The burning of fossil fuels has added such a large volume of greenhouse gasses to the atmosphere that it is threatening the livability of the planet. Greenhouse gasses cause the Earth to warm, which in turn causes storms, floods, heat waves, wildfires, and droughts to be more frequent and more extreme.  

Carbon dioxide is the dominant greenhouse gas, and the concentration of atmospheric carbon dioxide is rising.

It reached 420 parts per million (https://keelingcurve.ucsd.edu/) recently, 50% higher than it was prior to the Industrial Revolution. After carbon dioxide is emitted into the atmosphere, it stays there for 300 to 1,000 years, according to NASA.

What we do now—or fail to do—will have impacts for many generations. In addition it raises the acidity of our oceans, which damages our coral reefs.

If carbon tax revenues are given back to households in equal shares as in the Carbon Cashback bill, a carbon tax is progressive—meaning this revenue benefits lower-income households more.

This progressivity occurs because higher-income households tend to consume more fossil fuels and more goods and services overall and are thus contributing directly and indirectly more of the carbon tax revenues.

The UHERO study finds that at a carbon price of $50/MT of CO2, which would occur in year six of this policy, the lowest quintile households, on average, would come out $900 per year ahead each year, while middle-income households, on average, would experience a net financial gain of $500 per year.

Hawaii has declared a climate emergency and set a goal to be carbon negative by 2045.

If we are to do so, we need to reduce our emissions economy-wide. We need a policy that addresses emissions in all sectors.

Carbon cashback would lead to about a 10% reduction in cumulative CO2 emissions from 2025 to 2045. Source: University of Hawai‘i Economic Research Organization (UHERO) study entitled “Carbon Pricing Assessment for Hawai‘i: Economic and Greenhouse Gas Impacts” (April 2021).

Carbon pricing would complement and strengthen other policies aimed at reducing emissions because it adds a price signal to existing policies providing an additional incentive to conserve energy, transition to cleaner technologies, and operate existing technologies more efficiently.

In the 2023 Hawai’i legislative session, a multitude of bills were introduced that were dedicated to mitigating climate change, including a faster transition to clean, renewable electricity generation, a faster transition to electric vehicles, and buildings that are more efficient.

Carbon Cashback would strengthen all of these.

A gradually rising price on carbon pollution would allow for predictability so businesses can better plan for the future. Knowing that prices for energy and fuels would rise in a measured way each year would allow business leaders to plan and budget for measures that increase efficiency and reduce consumption. It would offer flexibility in their response—they can maximize resources by implementing energy efficiency measures, deploying renewables, and cutting fuel consumption.

The same advantages apply to households. In addition, all households on average would do better financially if 80% to 100% of the tax revenues are returned to people. According to the UHERO study, the majority of Hawaii’s families would experience a net financial gain, as their refundable tax credits would more than compensate for the increase in prices resulting from the carbon tax.

By helping the economy transition away from fossil fuels, carbon cashback would ultimately help the economy as it would become less and less susceptible to volatile fossil energy prices. Kauai has experienced this benefit first hand as its electricity prices rose by only 10% compared to 50% for the HECO territories because KIUC has a far higher share of renewables on its grid.

Existing methodologies can be used to implement carbon pricing with tax revenues distributed to people in equal shares, as considered in the UHERO study and as outlined in a recent Tax Review Commission Report.

The existing Environmental Response, Energy, and Food Security Tax (commonly known as the “barrel tax”) simply needs to be increased to account for embodied carbon in various fossil fuels so no new tax mechanism is needed. As for returning the revenues to people, refundable tax credits already exist and can be used to distribute the tax revenues to people in equal shares.

Carbon cashback would achieve emission reductions at the lowest cost. Using the existing regulatory infrastructure and processes would be efficient and not grow the government. (Carbon Cashback is revenue neutral.)

British Columbia implemented its carbon tax in 2008, and it is currently at $65/ton as of April 1, 2023. Studies have shown that it has had a minimal impact on the economy, while reducing emissions between 5 and 15%. The carbon tax has been so effective in British Columbia that the entire country of Canada has adopted it.

Sweden implemented a carbon tax in 1991 and has the highest price globally, at $137/ton. It reduced its emissions by 25% by 2000. At the same time, its economy grew by 60%.

Carbon pricing would encourage investment and innovation in clean energy solutions. The European Union’s carbon price has been cited as one of the main reasons electric vehicle penetration in Europe far exceeds that of the United States (Climate Now podcast 2/25/2022). Furthermore, Metcalf and Stock find that the EU’s carbon price has had a very negligible impact on its overall economy.

Existing economic studies and data suggest carbon cashback would increase costs on a typical Hawai‘i visitor by about tbd per day, or tbd per visit in the nth year. These costs reflect the approximate environmental cost of carbon emissions for a typical Hawai‘i tourist.

Placing a price on carbon pollution has been endorsed by thousands of economists, including 28 Nobel laureates, four former Chairs of the Federal Reserve, the US Chamber of Commerce and Business Roundtable, religious groups, Pope Francis, and many prominent individuals and businesses.

Two-thirds of Americans favor taxing corporations based on their carbon emissions, according to a recent Pew Research Center Survey.

The World Bank asserts that carbon pricing is the most effective way to reduce climate pollution, and thousands of economists, including twenty-eight Nobel Laureate economists, four former Chairs of the Federal Reserve, and fifteen former Chairs of the Council of Economic Advisors (see https://www.econstatement.org/), have said that "a carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary." The Group of 20 (G20), which includes the United States, the European Union, China, and India, representing ninety per cent of the world’s economy, encourages the appropriate use of carbon pricing when used among a wide set of tools to control climate change.

The report of the Intergovernmental Panel on Climate Change reinforces the need for action and reminds us about what is at stake. When it comes to action the IPCC report says: “Pricing of greenhouse gases, including carbon, is a crucial tool in any cost-effective climate change mitigation strategy, as it provides a mechanism for linking climate action to economic development.” For more on what the latest IPCC says about carbon pricing, please click this link.

Carbon pricing “would help equalize the market environment between electric end uses and fossil fuels and could be the single most impactful policy to drive building electrification forward on the federal and state levels.” (Cohn, C., and N. W. Esram. 2022. Building Electrification: Programs and Best Practices. American Council for an Energy-Efficient Economy. ACEEE Report)

The 2020-2022 Tax Review Commission undertook a comprehensive review of the State’s tax system and made eight recommendations to improve it. After considering the UHERO study, which it commissioned in part, the Commission put Carbon Cashback at the top of its recommendations:

Impose a carbon tax to incentivize moving away from carbon-based fuels and adopting clean energy. We recommend that the majority of the proceeds be rebated as a cashback to the residents of Hawaiʻi, with a disproportionate distribution to low-income households

As to how to implement such a policy, the Commission recommended that:

The state government implements an upstream carbon tax by making use of the existing administrative infrastructure surrounding the barrel tax. This approach limits the administrative burdens of establishing a carbon price in Hawai‘i …”

At the end of 2023, the Hawai‘i State Energy Office completed its study to “determine the most cost-effective pathway to decarbonization” for the State (Act 238, Session Laws of Hawai‘i 2022).

The Hawai‘i Pathways to Decarborization Act 238 Report includes 24 regulatory and other recommendations to “ensure the attainment of the State’s decarbonization goals.” Key among them is a recommendation to adopt a “carbon surcharge” using the State’s existing barrel tax, with dividends paid to residents.

The Energy Office doesn’t use the term “carbon cashback” in its recommendation, but it is substantively the same as the carbon cashback bills considered by the Legislature last year (e.g., House Bill 1146), as it contains carbon cashback’s two key elements:

(1) an increasing fee on fossil fuel products to reduce demand and thereby reduce carbon emissions; and

(2) payment of dividends directly to the residents of the State, to provide relief especially to low- and moderate-income families (dividends would be paid to “income qualifying residents,” whereas in last year’s carbon cashback bills, dividends would be paid to all residents).

Ultimately, we need to have national carbon pricing, particularly because it could include a border carbon adjustment that maintains the competitiveness of U.S. businesses. National carbon pricing would also make state level policies (e.g., the RPS) more effective while ensuring a more equitable transition for low- and moderate-income households. But pending national action, we should implement local carbon pricing as soon as possible for several reasons:

• State-level action can inspire other states, and ultimately the national government, to follow. Hawai‘i can lead the way to show that carbon pricing can be progressive, easy to implement, and reduce emissions. This opportunity to lead is not new to Hawaii. We’ve been leaders in climate policy that have inspired national action. Our 100% Renewable Portfolio Standard mandate is an example.

• National carbon pricing will take time to implement. By implementing a price on carbon locally, we are able to promptly tackle emission reduction at the state level and set us up to benefit from a national carbon price.

• A local carbon price can also catalyze other policy, process, and technology innovations related to carbon reduction. It will encourage people and companies to identify low-carbon solutions that would otherwise not be implemented.

• The local carbon pricing policy should include provisions that allow for it to be superseded by national policy as long as the national policy employs the same or greater level of carbon pricing.

Carbon cashback differs from a gasoline tax in two key ways:

1) Carbon cashback is progressive and actually would make the majority of low- and middle-income households financially better off. A gasoline tax is regressive. The revenues go into the general fund and funds go toward the roadways, which provide no direct financial benefit to households.

2) Carbon cashback addresses fossil fuel emissions throughout the economy so has a much wider reach than a gasoline tax, which addresses only gasoline sales.