A California Chamber of Commerce-opposed-unless-amended bill that will increase costs and place regulatory burdens on businesses is scheduled to be heard in the Senate Environmental Quality Committee tomorrow.
SB 43 (Allen; D-Santa Monica) increases electricity rates and cost of transport by proposing to duplicate existing climate policy with a carbon-based sales tax, and threatens retail and manufacturing jobs by creating a cumbersome and arbitrary regulatory process. The bill proposes to create a new regulatory scheme to measure the “carbon intensity” of every product sold in California.
While the CalChamber appreciates the desire to study carbon intensity, sales tax touches almost every part of the state’s economy. Due to its substantial economic impact, the CalChamber believes it is imperative that the study consider the following:
A tax based on the carbon-intensity of products is regressive, meaning that low-income Californians spend a larger proportion of their income on basic necessities that will be subject to this tax. This study should evaluate mechanisms to ensure that a retail carbon tax avoids this regressive impact on low-income individuals and communities, and whether it is fair to apply a carbon-based tax to retail goods but not other sectors of the economy.
Moreover, imposing a carbon-based tax on fuel will drastically increase already-high gasoline prices. The CalChamber supported the bipartisan effort to raise funds for long-deferred maintenance and improvement of California’s roads and infrastructure. Such funds, however, are tied to fuel consumption. This bill has a stated intent to “encourage the use of less carbon-intensive products.” This study must evaluate the impact on transportation infrastructure funds that would result from a decrease in fuel usage, and how such deficits would affect California’s transportation system.
Duplicates Existing California Climate Policy
California’s ambitious climate goals have resulted in world-leading programs, including fuel efficiency standards on vehicles, air quality controls, renewable goals, and a market-based greenhouse gas program. The cap-and-trade program was recently extended by bipartisan action, and has resulted in millions of dollars made available to state agencies to fund air quality and greenhouse gas (GHG) emission reductions. A “carbon intensity”-based tax would stack additional associated costs on top of these programs.
Stacking these programs will result in tremendous increases in energy, transport, manufacturing, and all other industries that would be subject to both the sales tax and carbon policies. Any study must consider the impact and efficacy of replacing all carbon-based programs, including impacts on the various programs currently funded by cap-and-and trade.
Additional Changes to Consider
In addition to the changes proposed above, the study should also:
- Evaluate Impacts on Sales and Use Tax Revenues: SB 43 includes a goal of revenue neutrality. The study should evaluate how reductions in sales resulting from reductions in consumer purchasing behaviors will affect revenues, and whether the higher prices will have a disproportionate impact on certain Californians.
- Expand Core Purpose of Study: As currently drafted, the bill directs agencies to evaluate the “feasibility and practicality of” a carbon-based tax. This language should be expanded to include economic impacts to business, including California’s competitiveness with other states, impacts on gross domestic product, increases in transportation costs, and other economic impacts to Californians.
- Consult with All Agencies Affected by a Sales Tax to Carbon Tax Swap: The bill should be expanded to include all agencies that are affected by or regularly evaluate energy, environmental, tax, transportation, agriculture, economic development, and financial issues.
- Consider Retail Barriers: The study must work with economic development agencies and businesses to evaluate the impact to retail manufacturers and stores. It should evaluate how wholesale changes to displays, labeling, and transparency will change consumer behavior and the economic impact of these changes.
- Determine Evaluation Parameters: Determining the carbon intensity of a product is a large burden, and California’s businesses manufacture or sell billions of products. Manufacturers often have more than one production facility, which means the same product may travel from different locations in the state based upon retail demand. SB 43’s study must evaluate the size of the agency, the number of employees, and the process by which products will be evaluated for carbon-intensity. And this is only after the study evaluates what carbon-intensity even means, which will necessarily require a many-factored evaluation for each item made at each facility during different times of the year, and perhaps even different times of the day resulting from changes in energy sources.
- Include Input from Entities Subject to a New Carbon Tax: A robust study must include input from all stakeholders, including businesses and manufacturers, that will necessarily have to implement such a program. The study should ensure meaningful public participation in the evaluation of a carbon-based tax replacement.
Staff Contact: Leah B. Silverthorn