Clean Energy Equals $418M Tax Hike?

By Tom Yamachika, President Tax Foundation Hawaii

Hawaii’s clean energy goals are the most aggressive in the nation, according to the home page of the Hawaii Clean Energy Initiative (HCEI). Let’s find out just how aggressive some of these goals are.

Who is HCEI? It might sound like an independent nonprofit but it’s not; it’s actually a state government program under DBEDT. It’s been in the news recently because it released a draft report (written with the help of the International Council on Clean Transportation, an independent nonprofit that was awarded a $100,000 contract by DBEDT in April 2014). This 173-page report, all paid for with tax dollars, has a lot of recommendations, but we will concentrate on one of them for now.

The draft report notes that Hawaii’s fuel taxes are low compared to gasoline taxes in the European Union. (Ours were fourth highest among the U.S. states in 2014, but apparently that doesn’t matter.) The report says that using gasoline for motor vehicles has “substantial externalities” including energy security, air pollution, traffic accidents, and traffic congestion. So the State could increase the tax rate to account for the social costs and increase the cost competitiveness of technologies that use alternative fuels. It also says that because demand for gasoline is relatively inelastic in the short term, economists tend to regard gasoline taxes as an economically efficient means of raising tax revenue. It recommends that the state tax on gasoline be hoisted by up to 400%, for an additional 85 cents a gallon, which, it says, would bring in an additional $418 million per year.

Translation: Motor vehicles use fossil fuel, which is not a renewable resource so it will eventually run out. Motor vehicles also cause air pollution, traffic accidents, congestion, and other social costs that aren’t reflected in the gas price, so let’s raise taxes so drivers feel the pain and pay for those social costs. Also, alternative fuels such as biofuels, electricity, and hydrogen are expensive now so let’s make fossil fuels just as expensive. Finally, experience has shown that if you raise the price of gasoline people will still buy it, so if we slap a hefty tax on gasoline the State will rake in the dough. In other words, let’s tax gasoline through the roof because we can.

The report goes on to address “social acceptability.” Apparently the study’s authors recognize that the fuel tax is highly regressive, so they recommend giving some of this money back to low-income folks, perhaps through income tax credits, in order to make the plan “acceptable.”

One of the things our state government needs to realize is that $418 million won’t magically materialize out of thin air if lawmakers pass this tax. People who have cars will need to figure out how to pay for the higher gas bills. Businesses that transport people or goods will have to build the extra costs into prices for goods and services. People will then need to decide if they are going to buy those goods and services, buy less, or go without them. In other words, higher tax costs will ripple through the economy, and that won’t necessarily be a happy thing.

Perhaps the most jarring aspect of this study is that it’s paid for by tax money. We’re paying them to tell us that we should jack up taxes because we can? We’re paying them to tell us that if we hike our gasoline taxes 400% and rebate some of this money to the poor it’s going to be socially acceptable? Our government is supposed to be studying how to produce clean energy, not how to milk the public! Goodness knows that some lawmakers are already spending enough time on that latter issue.

- 30 -

Related: $418M 'Clean Energy' Tax Hike: Fewer flights and fewer visitors to Hawaii would be expected