Research & Commentary: Rhode Island Carbon Tax Proposal Is Bad for State Residents and Businesses

Published March 6, 2018

proposal under consideration in Rhode Island would establish a carbon-dioxide tax on fossil fuels, including gasoline, natural gas, heating oil, diesel fuel, propane, and “any other petroleum product,” starting in 2018. 

The purpose of the carbon tax is to decrease carbon-dioxide emissions by levying a tax based on the amount of emissions produced. The tax would begin at $15 per ton in the first year and increase by $5 per ton each subsequent year until the tax reaches $50 per ton, after which the rate will increase “in accordance with inflation.” However, the tax would not come into effect until neighboring Massachusetts and at least one other state in the Regional Greenhouse Gas Initiative (RGGI) also enact a carbon tax of at least $5 per ton.

The proposal would also establish an “Energize Rhode Island Fund” for “creating employment and helping workers transition to low carbon industries, improving energy efficiency, advancing adoption of clean energy technology, establishing programs to safeguard low-income residents, and protecting businesses that are high energy users.” Thirty percent of the funds from the tax would be used to pay a “direct dividend” to businesses, while another 40 percent would go to Rhode Island residents.

These dividends are necessary because carbon dioxide taxes are inherently regressive and disproportionally harm low-income families. The Congressional Budget Office (CBO) found a $28 per ton carbon tax would result in energy costs being 250 percent higher for the poorest one-fifth of households than the richest one-fifth of households.

CBO reports the reason for cost discrepancy is “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.”

A 2016 report from the Rhode Island Center for Freedom & Prosperity estimated the Ocean State’s “extreme green energy agenda” could end up costing the state 6,000 fewer net jobs, up to $190 million in additional costs, an 18 percent increase in electricity rates, and up to $893 million extracted from the state economy.

2013 study by the National Association of Manufacturers estimated a $20-per-ton carbon-dioxide tax in Rhode Island, which would be reached in 2019 under the proposed bill, would result in a 40 percent increase in the price of natural gas. The study also estimated gasoline prices would be 20 cents per gallon higher and that there would be a 22 percent increase in household utility rates. Incredibly, all this is projected to occur in the first year.

Another problem with a carbon-dioxide tax is any environmental benefits that it might produce would be effectively meaningless without concomitant legislation enacted throughout the rest of the globe. A country-wide carbon tax that completely reduces U.S. emissions to zero by 2050 would only avert global temperature by just 0.2 degrees Celsius by 2100. A state- or regional-based carbon tax would have even less impact on global temperature.

It is likely for these reasons the U.S. public finds the idea of a carbon tax so unpopular. An October 2017 poll of 1,038 adults conducted by the Associated Press and the NORC Center for Public Affairs Research for the Energy Policy Institute at the University of Chicago revealed 68 percent of respondents said they were unwilling to pay an extra $20 month on their electric bills to combat climate change, although this amount is “roughly equivalent to what the federal government estimates the damages from climate change would be on each household.”  Further, almost half the respondents, 42 percent, said they would be unwilling to pay even one extra dollar.

At 16.28 cents per kilowatt hour, Rhode Island currently has the third-highest retail electricity prices in the continental United States, according to the U.S. Energy Information Administration. A 2017 WalletHub study also found at $329 a month, Ocean State residents face the third-highest total energy costs in the country, and the Tax Foundation already ranks Rhode Island’s tax climate the country’s tenth worst. A carbon-dioxide tax would make everything more expensive for working families in Rhode Island, who are already pinched by the state’s high costs, leaving them less to spend and save – all without any guaranteed environmental benefits.

The following documents provide more information about carbon taxes.

The Deeply Flawed Conservative Case for a Carbon Tax
In this paper published by the American Enterprise Institute, Benjamin Zycher says the “conservative” Climate Leadership Council’s (CLC) much-hyped carbon-tax proposal is “naïve” and “virtually all of the … assertions in support of its proposal are incorrect or implausible.” The CLC’s plan is “poor conceptually and deeply unserious,” wrote Zycher.

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 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 tax revenues would be used to reduce government debt and federal taxes.

Renewable Energy in Rhode Island: Big Cost, Little Difference
This paper from the Rhode Island Center for Freedom and Prosperity looks at the Ocean State’s renewable portfolio standards (RPS) and concludes while RPS investments stimulate economic activity, the negative economic impacts associated with higher electricity prices offset the claimed economic advantages of these RPS investments.

The Carbon Tax Shell Game
Oren Cass of the Manhattan Institute argues the carbon 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. Cass also says carbon-dioxide taxes’ negative fiscal effects are claimed to be offset by efficiency improvements and by promising the revenues will be spent to offset the costs, but he says the same revenues are often promised to different constituencies to accomplish completely different and largely incompatible goals.

Less Carbon, Higher Prices: How California’s Climate Policies Affect Lower-Income Residents
This study from Jonathan Lesser of the Manhattan Institute argues California’s clean power regulations, including the state’s renewable power mandate, is a regressive tax that harms impoverished Californians more than any other group. 

Assessing the Social Costs and Benefits of Regulating Carbon Emissions
The government is required to quantify the costs and benefits of regulations they propose. In the context of regulations pertaining to carbon-dioxide emissions, various agencies have been using differing estimates of the net social cost related to carbon dioxide. In response, an interagency working group (IWG) was created to establish a consistent and objective “social cost of carbon.” The range of estimates of the social cost of carbon produced by the IWG is too narrow and almost certainly biased upwards. Using better models and the most recently available evidence on climate sensitivity, this study from the Reason Foundation finds the range of the social cost of carbon should be revised downwards. The study states carbon-dioxide emissions may have a net beneficial effect on the environment.


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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