenue distribution is as follows: 20 percent to health and education services, 35 percent to hospital services, 10 percent to physician services, 5 percent to research, 5 percent to public resources, and 25 percent unallocated. The revenues are dropping 3 to 3.5 percent per year as cigarette smoking declines. The legislation allowing the state to spend the 25 cents a pack additional tax expired in June 1994 . There is a vigorous debate about how to divide up this revenue. "The debate is between those who want to spend the money on health care for the poor and those who want to protect the innovative and controversial anti-smoking program. "Los Angeles Times. June 27, 1994.

⁵ Sixty five percent goes to demonstration projects as well as to the testing and closure of public and private wells, and to research the health effects of contamination. A report by Iowa State reveals that in recent years, Iowa's use of pesticides has been below that of surrounding states. Minnesota also has a tax on pesticides and fertilizers. The law , enacted in 1987(Chap. 18B.26 Subd. 3a) has been revised several times. In 1994 pesticide sellers pay 2/5 of l% of gross sales within the state as a registration/application fee. In fiscal year 1993 the total amount raised was $4.6 million. This dropped to $4.3 million in fiscal year 1994 and is projected to drop to $4.0 million in fiscal year 1995. The revenue is deposited in the Pesticide Regulatory Account. Of the amount collected each year, $600,000 is credited to pesticide collection programs in which old and used pesticide containers are collected and disposed. The remaining money is used by the Minnesota Department of Agriculture for administration, etc. An additional 1/5 of l% tax is levied on pesticides and fertilizer use. This funds the Agricultural Chemical Responsibility and Reimbursement Account, which funds cleanup of agricultural chemical spills. In FY 1993 $1.95 million was raised. To our knowledge, no part of either account is specifically designated to reduce future use of pesticides of fertilizers.

⁶ Many would argue that adding the environmental costs of electric power generation to the price charged for electricity is not a tax but rather, an internalization of the full costs of power production. We agree. A similar argument can be made regarding most green taxes. Utility electricity analyses differ in that they are very rigorous examinations often conducted in a quasi-judicial proceeding, whereas the level of most green taxes are arrived at in a more qualitatively oriented legislative arena. In this report we analyze both taxes which might be viewed as simply requiring the product or service to pay its true costs and those that impose a price penalty over and above full environmental costs.

⁷ Laws of Minnesota 1993. Chapter 356. Section 3.

⁸ The Tax for Fuel Conservation. Resource Futures International. November 3, 1993.

⁹ In l990, the California legislature passed a pollution tax to encourage efficient cars. California State Senate Bill No. 431. The program would have imposed a heavy tax on gas guzzlers and provided rebates on gas sippers, but the tax was based on the grams of pollutants emitted per mile. The bill was vetoed by the Governor.

¹⁰Another question that arises from the Ontario feebate experiment is whether the energy savings were worth the political costs. Broad environmental taxes, especially on vehicles, generate significant opposition. One commentator notes that the net 1992 revenues to Ontario were $28.5 million from the fuel inefficiency tax while retail tax revenues on new passenger car sales generated $445 million and $1.8 billion was generated from provincial gasoline taxes.

¹¹ J. Andrew Hoerner. Tax Tools for Climate Protection: The U.S. Ozone Depleting Chemicals Tax. February 1994. Center for Global Change. University of Maryland.

¹² The Act, administered by the Division of Waters of the Department of Natural Resources, requires that a conversion plan be submitted by users by January l, l992. The once-through systems must be converted within the design life of the equipment based on the ASHRAE service life for primary system components. This ranges between l9-24 years and l990 is used as the base year to determine the remaining service life for a system. Once-through water for heating and cooling systems for commercial users is $200 per million gallons with no maximum fee. The fee for non profits and school districts is 5 cents per l000 gallons until l993($50 per million gallons), rising to l0 cents in l993 and to l5 cents in l997. The current fee for water not appropriated for once through systems or for other uses is $50 for up to 50 million gallons, or $l per gallon and rises to a maximum of $4.50 per million for use above 400 million gallons, according to the Division of Waters.

¹³ Total emissions are about 45,000 tons a year and the estimated revenue for 1994 is $6.4 million. These fees are imposed on stationary not mobile sources. Minnesota Pollution Control Agency. The Feasibility of Using Fees to Control Toxic Air Emissions. Prepared for the U.S. Environmental Protection Agency. June 1994.

¹⁴ British Columbia Waste Management Act. Regulation 304/87. Section 33,35 O/C 1701.87. Schedule B.

¹⁵ Ibid. Schedule C.

¹⁶ Lorenz Jarass and Gustav Obermair. More Jobs, Less Pollution: A Tax Policy for an Improved Use of Production Factors. Workshop on Transatlantic Fiscal Reform and the Environment. Amsterdam. June 6, 1994.

¹⁷ Levies on natural resources and environment(car ownership, energy and alcohol and tobacco) in the United States was 6.9 percent of national income in 1970 and dropped to 5.0 percent in 1990. The proportion of U.S. national income paid to in fees on natural resource exhaustion and environmental damage was 4-6 percent of national income, about the same as in the Netherlands, France, Germany, Italy and Japan. Jarass and Obermair, op. cit.

¹⁸The United States is an anomaly among industrialized countries in that gross labor costs declined slightly from 69 to 68 percent from 1970 to 1990. Yet net labor income declined more dramatically, from 55 percent to 51 percent of national income during the same time period.

¹⁹Carbon taxes are sometimes given in the form of a tax per ton of carbon dioxide and sometimes as a tax per ton of carbon. To convert to dollars per ton of carbon emitted, assuming complete combustion, multiply the tax per ton of carbon dioxide by 3.667. Thus a $10 per ton tax on carbon dioxide would be equivalent to a $36.67 per ton tax on carbon. A $100 tax per ton of carbon translates into a $27.30 tax per ton of carbon dioxide emissions.

²⁰Washington Post National Weekly Edition. October 1990. The Post cites a Congressional Budget Office study concluding that GNP in the year 2000 would be 1 percent lower if a $100 per ton carbon tax were imposed. Alan Manne of Stanford and Richard Richels of the Edison Electric Institute assume that a much higher tax would be needed to reduce carbon dioxide emissions significantly. They calculate that the reduced productivity would reduce the GNP by 3 percent or $300 billion a year. New York Times. October 3, 1990.

²¹ Roger Dower and Robert Repetto, Use of the Federal Tax System to Improve the Environment. U.S. House of Representatives. Committee on Ways and Means. Long Term Strategy Hearings on the Environment. March 6, 1990.

²² Robert Repetto, Roger C. Dower, et. al. Green Fees: How a Tax Shift Can Work for the Environment and the Economy. World Resources Institute. Washington, D.C. November 1992.

²³ Since Denmark has a population about that of Minnesota and is heavily involved in international and intra-European trade the results may be useful in a Minnesota context.

²⁴ Frank Muller and J. Andrew Hoerner, "The Promise of State Carbon Taxes: Opportunities and Policy Issues", State Tax Notes. March 8, 1993.

²⁵ For example, coal is taxed at $97 per ton for households versus $24 per ton for business and natural gas at $82 per 1000 cubic meters versus $21 for business.

²⁶ Ibid.

²⁷ Climate Change Policy Initiatives. 1994 Update Volume 1. Organization for Economic Cooperation and Development. Gross revenues of DKK 2.7 billion were projected. Refunds to energy intensive businesses reduced net revenue to 0.7 billion. The way the Danish carbon dioxide tax is handled is similar in some respects to the way Minnesota's Conservation Improvement Program is handled by Minnesota Power(MP). By state law, regulated Minnesota electric utilities must invest at least 1.5 percent of total revenues in energy conservation. Because only a handful of industrial customers account for over half of MP's electricity sales, MP has developed the Industrial Conservation Project(ICP), a unique program to serve its large customers. MP deposits 1.5 percent of its sales to these customers in a special account. Large customers can use this account to finance energy efficiency programs. Thus, for example, a customer that purchases $1,000,000 per year in electricity from MP will have deposited $150,000 per year in its energy conservation account. The ICP contains carry-forward and carry-back provisions which allow participants to design larger projects or leverage capital more effectively to implement improvements. Large power users can carry-forward 1992 and 1993 allocations into 1994 but must spend the three-year budget by the end of the third year, 1994. 1993-1995 allocations must be used by December 31, 1995. Participants can also carry-back up to five years of future allocations, therefore aggregating 5 years of conservation investments in a single project. The energy efficiency plan must be approved by MP and the Department of Public Service based on an extensive cost-benefit analyses. MP will allow funds to be used to make industrial process changes that can save thermal as well as electric energy. If large industrial customers do not use the funds in their account the funds revert to the MP's general Conservation Improvement Program fund. In some respects, the MP plan constitutes a forced energy savings program.

²⁸ Memo from Christina Olivecrona. KPMG Environmental Consulting. Netherlands. October 22, 1993. Monitoring is done by the manufacturer. Once a year plants send an emission declaration to the Swedish Environmental Protection Agency. Total revenue from the tax in 1992 was $74 million. Annual average emissions were 35 percent lower in 1992 than in 1990. The 35 percent reduction was expected only by 1995. The charge has provided an economic incentive. Swedish Environmental Protection Agency based on the value of charge and cost of reducing emissions has valued net benefit to be at least $30 million.

Frank Muller suggests a form of the Swedish NOx tax/refund for a carbon tax. He recommends that a cap be structured as a percentage of the firm's gross sales, maybe l percent. State revenue departments by and large already collect gross sales data for firms. This could be translated into an incremental carbon tax. For example. suppose the maximum tax burden is l percent of gross sales and the base period for calculations is 1989 to 1992. A steel producer has used sufficient fossil fuels during that base period to pay a carbon tax equal to 2 percent of sales. The firm would be given a credit against the tax equal to its gross sales in the current taxable year times the percentage of the excess tax burden defined as the percentage of the gross sales that the carbon tax would have constituted during the base period less the maximum tax percentage for the steel firm. This would be 2 percent less l percent, or l percent. The firm would still pay the entire carbon tax but would get back half the tax payment in the form of a tax credit. In essence the steel company is paying a tax on its incremental consumption of carbon fuels above half its historic consumption rate. It still has an incentive to improve energy efficiency. Each l percent increase in energy efficiency creates a 2 percent reduction in its carbon tax burden.

²⁹ Frank Muller and J. Andrew Hoerner, Greening State Energy Taxes: Carbon Taxes for Revenue and the Environment. Center for Global Change. University of Maryland at College Park. November 1993.

³⁰ Taxes on CFCs used to make imported goods are specifically allowed to be imposed on both parties and non-parties to the Agreement by the terms of the Montreal Protocol. However, it is conceivable that proposed changes in GATT could make it illegal to impose sanctions on non-signatories to international environmental agreements.

³¹ This is not always the case. President Clinton proposed a three tiered Btu tax in 1993. He would have exempted renewable fuels and imposed a higher tax on oil than on coal and natural gas. Sweden's carbon tax exempts biofuels.

³² Average fuel efficiency in 1990 was 16.5 miles per gallon and average annual vehicle miles driven was 10,800. Minnesota Department of Transportation.

³³ Northern States Power Company. 1991 Annual Report.

³⁴ Non-electric.

³⁵ The average household gas usage for Northern States Power Company customers in 1991 was 122 MCF. 1991 Annual Report. The average usage for Minnegasco customers was 130 MCF in 1991. Personal conversation with David Kostik. Minnegasco. December 1992. The Center for Energy and Environment estimates their Operation Insulation participants used 149 MCF for a homeowner occupied unit and 190 MCF for a rental unit. Conversations with energy auditors working with the Neighborhood Energy Consortium gathered estimates of 160 MCF per house.

³⁶ This figure is close to the $29.25 per year additional expenditures estimated for households below 100 percent of the poverty line in the U.S. by the Department of Energy for a $6 per ton carbon tax. Studies of Energy Taxes., Energy Information Administration, Department of Energy. Washington, D.C. April 1991.

³⁷ Some background on the Minnesota carbon tax experience. The Minnesota legislature in 1990 requested a report from the Pollution Control Agency(PCA) and the Department of Natural Resources on carbon dioxide emissions in Minnesota and incentives to reduce them. In 1991 the legislature formally established a tree planting program, Minnesota ReLeaf and requested a further report from the PCA with an implementation plan and recommendations for a fee structure. The PCA recommended a 54 cents per ton of carbon tax to generate revenues for tree planting. In 1992 Senator Morse's bill called for a $6 tax per ton of carbon emissions. In 1993 a similar bill called for a $2 per ton tax on carbon.