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HOUSE OF REPRESENTATIVES |
H.B. NO. |
2178 |
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THIRTY-SECOND LEGISLATURE, 2024 |
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STATE OF HAWAII |
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A BILL FOR AN ACT
relating to taxation.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
(1) The environmental response, energy, and food security tax to reduce greenhouse gas emissions; and
(2) Refundable tax credits to distribute the proceeds of the tax in equal shares to residents of the State, who will bear the brunt of the expected increase in costs of fossil fuel products.
One of the tools available for reducing greenhouse gas emissions is to tax fossil fuels. When the tax is sufficient, it has been proven to be effective in substantially reducing consumption. Hawaii has a thirty-year history of placing a tax on fossil fuel that is assessed on fossil fuel distributors. However, the existing tax rate is not designed to reduce consumption, but rather to generate funding to mitigate some of the risks and adverse impacts of fossil fuel use and climate change. This Act raises the tax in increments, gradually increasing its effect in reducing the consumption of fossil fuels.
The environmental response tax was established by Act 300, Session Laws of Hawaii 1993. Initially, the tax rate for petroleum products was five cents per barrel. The tax revenue was used to:
(1) Prevent, remove, and remediate oil spills;
(2) Support oil recycling programs; and
(3) Address concerns related to underground storage tanks.
Later, Act 73, Session Laws of Hawaii 2010, increased the tax to $1.05 per barrel and renamed the tax the environmental response, energy, and food security tax. Act 73 also expanded the purpose of the tax by funding activities that mitigate the adverse impacts of climate change.
The legislature finds that a policy that taxes fossil fuels based on their emissions, often called a carbon tax, and returns to people the revenues, commonly known as dividends, has received broad support from economists. More than three thousand six hundred economists have signed a statement endorsing the carbon tax and dividend concept, including twenty‑eight Nobel Laureate economists, four former Chairs of the Federal Reserve, and fifteen former Chairs of the Council of Economic Advisors.
The statement reads, in part, "[a] carbon tax offers the most cost-effective lever to reduce carbon emissions at the scale and speed that is necessary." The statement goes on to say that the carbon tax should be increased until emission reduction goals are met. It continues by stating, "[t]o maximize the fairness and political viability of a rising carbon tax, all the revenue should be returned directly to U.S. citizens through equal lump-sum rebates. The majority of American families, including the most vulnerable, will benefit financially by receiving more in 'carbon dividends' than they pay in increased energy prices."
In accordance with Act 122, Session Laws of Hawaii 2019, the state energy office commissioned "a study of carbon pricing, including whether and how a carbon pricing policy shall be implemented in Hawaii". In April 2021, the University of Hawaii Economic Research Organization (UHERO) completed the study in April 2021, entitled, "Carbon Pricing Assessment for Hawaii: Economic and Greenhouse Gas Impacts". The study concluded that a carbon tax and dividend policy would substantially reduce the consumption of fossil fuels, and most of Hawaii's households would receive a net financial benefit, with lower-income households gaining the most.
This Act expands the purpose of the environmental response, energy, and food security tax in order to effectively reduce greenhouse gas emissions, and renames the tax as the environmental response, energy, carbon emissions, and food security tax. The increase in the tax under this Act is informally referred herein as the "carbon emissions tax" for descriptive purposes and to distinguish it from the existing tax rate. The carbon emissions tax rates are derived from the low‑tax scenario considered in the UHERO study, updated for inflation. The tax rates in the UHERO study, which are expressed in dollars per metric ton of carbon dioxide equivalent, are converted to the units used in the environmental response, energy, carbon emissions, and food security tax, which are dollars per barrel for petroleum products and dollars per million British thermal units for other types of fossil fuels, such as natural gas. The carbon dioxide equivalent factors for petroleum and non-petroleum fossil fuels include the emissions of carbon dioxide, methane, and nitrous oxide. These emission factors are taken from the United States Environmental Protection Agency's Emission Factors for Greenhouse Gas Inventories (modified April 1, 2021).
The progression of the increase in the carbon emissions tax differs from that which is considered in the UHERO study by starting lower in the initial year to avoid a sudden large increase in prices, then increasing until the tenth year of implementation, when it approximates the rate considered in the UHERO study at that point. From that year forward, the annual increase in the tax only accounts for expected inflation. Each year, resident taxpayers of the State will receive, in the form of refundable tax credits, a total amount equivalent to the expected carbon emissions tax revenue from the previous year, less an amount needed to administer the program, including a public awareness campaign. Every individual resident taxpayer will be eligible for the same refundable tax credit in any particular year, and every dependent will be eligible for half that amount.
The following illustrates how the carbon emissions tax and refundable tax credits will progress. In the first year of implementation, 2025, the carbon emissions tax is $0.05 per gallon for petroleum products, and the refundable tax credit is $36 per individual taxpayer and $18 per dependent, available the following year when the tax return is filed. In the fifth year, 2029, the carbon emissions tax is $0.40 per gallon, and the refundable tax credit is $289 per individual taxpayer and $145 per dependent. In 2040, when the refundable tax credit peaks, the carbon emissions tax is $1.08 per gallon, and the refundable tax credit is $646 per individual taxpayer and $323 per dependent.
The environmental response, energy, carbon emissions, and food security tax applies to "distributors" of fossil fuels, as defined in section 243-1, Hawaii Revised Statutes. Distributors are expected to pass on at least part of the tax increase to their customers, resulting in increased prices for those products. The increased prices will be faced by: (1) residents of the State, (2) visitors to the State, and (3) out-of-state consumers of products exported from the State. Most of the impact of the increased prices will be felt by the first group, the residents of the State, who will face them as increases in their day-to-day cost of living. Providing refundable tax credits to resident taxpayers of the State will offset their loss in spending power and, for most of them, particularly lower income residents who consume less fossil fuels, it will actually increase their net spending power and help stimulate the economy. This will serve to achieve the purpose of reducing greenhouse gas emissions with minimal adverse financial impacts on the State, including its residents and economy. This Act will cause no increases in the day-to-day costs of living for either of the other two groups, who are nonresidents of the State. Consequently, the legislature finds it necessary to provide tax credits only to resident taxpayers of the State.
Accordingly, the purpose of this Act is to establish a carbon cashback program by:
(1) Amending the environmental response, energy, and food security tax to address carbon emissions; and
(2) Establishing a refundable tax credit to mitigate the effect of the tax on carbon emissions for Hawaii's residents.
SECTION 2. Chapter 231, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§231- Carbon
emissions tax and dividend special fund. (a) There is established the carbon emissions tax
and dividend special fund, into which shall be deposited the amount specified
by section 243-3.5.
(b) Moneys in the carbon emissions tax and
dividend special fund shall be administered by the department of taxation and
shall be used:
(1) To administer the environmental response, energy, carbon emissions, and food security tax;
(2) To administer the refundable tax credits established by section 235- ; and
(3) To increase public awareness and interest in the refundable tax credits established by section 235- ."
SECTION 3. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
"§235- Carbon
cashback tax credit. (a)
There shall be allowed to each qualifying resident taxpayer subject to
the tax imposed under this chapter, a carbon cashback tax credit that shall be applied
against the taxpayer's net income tax liability, if any, imposed by this
chapter for the taxable year in which the credit is properly claimed.
(b) The amount of the tax credit shall be equal
to the sum of the following:
(1) Amount based on taxpayer's filing status:
(A) For taxpayers filing as single or married filing separately:
$36
for 2025
$73
for 2026
$146
for 2027
$218
for 2028
$289
for 2029
$360 for 2030
$425
for 2031
$488
for 2032
$548
for 2033
$607
for 2034
$616
for 2035
$624
for 2036
$630
for 2037
$636
for 2038
$641
for 2039
$646
for 2040
$633
for 2041
$618
for 2042
$602
for 2043
$584
for 2044
$565
for 2045
(B) For taxpayers filing as a head of household:
$36
for 2025
$73
for 2026
$146
for 2027
$218
for 2028
$289
for 2029
$360
for 2030
$425
for 2031
$488
for 2032
$548
for 2033
$607
for 2034
$616
for 2035
$624
for 2036
$630
for 2037
$636
for 2038
$641
for 2039
$646
for 2040
$633
for 2041
$618
for 2042
$602
for 2043
$584
for 2044
$565
for 2045
(C) For taxpayers filing a joint return or as a surviving spouse:
$72
for 2025
$146
for 2026
$292
for 2027
$436
for 2028
$578
for 2029
$720
for 2030
$850
for 2031
$976
for 2032
$1,096
for 2033
$1,214
for 2034
$1,232
for 2035
$1,248
for 2036
$1,260
for 2037
$1,272
for 2038
$1,282
for 2039
$1,292
for 2040
$1,266
for 2041
$1,236
for 2042
$1,204
for 2043
$1,168
for 2044
$1,130
for 2045; and
(2) Amount per dependent claimed:
$18 for 2025
$37 for 2026
$73 for 2027
$109 for 2028
$145 for 2029
$180 for 2030
$213 for 2031
$244 for 2032
$274 for 2033
$303 for 2034
$308 for 2035
$312 for 2036
$315 for 2037
$318 for 2038
$321 for 2039
$323 for 2040
$316 for 2041
$309 for 2042
$301 for 2043
$292 for 2044
$283 for 2045.
(c) If the tax credit claimed by the taxpayer
under this section exceeds the amount of the income tax payments due from the
taxpayer, the excess of credit over payments due shall be refunded to the
taxpayer; provided that the tax credit properly claimed by a taxpayer who has
no income tax liability shall be paid to the taxpayer; and provided further
that no refunds or payments on account of the tax credit allowed by this section
shall be made for amounts less than $1.
All claims for the tax credit under this section, including
amended claims, shall be filed on or before the end of the twelfth month
following the close of the taxable year for which the credit may be claimed. Failure to comply with the foregoing
provision shall constitute a waiver of the right to claim the credit.
(d) The director of
taxation:
(1) Shall
prepare any forms that may be necessary to claim a tax credit under this
section;
(2) May require
the taxpayer to furnish reasonable information to ascertain the validity of the
claim for the tax credit made under this section; and
(3) May adopt
rules under chapter 91 necessary to effectuate the purposes of this section.
(e)
All of the provisions relating to assessments and refunds under this
chapter and under section 231-23(c)(1) shall apply to the tax credit under this
section.
(f) As used in this section, "qualifying resident taxpayer" means an individual taxpayer who has been a resident of the State, as defined in section 235-1, Hawaii Revised Statutes, for at least nine months of the taxable year, regardless of whether the qualifying resident was physically in the State for nine months. "Qualifying resident taxpayer" shall not include any person who is claimed or is otherwise eligible to be claimed as a dependent by another taxpayer for federal or Hawaii state individual income tax purposes."
SECTION 4. Section 128D-2, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"(a) There is created within the state treasury an environmental response revolving fund, which shall consist of moneys appropriated to the fund by the legislature, moneys paid to the fund as a result of departmental compliance proceedings, moneys paid to the fund pursuant to court-ordered awards or judgments, moneys paid to the fund in court-approved or out‑of‑court settlements, all interest attributable to investment of money deposited in the fund, moneys deposited in the fund from the environmental response, energy, carbon emissions, and food security tax pursuant to section 243-3.5, and moneys allotted to the fund from other sources."
SECTION 5. Section 201-12.8, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
"(a)
There is created within the state treasury an energy security special
fund, which shall consist of:
(1) The portion of the environmental response, energy, carbon emissions, and food security tax specified under section 243-3.5;
(2) Moneys appropriated to the fund by the legislature;
(3) All interest attributable to investment of money deposited in the fund; and
(4) Moneys allotted to the fund from other sources, including under section 196-6.5."
SECTION 6. Section 243-3.5, Hawaii Revised Statutes, is amended to read as follows:
"§243-3.5 Environmental response, energy, carbon
emissions, and food security tax; uses. (a) In addition to any other taxes provided by
law, subject to the exemptions set forth in section 243-7, there is hereby
imposed a state environmental response, energy, carbon emissions, and
food security tax on each barrel or fractional part of a barrel of petroleum
product sold by a distributor to any retail dealer or end user of petroleum
product, other than a refiner. The tax [shall
be $1.05] on each barrel or fractional part of a barrel of petroleum
product [that is not aviation fuel; provided that of the tax collected
pursuant to this subsection:] shall be in the amounts provided for each
year as follows:
2025: $3.15;
2026: $5.25;
2027: $9.45;
2028: $13.65;
2029: $17.85;
2030: $22.05;
2031: $26.25;
2032: $30.45;
2033: $34.65;
2034: $38.85;
2035: $40.11; and
the
tax shall be increased by $1.26 each year thereafter.
The tax for each year referenced above
shall take effect on January 1 of that year and shall continue until the
effective date of the next increment.
The tax imposed by this subsection shall
be paid by the distributor of the petroleum product.
(b) Tax revenues collected pursuant to subsection
(a) shall be distributed in the following priority each fiscal year, with the
excess revenues to be deposited into the general fund:
(1) [5
cents of the tax on each barrel] $1,116,000 shall be deposited into
the environmental response revolving fund established under section 128D-2;
(2) [4 cents of the tax on each barrel] $892,800 shall be
deposited into the energy security special fund established under section
201-12.8;
(3) [5 cents of the tax on each barrel] $1,116,000 shall
be deposited into the energy systems development special fund established under
section 304A-2169.1;
(4) [3
cents of the tax on each barrel] $669,600 shall be deposited into
the electric vehicle charging system subaccount established pursuant to section
269-33(e); [and]
(5) [3
cents of the tax on each barrel] $669,600 shall be deposited into
the hydrogen fueling system subaccount established pursuant to section
269-33(f)[.];
(6) $1,000,000
shall be deposited into the carbon emissions tax and dividend special fund
established under section 231- ;
(7) All
taxes paid on gasoline or other aviation fuel sold for use in or used for
airplanes shall be deposited in the airport revenue fund established under section
248-8 to reduce carbon emissions; and
(8) All
taxes paid on gasoline, diesel, or other fuel sold for use in or used for small
boats shall be deposited in the boating special fund established under section
248-8.
[The
tax imposed by this subsection shall be paid by the distributor of the
petroleum product.
(b)] (c) In addition to subsection (a), the environmental
response, energy, carbon emissions, and food security tax shall also be
imposed on each one million British thermal units of fossil fuel sold by a
distributor to any retail dealer or end user, other than a refiner, of fossil
fuel. The tax [shall be 19 cents]
on each one million British thermal units of fossil fuel[; provided that of
the tax collected pursuant to this subsection:] shall be in the amounts
provided for each year as follows:
2025: $0.49;
2026: $0.79;
2027: $1.39;
2028: $1.99;
2029: $2.59;
2030: $3.19;
2031: $3.79;
2032: $4.39;
2033: $4.99;
2034: $5.59;
2035: $5.77; and
the
tax shall be increased by $0.18 on each one million British thermal units
of fossil fuel each year thereafter.
The tax for each year referenced above
shall take effect on January 1 of that year and shall continue until the
effective date of the next increment.
The tax imposed by this subsection shall
be paid by the distributor of the fossil fuel.
(d) Tax revenues collected pursuant to subsection
(c) shall be distributed in the following priority each fiscal year, with the
excess revenues to be deposited into the general fund:
(1) [4.8
per cent of the tax on each one million British thermal units] $49,000
shall be deposited into the environmental response revolving fund established
under section 128D-2;
(2) [14.3
per cent of the tax on each one million British thermal units] $147,000
shall be deposited into the energy security special fund established under
section 201-12.8; and
(3) [9.5 per cent of the tax on each one million British thermal
units] $98,000 shall be deposited into the energy systems
development special fund established under section 304A-2169.1.
[The
tax imposed by this subsection shall be paid by the distributor of the fossil
fuel.
(c)]
(e) The tax imposed under
subsection [(b)] (c) shall not apply to coal used to fulfill [a
signed] an existing power purchase agreement between an independent
power producer and an electric utility that is in effect as of June 30, 2015[.];
provided that this exemption from taxation shall not apply to any extension of
an existing power purchase agreement or to any subsequent power purchase
agreement. An independent power
producer shall be permitted to pass the tax imposed under subsection [(b)]
(c) on to an electric utility. In
[which case,] any case in which the tax is passed on, the
electric utility may recover the cost of the tax through an appropriate
surcharge to the end user that is approved by the public utilities commission.
[(d)] (f) A gas utility shall be allowed to recover the
cost of the tax imposed under subsection [(b)] (c) as part of its
fuel cost in its fuel adjustment charge without further approval by the public
utilities commission.
[(e)]
(g) Each distributor subject to
the tax imposed by subsection (a) or [(b),] (c), on or before the
last day of each calendar month, shall file, in the form and manner prescribed
by the department, a return statement of the tax under this section for which
the distributor is liable for the preceding month. The form and payment of the tax shall be
transmitted to the department in the form and manner prescribed by the
department.
[(f)] (h) Notwithstanding section 248-8 to the
contrary, the environmental response, energy, carbon emissions, and food
security tax collected under this section shall be paid over to the director of
finance for deposit as provided in subsection [(a)] (b) or [(b),]
(d), as the case may be.
[(g)]
(i) Every distributor shall keep
in the State and preserve for five years a record in a form as the department
of taxation shall prescribe showing the total number of barrels, and the
fractional part of barrels, of petroleum product or the total number of one
million British thermal units of fossil fuel, as the case may be, sold by the
distributor during any calendar month.
The record shall show any other data and figures relevant to the
enforcement and administration of this chapter as the department may require.
[(h)]
(j) For the purposes of this
section:
"Barrel" may be converted to million British thermal units, using the United States Department of Energy, Energy Information Administration annual energy review or annual energy outlook.
"Fossil
fuel" means a [hydrocarbon deposit,] fuel, such as coal,
natural gas, or liquefied natural gas, derived from a hydrocarbon deposit
resulting from the accumulated remains of ancient plants or animals [and
used for fuel]; provided that the term specifically does not include
petroleum product."
SECTION 7. Section 304A-2169.1, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:
"(b) Deposits into the special fund may be from the following:
(1) Appropriations from the legislature;
(2) A portion of the environmental response, energy, carbon emissions, and food security tax pursuant to section 243-3.5; and
(3) Investment earnings, gifts, donations, or other income received by the Hawaii natural energy institute."
SECTION 8. The department of taxation shall submit a report to the legislature annually no later than forty days prior to the convening of each regular session from 2025 until 2034, inclusive, with information about the carbon cashback program. The report shall include revenues from the environmental response, energy, carbon emissions, and food security tax and the amounts distributed through the refundable tax credits under section 235- , Hawaii Revised Statutes. The report shall include any information necessary for the legislature to assess the need to adjust the amounts of the refundable tax credits in future years.
SECTION 9. The office of planning and sustainable development, in consultation with the department of taxation, shall submit a report to the legislature no later than forty days prior to the convening of the regular session of 2034. The report shall include an evaluation of the carbon cashback program and any recommended changes to the program, including proposed legislation.
SECTION 10. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 11. This Act shall take effect upon its approval; provided that sections 3 and 6 shall take effect on January 1, 2025, and apply to taxable years beginning after December 31, 2024.
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INTRODUCED BY: |
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Report Title:
Environmental Response, Energy, and Food Security Tax; Carbon Emissions; Tax Credit
Description:
Amends the environmental response, energy, and food security tax to address carbon emissions. Incrementally increases the tax rate over time. Establishes a refundable tax credit to mitigate the effect of a carbon emissions tax on taxpayers. Requires reports to the Legislature.
The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.