Profiling the three carbon pricing bills before the MA Legislature

Three different carbon pricing bills with significant numbers of co-sponsors were introduced to the Massachusetts Legislature earlier this session after similar attempts had been ground to a halt in previous years. By February 2018, the Joint Committee on Telecommunications, Utilities and Energy, which held a hearing on the bills in June 2017 and in whose court the ball is right now, has to make its recommendations to the Legislature.

In light of the tight timeline for the decision to be reached and the likely importance of the pricing tool in the arsenal of the State to reach its post-2020 emission reduction goals, the differences among the bills warrant closer attention.

In this post, I will summarize the main differences of the bills by Senator Barrett (S.1821), Senator Pacheco (S.1869) and Representative Benson (H.1726) along the main design dimensions of carbon pricing schemes that were first summarized by Brookings senior fellow Adele Morris.

1. Which pricing mechanisms are proposed?

Both Senator Barrett’s and Representative Benson’s bills describe the implementation of a carbon tax, more precisely a specific excise tax levied per ton of CO2e. In the two bills the instrument is labelled a “greenhouse gas pollution charge” rather than a tax. The language in Senator Pacheco’s bill, only specifies that “market-based compliance mechanisms” (previously authorized under the Global Warming Solutions Act) shall be used to price carbon in case the Commonwealth fails to meet the 2020 statewide greenhouse gas emission limit. This leaves cap-and-trade schemes as well as carbon taxes as viable instruments.

2. Which GHG emission sources do the bills cover?

Senator Barrett’s bill excludes the pricing of GHG emitted in any production and generation of electricity as well as emission sources that by multi-state agreement, federal law or regulation are already charged. Representative Benson’s bill excludes all parts of the power sector regulated by RGGI, brackets out emissions from farm animals and crops and exempts public transportation agencies from paying charges. Under Senator Pacheco’s bill and in accordance with the Climate Protection and Green Economy Act the Secretary of Energy and Environmental Affairs retains the power to designate greenhouse gas emission sources to be significant and to fall under a pricing scheme.

3. What is the initial price of carbon and how does it change over time?

While Senator Barrett’s bill starts with a price of USD 10 per ton of CO2e in the first year and foresees ramping up the price by USD 5 every year thereafter until the price reaches USD 40, the price would start at USD 20 per ton of CO2e under Representative Benson scheme, but still follows the same year-on-year trajectory afterwards. Discussions about possible price adjustments shall begin in the sixth year of implementation (Barrett) or already in the fourth (Benson). Under Senator Pacheco’s legislation the Administration reserves the right to make decisions about initial price points and price trajectories in compliance with existing laws.

4. Where is the charge levied and who collects the revenue?

In Senator Barrett’s and Representative Benson’s bills the charges are collected at the earliest point of distribution or sale in Massachusetts, either by the Department of Revenue (Benson) or the Department of Energy Resources (Barrett). 

5. What happens to the revenue?

In Senator Barrett’s version of the pricing scheme the GHG pollution charges collected would be rebated back in full (minus “reasonable administrative costs” to run the program) to Massachusetts residents and businesses. Further, under his plan, all residents shall receive back an equal share of the money that was collected as part of household’s GHG consumption or production charges. Rural residents receive on top an additional motor vehicle fuel rebate. The rebate size for businesses is proportional to an individual employer’s FTE share in the aggregate state-wide employment.

Representative Benson’s bill reserves 20% of the collected revenue for a “Green Infrastructure Fund”, which is designated to help municipalities and regional agencies advance a range of transportation, resiliency, clean energy and low-income energy support programs. Of the remaining fees (minus “reasonable administrative costs”) attributable to residents, 25% of the revenue is rebated back to residents in the lower 60% of the income distribution. The remaining household-earmarked funds go to a motor vehicle fuel rebate program that benefits all residents, flows in part into the Low-Income Home Energy Assistance Program and – of what remains – is rebated back in equal shares to all residents. The rebates for businesses work in the same manner as under Barrett’s bill.

Senator Pacheco’s bill leaves it at the discretion of the Department of Revenue to design the specific parameters of a rebate program that channels back all revenue from the carbon pricing scheme to all Massachusetts residents.

6. Are offsets allowed?

Neither Senator Barrett’s nor Representative Benson’s bill mention the possibility to offset their emission charges by e.g. surrendering emission credits obtained through offset activities. The language in Senator Pacheco’s bill does not rule out the possibility that offset activities may be accounted for, but leaves these design decisions to the Department of Revenue to make.

7. Are measures included that aim to reduce effects on the State’s competitiveness and emission leakage?

Senator Barrett’s and Representative Benson’s bill include a provision that requires the Administration to establish whether any economic sectors, subsectors or employers (the latter only in Barrett’s bill) are “at risk of serious negative impacts” as a consequence of the additional financial burden of the emission charges. Benson specifies further that such an assessment needs to show whether these impacts “are likely to occur due to competition from employers outside the Commonwealth in combination with energy costs constituting a substantial fraction of the total operating costs in the economic sector or subsector”. In case the risk of serious negative impacts is established, the Administration may apportion the proceeds collected from the particularly vulnerable sectors, subsectors and employers (the latter only in Barrett’s bill) back in full to the respective entities.

Senator Pacheco’s bill, which considers the design conditions to fall into the remit of the Department of Revenue, does not elaborate on this topic.