Research & Commentary: Carbon Dioxide Tax Would Be a Bad Deal for Denver Residents and Businesses

Published August 22, 2019

The Denver City Council will be holding an upcoming vote on whether to push forward with a $43 million annual carbon dioxide tax that could have serious financial repercussions on residents and businesses in the Mile High City.

The tax, passed August 13 by the Council’s Finance and Government Committee, would be set at 0.006 cents per each kilowatt hour (kWh) of electricity used by a commercial or industrial business. The bill also introduces a tax on natural gas use, set at 0.03 cents per therm for commercial customers, and 0.015 cents per therm for industrial customers. After 2025, the natural gas tax would increase by 10 percent annually.

If passed, the tax would head to the desk of Mayor Michael Hancock, who would then have the opportunity to veto the bill. If the mayor decides not to veto the bill, it would then be placed on the ballot in November, where its fate would be in the hands of Denver voters. If the tax is enacted, it would take effect on July 1, 2020.

The Denver Post estimates, based on 2018 use figures from Xcel Energy, the carbon dioxide tax would raise costs for a “typical” small business in the city by about $300 in the first year. The average commercial customer in the city would see costs rise by $1,400, while industrial customers would experience an increase of $3,200.

While this particular tax is aimed at businesses, carbon dioxide taxes are generally an inherently regressive and disproportionally harm low-income families. As the Congressional Budget Office notes, “a carbon tax would increase the prices of fossil fuels in direct proportion to their carbon content. Higher fuel prices, in turn, would raise production costs and ultimately drive up prices for goods and services throughout the economy … Low-income households spend a larger share of their income on goods and services whose prices would increase the most, such as electricity and transportation.”

One other substantial problem with a carbon dioxide tax is that it would produce an insignificant environmental benefit. “The effectiveness of a carbon tax as a matter of environmental policy [depends] not only on how it would directly alter the trajectory of [local] emissions but also on its ability to affect global emissions by driving globally applicable technological innovation or by influencing the behavior of foreign governments,” wrote Oren Cass of the Manhattan Institute in 2015. “On each of these dimensions, the carbon tax fails.” The entire State of Colorado itself, let alone Denver, only accounts for roughly 0.002 percent of global carbon dioxide emissions, a thoroughly insignificant amount.

A carbon dioxide tax would make everything more expensive for working families in Denver, drive up costs for businesses, and have an insignificant effect on global carbon dioxide emissions. Because these carbon dioxide taxes are so regressive, legislators should not seek to impose them on their constituents. There is no justification for this tax in the Mile High City.

The following documents provide more information about carbon dioxide taxes.

The Case Against a Carbon Tax
This paper from Jordan MacGillis of the Institute for Energy Research argues carbon dioxide taxes are unjustified and unwise. He contends these taxes have demonstrated themselves to be costly and incapable of constraining governments from implementing and maintaining other burdensome regulations and taxes. He also notes the United States is better off without one.

The Carbon Tax: Analysis of Six Potential Scenarios
This study commissioned by the Institute for Energy Research and conducted by Capital Alpha Partners uses standard scoring conventions to evaluate and model the economic impacts of carbon taxes set at a variety of dollar figures, with different phase-in durations, and with an array of revenue-recycling strategies. It finds a carbon dioxide tax will not be pro-growth, is not an efficient revenue raiser for tax reform, depresses GDP and introduces with long-term fiscal challenges playing particular stress on the states, and is inconsistent with meeting the long-term Paris Agreement emissions reduction goals.

The Carbon Tax Shell Game
Oren Cass of the Manhattan Institute argues the carbon dioxide tax is a shell game. The range of designs, prices, rationales, and claimed benefits varies so widely that assessing the validity of most proposals is nearly impossible to accomplish. In this article for National Affairs, Cass says the effect of carbon dioxide taxes on emissions has proven to be insubstantial, a fact he says is ignored by the tax’s proponents when promoting its purported benefits.

The Case Against a U.S. Carbon Tax
In this paper from the Cato Institute, Robert P. Murphy, Patrick J. Michaels, and Paul C. Knappenberger examine carbon dioxide tax programs in place in Australia and British Columbia and consider whether similar programs would be successful in the United States. They conclude, “In theory and in practice, economic analysis shows that the case for a U.S. carbon tax is weaker than its most vocal supporters have led the public to believe.” 

Economic Outcomes of a U.S. Carbon Tax–us-carbon-tax
This report from the National Association of Manufacturers evaluates the potential impacts carbon dioxide taxes whose revenues would be devoted to a combination of debt and tax rate reduction would have on the U.S. economy. The results consider the varied economic effects of fossil-fuel cost increases caused by carbon taxes, as well as the positive economic effects of the assumption that carbon dioxide tax revenues would be used to reduce government debt and federal taxes.

Legislating Energy Poverty: A Case Study of How California’s and New York’s Climate Change Policies Are Increasing Energy Costs and Hurting the Economy
This analysis from Wayne Winegarden of the Pacific Research Institute shows the big government approach to fighting climate change taken by California and New York hits working class and minority communities the hardest. The paper reviews the impact of global warming policies adopted in California and New York, such as unrealistic renewable energy goals, strict low carbon fuel standards, and costly subsidies for buying higher-priced electric cars and installing solar panels. The report’s authors found that collectively these expensive and burdensome policies are dramatically increasing the energy burdens of their respective state residents.

The U.S. Leads the World in Clean Air: The Case for Environmental Optimism
This paper from the Texas Public Policy Foundation examines how the United States achieved robust economic growth while dramatically reducing emissions of air pollutants. The paper states that these achievements should be celebrated as a public policy success story, but instead the prevailing narrative among political and environmental leaders is one of environmental decline that can only be reversed with a more stringent regulatory approach. The paper urges for the data to be considered and applied to the narrative.

The Social Benefits of Fossil Fuels
This Heartland Policy Brief by Joseph Bast and Peter Ferrara documents the many benefits from the historic and still ongoing use of fossil fuels. Fossil fuels are lifting billions of people out of poverty, reducing all the negative effects of poverty on human health, and vastly improving human well-being and safety by powering labor-saving and life-protecting technologies, such as air conditioning, modern medicine, and cars and trucks. They are dramatically increasing the quantity of food humans produce and improving the reliability of the food supply, directly benefiting human health. Further, fossil fuel emissions are possibly contributing to a “Greening of the Earth,” benefiting all the plants and wildlife on the planet.

Climate Change Reconsidered II: Fossil Fuels – Summary for Policymakers—summary-for-policymakers
In this fifth volume of the Climate Change Reconsidered series, 117 scientists, economists, and other experts assess the costs and benefits of the use of fossil fuels by reviewing scientific and economic literature on organic chemistry, climate science, public health, economic history, human security, and theoretical studies based on integrated assessment models and cost-benefit analysis.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this subject, visit Environment & Climate News, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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