Raimondo Administration Should Not Impose a New ‘Stealth’ Gasoline Tax
and Should Refuse to Sign-on to the Transportation & Climate Initiative (TCI)
Summary: The Governor of Rhode Island has initially committed to signing-on to a regional carbon tax scheme on gasoline, advanced by climate alarmists, that will significantly increase regular and diesel gasoline prices at the pump.
This policy brief discusses the many reasons why our state should not join the Transportation & Climate Initiative (TCI) compact, including:
- In Rhode Island, with its already dismal business climate and exodus of people to lower-cost states, families and businesses cannot afford a significant new gas tax
- The failure of a similar regional scheme on electricity, the Regional Greenhouse Gas Initiative, has driven up consumer costs; has resulted in no added greenhouse gas reductions; and has caused economic harm. There is every reason to believe TCI will also produce a negative cost vs. benefit result.
- The Governor should not try to bypass the Constitutional authority of the General Assembly by unilaterally seeking to impose this new gas tax
- Rhode Island could gain a significant competitive advantage in the region by refusing to sign-on to the TCI tax scheme by being able to offer lower-priced gasoline products
- There are many less disruptive and more efficient ways to reduce greenhouse gas emissions
- State and national legal challenges may result, along a number of potential Constitutional angles
Background: Prices for gasoline for Rhode Island motorists could soon rise dramatically if the Raimondo administration undercuts the authority of the General Assembly and moves forward with its plan to sign-on to a new stealth carbon-tax scheme – TCI … a move that would necessarily increase costs on families and business, and that also could lead to legal challenges.
The Transportation & Climate Initiative (TCI) would essentially duplicate the existing electricity “cap and trade” tax, RGGI, in the gasoline industry, artificially raising per-gallon fuel costs. The twelve states in the Regional Greenhouse Gas Initiative (RGGI, pronounced “reggie”), including Rhode Island, are gearing up to sign-on to a final memorandum of understanding (MOU) in the spring of 2020, which would effectively lead to a new tax on regular and diesel fuel that some experts estimate could end up being as much as an additional 24 cents per gallon.
The initial MOU is expected to be published on December 17, 2019, providing some details on the design of the TCI gas tax scheme. Then, following a 2-3 month public input period, a final MOU will be published and each state will then decide whether or not to participate.
The Governor has not made it clear, as of early December 2019, if she plans to commit the Ocean State to the TCI gas tax solely by the stroke of her pen, or if she plans to seek legislative approval.
With the states of Vermont and New Hampshire already signaling initial opposition to this new tax, and instead of subjecting Ocean State motorists to increased fuel costs, Rhode Island should refuse to sign on to this extreme-environmentalist agenda. In opting out, Rhode Island might actually gain a regional competitive advantage.
RGGI is a mandatory market-based program in the northeastern United States designed to reduce greenhouse gas emissions. RGGI is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia to cap and reduce carbon dioxide (CO2) emissions from the power sector. RGGI compliance obligations apply to fossil-fueled power plants 25MW and larger within the region.
Under the RGGI multistate compact, larger power plants are forced to purchase “allowances” to produce electricity. In turn, these power producers pass on these costs to ratepayers. Most of the revenue collected from these quarterly energy auctions are then re-distributed to participating state governments, which are then supposed to use the funds to hand out subsidies to local “green” project developers, among other programs.
Already dealing with a destructive Ocean State exodus, in which too many families, retirees, investors, and small business owners are fleeing to lower-cost states, implementation of TCI would make Rhode Island an even less friendly place to raise a family and operate a business.
TCI = TAX. TCI is a new gasoline tax, regardless of how politicians and unelected bureaucrats might otherwise try to categorize it. When the state government mandates the collection of new moneys and then becomes the eventual recipient of most of those moneys, even if it authorizes a third-party to collect those funds, it can only be categorized as a tax.
And while it appears that the Raimondo administration is not seeking to bypass the sole authority of the General Assembly when it comes to taxing power, as neither the Governor nor the RI Office of Energy Resources has the authority to unilaterally increase taxes, the Center calls on her to make clear her suggested process.
Any attempt to increase taxes without supporting legislative action from the General Assembly may be unconstitutional. Whether lawmakers might have the courage to vote to impose massive new gasoline taxes on motorists in an election year remains to be seen, although it likely depends on how much attention the public pays to the issue.
The TCI gas tax is also a regressive tax that will disproportionately impact low-income families, who will struggle much more than the wealthy to pay the higher gasoline prices that will result at the pump.
Either way, the Center recommends that the Governor should reject the initial TCI MOU and take Rhode Island off of the path that leads towards crippling new taxes on gasoline. Given the failures of RGGI, discussed below, and this new threat to the energy security of Ocean State families and businesses, the Center recommends that Rhode Island should not join the TCI compact or any other energy-related multi-state cap-and-trade system.
RGGI Has Failed to Accomplish Its Goals. Rhode Island is one of 12 states in the RGGI and TCI cabal, now seeking to replicate California and Quebec by imposing a price on carbon fuels in the transportation sector. The other participating states are: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Vermont, and Virginia.
Ostensibly formed to reduce carbon-based emissions by limiting demand via increased costs and to fund local co-generation facilities, RGGI has not met its emission-reduction objectives. But it has dramatically increased the cost of electricity for ratepayers in its member states, with no corresponding benefit.
These results are in direct conflict with the assurances with which Rhode Island originally entered the agreement. One of the original states participating in the development of RGGI, the Ocean State did not sign on to the initial MOU in December 2005, not joining until 2007. Announcing that decision in his state of the state address on January 30, 2007, Republican Governor Donald Carcieri insisted, “While I’m still concerned about how this agreement will impact the cost of energy here in Rhode Island, I have been assured that those costs can be offset by credits that we will receive from other states.”
Later that year, the state General Assembly passed the Implementation of the Regional Greenhouse Gas Initiative Act. This legislation ensured Rhode Island’s participation in the RGGI initiative, with broad guidelines for the use of the money that the auctions would generate.
The governor’s assurances that his policies would not severely hurt Rhode Islanders have proven unreliable. As he made his announcement, Rhode Island was enjoying the second-lowest cost per kiloWatthour for ultimate customers’ electricity in New England, at $13.08. By January 2019, this average price had increased to $20.12, by far the highest in the region. This 54% increase compares with an 18% increase nationwide over the same period (to just $10.47 per kWh) and 17% in New England overall (to $18.22 per kWh).
Despite enduring an increased cost for energy, RGGI states have experienced “no added emissions reductions or associated health benefits from the RGGI program,” when compared with different states that have otherwise similar energy policies, according to David Stevenson, Director of the Center for Energy Competitiveness at the Caesar Rodney Institute in Delaware. Even so, Stevenson found evidence that RGGI hurt participating states’ economies:
… from 2007 to 2015, net weighted average nominal electricity prices rose 4.6 percent in RGGI states compared to 2.8 percent in comparison states. Linking real economic growth to RGGI alone is fraught with problems. Real economic growth rates in RGGI states between 2007 and 2015 varied widely from a negative 7.1 percent for Connecticut to a plus 11.9 percent for Massachusetts. Also average RGGI revenue amounted to only 0.01 percent of the combined average real GDP of the RGGI states, so one wouldn’t expect much impact. Ignoring those difficulties, real economic growth was 2.4 times faster in comparison states than in the RGGI states. High RGGI state electric rates led to a 34 percent reduction in energy-intensive industries and a 12 percent drop in the goods production sector, while comparison states saw only a 5 percent drop in energy-intensive industries and a 20 percent gain in goods production.
During those years, the U.S. Energy Information Administration found virtually no reduction in emissions in Rhode Island, specifically. The latest year of data, 2016, does show a downward fluctuation in the Ocean State, but it was very nearly the national average for that year.
The TCI Scheme. The Transportation & Climate Initiative (TCI), by imposing a new stealth tax on fuel, could raise gasoline costs by as much as 24 cents per gallon over the near term, according to Stevenson. (Stevenson extrapolates this estimate from the RGGI’s own projection that prices for its allowances could increase by $24/ton by 2030.) TCI openly admits on its website that the increased gasoline ‘taxes’ are designed to make fuel so expensive that motorists will be financially forced to utilize more green modes of transportation, like walking and biking.
The process for this expensive TCI tax program is already underway and could come to pass with minimal awareness of the businesses and residents who will be affected.
- In 2018, the state of Rhode Island signed-on to a statement encouraging development of a low-carbon transportation proposal.
- Governor Raimondo concurrently issued a statement endorsing the TCI tax concept
- On December 17, 2019, the TCI organization will release a draft MOU on how TCI will work, potentially including estimates of costs and predicted benefits for different policies.
- The public will have January and February to offer feedback.
- During the spring, TCI will publish a final MOU, potentially with amended program items, and Rhode Island’s executive branch, at the instruction of the governor, will make the decision about whether to sign on to the final TCI scheme. During this time, the governor may evaluate whether legislation is necessary or if she has the authority to unilaterally commit the state to the TCI gas tax compact.
- The plan is for the program to begin the ‘stealth’-taxing of Rhode Island motorists by 2022.
According to John McClaughry, Vice President of the Ethan Allen Institute in Vermont:
The TCI is astoundingly, one might even say diabolically, complex. The details, not yet finalized, will emerge in a draft Memorandum of Understanding (MOU) scheduled to appear in December. After public input, the MOU will go to Gov. (Gina Raimondo. Her) signature would put (Rhode Island) into the 12-state deal.
Then (those entities who supply) motor fuel to (Rhode Island) distributors, or the distributors themselves, will have to purchase “allowances”, the cost of which will be inconspicuously added into the price paid by consumers.
The TCI’s administrative unelected bureaucrats body will decide how many allowances must be issued to sufficiently drive up the price of motor fuel, thus reducing the amount of motor fuel consumed …
What makes this scheme even more diabolical is that no lawmaker may have to vote on this new gasoline tax to be imposed on Rhode Island motorists, with the amount of the tax to be arbitrarily set by unelected climate-change activists. Single-handedly the governor may try to set policy that will further deteriorate Rhode Island’s already bottom-5-states business climate, increase taxes on motorists, and drive more Ocean Staters to other states.
Given the high-cost vs. no-benefit record of failure of RGGI, there is little reason to think that TCI will create a positive cost vs. benefit return for Rhode Islanders.
Ocean State families and businesses are already paying higher RGGI electricity costs, apparently for no reason. The Center encourages the governor to face this reality, to place the welfare of her constituents above the demands of climate-change extremists, and to refuse to sign the either of the TCI MOUs.
Take Action: Gasoline stakeholders, including citizens and businesses, are encouraged to submit comments – opposed to, or in favor of TCI – on TCI’s website.
Innovation in the Free-Market is More Effective. In contrast to the heavy-handed approach of government regulation and price mandates that disrupt the marketplace, as with both the RGGI and TCI schemes, the free-enterprise system has achieved far greater results when it comes to reducing greenhouse gas emissions.
A 2018 Forbes Magazine article detailed how America, because of innovative new energy technology from her private sector, is leading the world in reducing CO2 output, without being part of the international Paris Climate Accord (or imposing unreasonable carbon taxes or implementing a punishing cap and trade system). Conversely, countries like Germany, with its high renewable energy government mandates, have failed to see commensurate emissions reductions. Meanwhile, China continues to spew CO2 at an alarming and increasing rate. Many experts believe that continued investment in fossil fuel innovation may be the best path to a cleaner planet.
In Rhode Island, companies and industries are voluntarily and successfully working with the RIDEM to reduce commercial motor vehicle emissions. For example, the RI Trucking Association (RITA), in its letter opposing TCI to the RI Office of Energy Resources, lists many of the strides its industry has achieved under current federal law to reduce vehicle emissions. The letter also cites potential “major disruptions to business and our state’s essential supply chain” if TCI’s extreme CO2 reduction goals were to be met.
The RITA letter cites concerns about maintaining a “readily available, affordable, and reliable fuel supply” as critical to the trucking industry to be able to continue delivering goods that people need in a manner that helps keep prices low. New TCI mandates could force truckers and other businesses to make costly investments in new equipment or to purchase high-priced fuel alternatives that is not always in sufficient supply.
Also, in its letter, as an alternative to TCI-induced price increases, RITA suggests a multi-faceted strategy that includes:
- Financial incentives to assist companies with adoption of cleaner technologies
- An all-of-the-above fuel approach, where traditional fossil fuels as well as biodiesel and renewable diesel are part of the mix
- Bid preferences for state contracts for motor carriers who have taken steps to reduce CO2 emissions
- Investment in transportation infrastructure that allow for the more efficient flow of goods on our roads and highways
If adopted, the strategies above would allow the market to self-reduce greenhouse gas emissions, without harsh new gas tax increases that would impact both commercial and civilian motorists.
An Opportunity to Gain Competitive Advantage? While Rhode Island’s two larger neighbors, Massachusetts and Connecticut, are expected to join the TCI regional compact, our state should strongly consider the regional competitive benefits we might realize by standing pat. Our smaller northern neighbors, Vermont and New Hampshire, have signaled their initial opposition to this new tax, and are instead hoping to gain economic advantage by not signing-on to TCI.
While other states struggle in the future with the higher regular and diesel gasoline TCI taxes, along with the logistical nightmares of implementing and enforcing such a burdensome regulation, the Ocean State could profit by attracting southern New England motorists to buy lower-priced gasoline at our own Rhode Island gas stations and convenience stores, in turn boosting economic output in our state.
It is not very often that Rhode Island can boast of a competitive advantage over its neighbor states, but strategically opting-out of imposing TCI gas taxes on its motorists, our Ocean State’s economy could realize a windfall profit.
Constitutional Challenges Are Expected. Legal experts argue that the Rhode Island executive branch cannot unilaterally raise taxes without legislative approval. And while it appears the Governor understands this, she will most likely face a legal challenge if she tries to go it alone.
Regardless of the internal state process, the TCI itself will also be closely evaluated, nationally, against the courts’ interpretation of the Commerce Clause and whether or not the RGGI and TCI compacts interfere with interstate commerce, which is constitutionally relegated to the U.S. Congress, and whether or not TCI-induced gasoline price increases may cause harm to consumers in other states.
Further legal challenges could arise as to whether or not TCI, or even RGGI for that matter, meet the legally defined “Compact Clause” that allowed for states to enter into agreements, so long as such agreements do not encroach upon the “just supremacy” of the United States.
Conclusions and Recommendations. With virtually no net reductions in carbon emissions from its inclusion in RGGI, while electricity costs have risen significantly for Ocean State families and businesses, and combined with the likelihood of legal challenges from private consumer and industry groups, the Rhode Island Center for Freedom & Prosperity does not expect better results from TCI.
Further, the impact of such a far-reaching gasoline tax under the TCI scheme could be severe and must not be implemented without specific legislative approval following a rigorous and transparent public debate. In other potential TCI states, policymakers are acting in good faith and are indeed planning to seek legislative approval, whether such approval is Constitutionally required or not. Only via this Constitutional process can the political class be accountable to voters.
A transparent and thorough public and legislative debate must occur if such a major new gas tax is to be considered. It must not be implemented solely with the stroke of any lawmaker’s pen.
The Center therefore recommends:
- that without legislative consent, Governor Raimondo should further advance any aspect of the TCI scheme that could lead to the expansion of RGGI’s failed “cap and trade” system into the consumer and commercial gasoline products industry.
- that the General Assembly should seek a formal legal opinion as to whether or not the Governor has the right to unilaterally impose new TCI taxes on Ocean State motorists
- that if the Governor does sign the initial MOU, General Assembly leadership should not allow the Governor to strip them of their sole authority to levy any new statewide tax by signing the final MOU without legislative approval, and should submit its own legislation to approve or reject the Ocean State’s participation in the TCI regional compact
- that, given the proven failures of RGGI, legislation should be considered to withdraw Rhode Island from the RGGI compact, so as to ease the cost of electricity on our state’s families and businesses
The High Costs of Renewable Energy Mandates. In 2016, the Center published a major report detailing how energy mandates imposed by the Rhode Island government would harm the economy and perpetuate cronyism. In short, energy mandates, including schemes like the TCI, create a poor cost-benefit value for families and businesses in our state.
The report, Renewable Energy in Rhode Island, is based on detailed research by a national energy expert, Dr. Timothy J. Considine. Subtitled Big Cost, Little Difference, the report’s major findings, if Rhode Island were to ramp up its renewable energy production to meet existing mandates, include:
- Rhode Island has a relatively low carbon footprint, as 98% of its energy generation is based on natural gas production.
- An artificial rise of 13-18% in electricity rates, leading to $600-800 million extracted from the private sector because of government mandated higher energy costs.
- Four to six thousand jobs could be lost overall as a result of these consequences, despite the few hundred “green” jobs created, which will place further downward pressure on the state’s already dismal 48th ranking on the national Jobs and Opportunity Index
- Major investment will be required to achieve a minor abatement in that carbon footprint, if the state is to meet its existing (and potentially increased) renewable