There has been much in the media recently regarding carbon-dividend climate programs.
A pragmatic assessment suggests that this concept would be an economic disaster for New Mexico.
Proposed carbon fee plus dividend legislation was introduced in the U.S. House and Senate in 2018: HR 7173 and S 3791. The proposed legislation establishes a trust to be administered under IRS Subtitle L.
Fees on energy producers, initially at $15 per carbon dioxide ton, will accrue to the trust, and dividends will be distributed from the trust to citizens and lawful residents. The IRS will skim 8 percent of collected fees for administration.
At 2017 carbon dioxide tonnage levels, the administrative fee amounts to a new collection agency about the size of the present Environmental Protection Agency. The treasury secretary is authorized, but is not required by the legislation, to verify eligibility; so it is most likely that fees on New Mexico energy producers will be used to pay dividends to ineligible non-citizens.
New Mexico energy producers will not operate at a loss. They will recover their bottom-line costs by charging higher consumer energy costs at gasoline and diesel pumps, and natural gas and electricity to heat and cool homes and businesses will rise.
Any dividend distribution will be offset by higher energy costs.
Tariffs will be imposed on carbon intensive products defined in the legislation to include iron, steel, steel-mill products (including pipe and tube), aluminum, cement, glass (including flat, container and specialty glass and fiberglass), pulp, paper, chemicals and industrial ceramics.
In other words, just about everything useful will carry a to-be-determined tariff imposed by the treasury secretary in coordination with EPA; and there is no guidance in the legislation regarding congressional approval or amount of the tariffs.
Dividend distributions are taxable as gross income. The sum of higher energy costs, administrative costs, tariffs and income tax liability make the average taxpayer financially worse off.
And there will be less capital and incentive for New Mexico producers to invest in cleaner and cheaper technologies like natural gas retail distribution logistics.
Sponsors claim that the law will be revenue neutral, but the Congressional Budget Office has not scored it, so there is no way to know how much it will cost in general appropriations above and beyond the administrative fee.
For New Mexicans, implementing this legislation is economic suicide. New Mexico is one of the most prolific energy-producing states.
Because of its low population relative to the total U.S. population, and because of the algorithm for dividend distribution, more than 99 percent of carbon fees confiscated from New Mexico energy producers will go to more densely populated areas. New Mexico oil and gas production pays on the order of 40 percent of the cost of state government.
This legislation truly will strangle the goose that lays the golden eggs.