Kansas Legislators Urged to Reject Carbon Tax Plan

Published April 1, 2008

Republican legislative leaders in Kansas introduced a measure to impsoe the nation’s first carbon tax as a provision of a comprehensive energy bill. The provision came in response to the denial of a permit for the expansion of a power generation plant near Holcomb, Kansas. Though the carbon tax provision has since been pulled from the energy bill, it raised serious issues for Kansas taxpayers, with implications at the national level.

The following letter by some of the nation’s premiere tax and legislative organizations outlines what is at stake.

February 6, 2008

To the taxpayers of Kansas:

We write with great concern regarding two pieces of legislation in the Kansas House and Senate that would effectively impose a carbon tax–a first in our country–with a host of other unintended economic consequences harmful to Kansas and its citizenry.

Although SB 515 and HB 2711 have been put forth as a good-faith compromise to address the issues and process surrounding the denial of the Holcomb air permit (an event that gained national media attention), we firmly believe their enactment will set bad precedent not only for Kansas citizens and businesses, but on a national level as well.

Make no mistake, there are elements of the compromise that have some merit; for example, those sections related to regulatory certainty. However, in aggregate the proposal presents profound issues, which should cause great pause in view of their future economic ramifications. As such, we urge you to vote against these well-intentioned, but flawed legislative proposals.

The potential adoption of a first-in-the-nation, statute-based carbon tax would place adverse tax liabilities and resource planning burdens on consumers and businesses. Rather than providing the needed flexibility of a market-based approach to address energy supply-and-demand challenges through a well-established, well-adhered-to regulatory framework, a carbon tax would place statutory caps on carbon emissions to the detriment of the Kansas economy and its citizens. In short, a carbon tax presents one of two unnecessary propositions:

1. De facto preference categories on certain fuels, driving up capital costs for consumers, small businesses and industrial customers, as well as local and state government operations (school boards, state infrastructure and safety entities, etc.), or, 2. Increased taxes on utilities that will then be passed on to businesses and consumers.

A byproduct of these legislative proposals is an indirect means of picking winners and losers through absolute caps on carbon emissions and fuel types, or technologically unfeasible and cost-prohibitive offsets. Furthermore, the legislation in its current form prohibits new construction or expansion of merchant utilities seeking to provide energy generation from fossil fuels. Exemptions are indeed provided, but only to government and cooperative energy providers who retire aging facilities. As a result, free-market competition to actually drive down future costs for consumers through more efficient technologies and plant operations is seemingly eliminated from future consideration.

Although SB 515 and HB 2711 contain some proscriptions on government overreach so as to moderate the short-term effect, the legislative proposals fail to fully address the broader issues of regulatory certainty for which businesses rely upon to make major capital planning and investment decisions. Arbitrary rule-making is not just frowned upon by major employers and businesses; it is universally avoided wherever possible.

Leaving in place room for regulatory uncertainties and political manipulation, as witnessed throughout this debate, will simultaneously deter future inbound investments to the state and export internal projects elsewhere. As a result, other states will likely seek to gain competitive advantage in such an environment and market their own incentives accordingly.

We recognize and appreciate Kansas policymakers’ desire to meet the energy needs of the state’s citizens and businesses; however, we believe the long-term implications of these legislative proposals will hamper future economic growth. We urge you to consider the far-reaching consequences such policies would codify into law and hope you will vote against these measures.