The Jefferson Journal
Virginia Passes on Carbon Tax Compact. 
For Now.
                                                             By Stephen D. Haner

12/21/2010 -- Three states and the District of Columbia announced today that they have signed the Transportation and Climate Initiative, but Virginia is not among them. Virginia will remain a part of the planning consortium and could consider membership at a later time. Only Massachusetts, Connecticut and Rhode Island signed with the District.

Governor Ralph Northam was correct to decline Virginia participation at this time, and any effort to join by legislative action in January should also be resisted. Virginia needs to stay out of the compact. If you would like to discuss this issue with your state legislators, and do not know their names and email addresses, use this website to identify and contact them.

The Transportation and Climate Initiative if implemented in Virginia will substantially increase the cost of gasoline and diesel fuels, drain family budgets, and damage the state’s economy. It will hit middle and lower income families and small businesses the hardest. It will do this while producing no change to global temperatures or to human health.

Here are five major reasons the 2020 Virginia General Assembly should say no.

1)   Virginia just raised its gasoline taxes substantially, by 78 percent in parts of the state. These additional carbon tax amounts will be economically crushing. Any higher cost for a key energy commodity will reach into every aspect of our economy and raise costs. During this recession, the 2020 gas tax increase proved to be invisible, but eventually fuel prices will rebound.

If the average family buys 1,000 gallons of fuel per year, and that’s common, then the carbon taxes will cost them hundreds of dollars annually. Many families and business buy far more fuel. But it is the ripple effect in the overall economy to worry about, as outlined in this Thomas Jefferson Institute-sponsored report.
2)   Fuel taxes are regressive, as are any increase in energy costs.  Middle and lower income families, and most small businesses, spend much of their earnings on energy, and electricity costs are also rising in response to environmentalist demands. 

The regressive nature of this has drawn fire from advocates for low-income families, with one New Jersey advocate being especially outspoken back in September. She denounced this as just a tax on poor people to pay for the electric vehicles sought by rich people. That is correct.

3)   The claims of environmental or health benefits are false. If you accept that CO2 is the principal cause of rising air temperatures, the reductions claimed from TCI will not move the needle more than tiny, infinitesimal amounts (0.000018° C). The claims of lower illness or death are also based on disputed models and ignore how little the amount of CO2 or pollutants in the atmosphere will actually change. That question was addressed last year by this Thomas Jefferson Institute report. “TCI: All Pain and No Gain”.

TCI organizers themselves have admitted that people are already choosing electric or lower emission vehicles, and the CO2 from transportation is already shrinking. It may shrink up to 15 or 20% over ten years without any of this. When you look only at the small marginal benefit of adding the tax and rationing, the cost is even less justified. 
4)   Most of Virginia’s borders are with states that will not be part of this, and which will immediately be selling these fuels at lower prices. Individual families, small businesses and trucking firms will simply cross the line for gasoline, and probably everything else they buy at the same locations.

When North Carolina raised its gasoline tax to a level substantially higher than Virginia, businesses on that side of the line suffered. With Virginia in TCI they would come back, and our stations would begin to suffer. 

5)   The major source of money for road and bridge construction and maintenance remains the fuels taxes. If the sale of fuel is frozen, and then rationed down 25 percent, the same will happen to those revenue sources. But even electric cars will need roads. The lost revenue will need to be replaced, either with a mileage tax or with higher and higher taxes on remaining fuel sales.  Thomas Jefferson Institute Chairman Bill Howell wrote of his concerns on that issue

More about how TCI will work:
After long, closed negotiations, the details of the proposed TCI carbon tax and rationing scheme began to gel December 21, when representatives of three states and the District of Columbia released the actual memorandum of understanding. It contains the terms of the interstate compact that each state must sign to join and then implement in 2023. The date is now pushed back from 2022.

The stated goal is to reduce carbon dioxide emissions from motor fuels within a 12-state region. The CO2 is produced by gasoline and diesel, so the real goal is cap fuel sales at current levels, and then reduce sales of gas and diesel by 25 percent over ten years.

This will be accomplished mainly by the declining cap on total supply, which is simply government rationing. Of the billions of gallons were sold in 2019, by 2030 only 75% of that amount can be sold by licensed wholesalers within the states. The wholesalers will fight over that shrinking supply through an interstate auction, the second main element of the program.

At that auction they will be buying allowances, bidding against dealers within the entire multi-state region. The allowance price is the carbon tax. By design, by intention, the allowance costs will rise over the years, increasing the cost per gallon paid by the ultimate consumers. Claims that the oil companies will pay ignore the reality that they will just pass the cost along penny for penny.  

Stephen D. Haner is Senior Fellow for State and Local Tax Policy for the Thomas Jefferson Institute for Public Policy. He may be reached at [email protected].
Support the work of
The Thomas Jefferson Institute for Public Policy