Here are answers that we’ve heard about the carbon cashback policy. This page will be updated as new questions are raised. Got a question that is not answered here? Contact us and we’ll get you the answers.

Is carbon cashback progressive?

(Misconception: Carbon pricing is regressive.)

Answer: A carbon pricing policy with revenue returned to residents, such as HB2278, is progressive. Low-income households will benefit more than high-income households. With HB2278, the average low to the middle-income household would receive more money from the dividend than they pay in increased energy prices. Details on how this will impact Hawaii households can be found in this UHERO report to the State of Hawai‘i Tax Review Commission.

Will carbon cashback grow government?

(Misconception: Carbon pricing will just grow government and increase spending.)

Answer: No. Policies that price carbon pollution and return revenue to households, e.g., HB2278, do not increase government revenues outside of a small administrative cost. HB2278 will leverage the current barrel tax - it will not require the creation of a new taxation process.

What is the impact of carbon pricing on local businesses?

(Misconception: Carbon cashback will destroy local businesses.)

Answer: The UHERO report for the Tax Review Commission shows that the loss in Hawaii production is less than 0.5% per year for the scenario most representative of the two carbon cashback bills before the legislature (see pg. 19 of 53 in this UHERO report. That is, if Hawaii’s production were $100 billion, imposing the carbon tax as in HB2278 would drop output by no more than $0.5 billion in a year. This drop would be nearly counterbalanced by the gain in household consumption from the return of the tax revenues.

Aren’t regulations more effective in reducing emissions?

(Misconception: The only way to reduce emissions is through mandates and regulations. These don’t cost anything.)

Answer: A carbon tax complements other efforts to switch to renewable sources for electricity generation and transportation by increasing the cost of using fossil fuels. Thus, a carbon tax makes fossil-fired electricity generation more costly and less attractive than renewables. It raises the price of gasoline, making electric vehicles more attractive than gasoline-powered ones.

Mandates are not without costs - they are just not as transparent as a carbon tax.  Mandates are also often prescriptive and limit choices which can add to the cost for individuals and businesses. Notably, since no revenue is collected with mandates, there is no opportunity to help low and middle-income households; there is no mitigation of the financial burden associated with mandates.

Economic studies find that most mandates are much more expensive than carbon pricing when it comes to reducing emissions. For more, see Professor Metcalf’s book, Paying for Pollution (here’s a book review) and the NERA Economic Consulting report.

Won’t carbon pricing add to inflation?

(Misconception: Carbon pricing will increase prices and have an inflationary impact.)

Answer: No - With a rebate, dividend, or refundable tax credit, a carbon price will not add to inflation. A recent Center for Economic Policy Research (CEPR) review of carbon pricing systems in Canada and Europe found they are not inflationary.  In particular, countries that return carbon tax revenue to households have not seen inflationary effects. Learn more in this Citizens’ Climate Lobby blog post.

Does carbon pricing work?

(Misconception: Carbon taxes don’t work. British Columbia is an example - it introduced a carbon tax, and there was no impact on emissions.)

Answer: Yes. Many governments have implemented carbon pricing. There are close to thirty countries with some form of carbon pricing. Among countries with developed economies, the US and Australia are the only ones without a carbon tax. Here are a couple of examples:

• 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%.

• British Columbia implemented a carbon tax in 2008, and it is currently at $45/ton. Studies have shown that it had a minimal impact on their economy while reducing emissions between 5 and 15%.

• The EU’s carbon price has been cited as one of the main reasons electric vehicle penetration in Europe far exceeds that of the US (Climate Now podcast 2/25/2022).  Furthermore, Metcalf and Stock find that the EU’s carbon price has a very negligible impact on its overall economy.

What studies have we done to understand the impact of carbon pricing on Hawaii’s residents?

(Misconception: We don’t know if carbon pricing will work in Hawaii or what its impact will be.)

Answer: The Hawaii State Legislature funded a carbon pricing study in 2019 to better understand the implications of this policy. It published its report in April 2021. Highlights from the report, courtesy of the Hawaii State Energy office:

• If carbon tax revenues are given back to households in equal shares, a carbon tax is progressive – meaning this revenue recycling approach generally benefits lower-income households more than higher-income households. ​

• Visitors would pay the carbon tax through the goods and services they purchase while in Hawaii, and these revenues would be directly transferred to Hawaii’s households if a dividend accompanies the carbon tax. ​

• The lower carbon tax scenario (set at the “social cost of carbon” (SCC) from the U.S. EPA, 2016) results in a 40% reduction of greenhouse gases (GHGs) from 2019 levels, with small impacts on the overall economy. Giving revenues back to households in equal shares makes households economically better off. ​

Who bears the cost of carbon pricing?

(Misconception:  Carbon taxes put the costs and responsibility on individuals instead of holding polluters accountable for destroying our planet.)

Answer: This claim is contradicted by extensive research and case studies.  Carbon tax costs are borne by both industry and households to varying degrees depending upon the industry and market conditions. A study of the potential impact of a carbon tax on industries indicated that various industries absorb from 25% to 67% of the carbon tax.  (Ganapat, Shapiro, Walker 2016)