Clean the Air Carbon Tax Act

One-sentence summary: The Clean the Air Carbon Tax Act is a 2020 ballot measure proposal in Utah for a modest carbon tax, with 20% of the revenue going to clean up local air pollution and fund rural economic development and 80% of the revenue going to reduce existing taxes, including eliminating the state sales tax on grocery store food.

Read on for a one-paragraph-and-pie-chart summary, for a one-page summary, and for all the legal details. And here’s a two-page PDF with the summaries and pie chart.

One-paragraph-and-pie-chart summary

The carbon tax would start at $11 per metric ton CO2 (about 10 cents per gallon of gasoline, about 0.8 cents per kWh electricity). It would start in 2022, go up slowly over time, and fund:

  • $75 million a year for cleaning up local air pollution from wood-burning stoves, gas-powered lawnmowers, freight-switcher locomotives, dirty school buses, and more.
  • $25 million a year for rural economic development.
  • Elimination of the state sales tax on grocery store food and other regressive sales taxes.
  • A 20% match of the federal Earned Income Tax Credit for low-income working families.
  • An expansion and extension of the Retirement Tax Credit.
  • A phase-in of the carbon tax rate for agriculture, mining, manufacturing, and other energy-intensive trade-exposed businesses to help them stay competitive.
  • Additional tax cuts if possible, as determined by the state legislature.

190417.MoneyOut
Pie chart caveat: This pie chart is estimated based on the Fiscal Note for HB304S1; we will update it when the Fiscal Impact Statement for the ballot measure comes out on May 6.

One-page summary

The carbon tax starts at $11 per metric ton CO2 in 2022 and goes up at 3.5% plus inflation, reaching (in real terms) $15 per ton in 2031, $20 per ton in 2040, etc., up to a maximum of $100 per ton. It applies to motor fuels ($11 per ton is ≈10 cents per gallon), natural gas (≈6 cents per therm), and electricity consumption (≈0.8 cents per kWh, depending on each utility’s carbon intensity); for all of these, $11 per ton CO2 is a bit less than 10% of current retail prices.

The carbon tax also applies to consumption of coal, off-road diesel, and fuel gas by large facilities that emit more than 10,000 tons of CO2 (e.g., refineries and steel mills, but not power plants because electricity is taxed as described above). To help them stay competitive, agriculture, mining, and manufacturing companies have a reduced carbon tax rate: 10% of the rate described above in year 1, 15% in year 2, etc., and then 50% in years 9 and beyond.

Most of the revenue from the carbon tax would go into a Carbon Emissions Fund, except that federal regulations essentially require taxes on jet fuel to go into an Airport Fund. (Also, as required by Utah’s constitution, the carbon tax on motor fuels goes into the Highway Fund, but a roughly equivalent amount of the sales tax money currently going to highways is put into the Carbon Emissions Fund instead, the net impact on the Highway Fund being slightly positive.)

This Carbon Emissions Fund revenue is directed to:

  • Transfers to the General Fund to make up the lost revenue from eliminating the state sales tax on grocery store food (and the state sales tax on electricity and heating fuels, which is eliminated to partially cushion the price impact of the carbon tax while still giving utilities an incentive to fuel-switch).
  • Transfers to the Education Fund to make up the lost revenue from the 20% match of the federal Earned Income Tax Credit and from the Retirement Tax Credit (which is expanded from a maximum of $450 per person to $650 per person, with eligibility extended by 10 years, i.e., from born-before-1953 to born-before-1963). The reduced carbon tax rate for manufacturing etc. is also technically included here (as a rebate).
  • Annual spending of $75m on improving air quality ($60m to DEQ for a Clean Air Grant Program and $15m to the CARROT program—Clean Air, Retrofit, and Replacement of Off-road Technology—for school buses, industrial vehicles, and lawn equipment) and $25m on rural development through the Governor’s Office of Economic Development. The $60m for DEQ is to be spent on bringing the state into compliance with the Clean Air Act, and that money goes away if and when the state accomplishes that goal.

Any remaining revenue goes into a Tax Refund Restricted Account that the legislature can only use to “lower state taxes, especially for low- and middle-income households and for energy-intensive trade-exposed businesses.”

All the legal details (you asked for it!)

Read on for an introduction, a technical overview, and a section-by-section description that covers all the sections, which in order are 19-1-207 and 19-1-208 (certification of large emitters and electricity providers); 19-2-401 (Clean Air Grant Program); 35A-8-308 and 35A-8-309 (sales tax administrative changes); 59-7-624 (EITE corporate income tax credit, part 1); 59-10-1019 (Retirement Tax Credit); 59-10-1102.1 (low-income working families EITC match, part 1); 59-10-1112 (EITE corporate income tax credit, part 2); 59-10-1113 (low-income working families EITC match, part 2); 59-12-103 (sales tax changes); 59-30-101, 59-30-102, and 59-30-103, 59-30-104 (carbon tax title, definitions, records, and amended returns for large emitters and electricity providers, respectively); 59-30-201, 59-30-202, 59-30-203, 59-30-204, 59-30-205, and 59-30-206 (carbon tax on motor gasoline, on-road diesel, aviation fuel, natural gas, large emitters, and electricity providers, respectively); 59-30-207 (carbon tax exemptions); 59-30-301 (Carbon Emissions Fund); 59-30-302 (Tax Cut Fund); 63N-2-502 (sales tax administrative changes); 72-2-126 (Airport Fund); and Section 28 (effective date).

Introduction and changes from HB304S1

The Clean the Air Carbon Tax Act is a modified version of HB304S1 (Fossil Fuels Tax Amendments, Feb 22, linked from here, see also the Fiscal Note). The major changes from HB304S1 include:

  • air quality funding increased to $75m and rural economic development funding increased to $25m;
  • phase-in of carbon tax for EITE (Energy-Intensive Trade-Exposed) businesses, expansion of EITEs to include agriculture, and change in definition of “large emitters”;
  • modified administration of carbon tax on electric utilities;
  • starting carbon tax rate changed from $10 to $11;
  • modified Retirement Tax Credit expansion: current law is that only born-before-1953s can qualify, the ballot measure extends that to born-before-1963s (HB304S1 eliminated that provision entirely);
  • increased EITC match from 10% to 20%;
  • various date changes because the bill was for the 2019 legislature and this measure is for the 2020 ballot; and
  • various text changes to account for bills passed in the 2019 legislature affecting sections of the existing legal code. (For example, HB304S1 modified 63I-1-219 in order to extend the Air Conservation Act, but the 2019 legislature did the same thing with SB21, so the ballot measure no longer modifies 63I-1-219. Other relevant 2019 bills are SB248, which modified 35A-8-309; and HB249SB72, and SB96, all of which modified 59-12-103.)

Technical overview

The carbon tax is levied in Chapter 59-30, which applies the carbon tax to:

  • motor gasoline, on-road diesel fuel, and aviation fuel (sections 59-30-201, 59-30-202, and 59-30-203, respectively);
  • natural gas (section 59-30-204, but electricity generators can apply for a refund because electricity is taxed in section 59-30-206);
  • consumption by “large emitters” (e.g., cement plants, mining operations, refineries) of coal, off-road diesel (a.k.a. dyed diesel), and fuel gas because these are the major categories of direct fossil fuel consumption not covered above (section 59-30-205, note that “large emitters” are certified by DEQ per section 19-1-207 and that amended returns are covered in section 59-30-104); and
  • electricity providers, which are taxed based on their system-wide carbon emissions profile, i.e., in-state power plants are not directly subject to the carbon tax but power consumed in Utah is taxed based on the fuel mix of the electric utility (section 59-30-206, certified by DEQ per section 19-1-208, note that amended returns are covered in section 59-30-104).

Exemptions from the carbon tax are in section 59-30-207. More carbon tax details are in the Title, Definitions and Records sections (59-30-101, 59-30-102, and 59-30-103).

Almost all of this carbon tax revenue goes into the Carbon Emissions Fund created in section 59-30-301. (Note that carbon taxes on motor fuels enter the Carbon Fund indirectly through section 59-12-103, with a small amount remaining in the Highway Fund, and that taxes on aviation fuels are required to go into an Airport Fund per sections 59-30-203 and 72-2-126.)

The Carbon Emissions Fund then directs money to air quality and rural economic development programs, and to the General Fund and the Education Fund to hold them harmless from various tax cuts, as follows:

  • $75m to local air quality programs, including $15m to the CARROT program and $60m administered by DEQ per section 19-2-401 (this $60m is instead transferred to the Tax Cut Fund if the state meets Clean Air Act standards); and
  • $25m to the Governor’s Office of Economic Development — Rural Employment Expansion Program to “use for diversifying the economy in rural counties and communities”.
  • eliminating the state sales tax on grocery store food and on commercial and residential use of electricity and heating fuels (section 59-12-103, see also administrative changes in sections 35A-8-308, 35A-8-309, and 63N-2-502);
  • a refundable corporate income tax cut for mining and manufacturing companies (sections 59-7-624 and 59-10-1112);
  • extending and expanding the Retirement Tax Credit (section 59-10-1019); and
  • creating a 20% match of the federal Earned Income Tax Credit for low-income working families (sections 59-10-1102.1 and 59-10-1113).

Any remaining Carbon Emissions Fund revenue goes into a Tax Cut Fund (section 59-30-302) for the legislature to use to reduce state sales taxes. Section 28 establishes an effective date of Jan 1, 2022, with the Retirement Tax Credit (section 59-10-1019) and the 20% match of the federal Earned Income Tax Credit for low-income working families (sections 59-10-1102.1 and 59-10-1113) taking effect in the 2021 tax year.

Details on the various sections of the bill

Introductory material (PDF p1-3).

Changes from HB304S1: Changed title to “Clean the Air Carbon Tax Act” from “Fossil Fuel Tax Amendments”. Added Statement of Intent. Edited “Amends” section to include Laws of Utah 2019 and deleted reference to 63I-1-219 (because the edit there was already made during the 2019 session). Changed “Be it enacted by the Legislature of the state of Utah” to “Be it enacted by the people of the State of Utah”.

19-1-207 (PDF p3-5). Certification of large emitters for tax purposes.

This section has DEQ certify CO2 emissions from “large emitters”, defined in 59-30-102 as a facility with over 10,000 metric tons of CO2 emissions from coal, dyed diesel fuel, or fuel gas (equal to about 1 million gallons of dyed diesel fuel; note that a 25,000 metric ton threshold is sufficient to require the facility to report to EPA FLIGHT per 40 CFR 98.2) but not including “an electricity provider, a person that provides electricity to an electricity provider to deliver for consumption, or a person that generates electricity”.

To see how the tax on large emitters works, consider a large emitter like a mining or manufacturing company. The carbon tax has already been applied elsewhere to that company’s consumption of motor gasoline, on-road diesel fuel, aviation fuel, and natural gas (per sections 59-30-201, 59-30-202, 59-30-203, and 59-30-204, respectively) and to that company’s consumption of electricity provided by an electricity provider (per section 59-30-206). What that leaves out is the company’s consumption of coal and of petroleum products other than motor gasoline, on-road diesel fuel, and aviation fuel, for example off-road diesel fuel used in a mining operation or fuel gas used in petroleum refining.

The bill has the large emitter report to DEQ the following:

  1. the number of metric tons of CO2 resulting from consumption in this state of coal, dyed diesel, and fuel gas by the large emitter;
  2. the number of short tons of each type of coal combusted, the number of gallons of dyed diesel fuel combusted, and the number of thousand cubic feet of fuel gas combusted, plus the number of metric tons of CO2 resulting from each of these categories; and
  3. any information provided in that large emitter’s EPA FLIGHT report.

The DEQ then checks to make sure that the report matches up with available information and then issues the large facility with a certificate of “the total number of carbon dioxide emissions that the large facility emitted during the previous calendar year”.

19-1-208 (PDF p5-7). Certification of electricity provider.

This section has DEQ certify “electricity providers”, defined in 59-30-102 as “a person in this state that delivers electricity to customers for consumption.”

To see how the tax on electricity providers works, consider an electricity provider like PacifiCorp. (Operating as Rocky Mountain Power, PacifiCorp serves much of the state; there are also electricity providers associated with UAMPS, UMPA, and Deseret G&T.) The bill has the electricity provider report to DEQ the first six items below to allow for DEQ to make the calculations in the remaining points:

  1. The number of megawatt hours of electricity that the electricity provider delivered to retail customers in this state.
  2. The number of megawatt hours delivered to retail customers in all states.
  3. The number of megawatt hours of electricity from “declared resources” that the electricity provider delivered to retail customers in all states.
  4. The number of megawatt hours of electricity from “undeclared resources” that the electricity provider delivered to retail customers in all states, calculated by subtracting the number in the previous line from the number in the one before that.
  5. The carbon intensity of each declared resource.
  6. Information that the electricity provider reports to FERC or to other states.
  7. DEQ can also calculate, for each provider, the average carbon intensity of the electricity delivered by that provider, using a weighted average of the declared and undeclared resource information in #3, #4, and #5 (using the default value of 1 metric ton of CO2 per megawatt hour to impute the carbon intensity of undeclared resources).
  8. Finally, DEQ can calculate, for each provider, the number of metric tons of CO2 associated with electricity delivered to Utah customers, by multiplying #1 by #6. DEQ can then issue the electricity provider with a certificate of “the number of metric tons of carbon dioxide emitted to produce electricity that the electricity provider delivered in the state during the previous calendar year.”

Changes from HB304S1: Significant changes to improve the process for administering this.

19-2-401 (PDF p7-9). Clean air grant program.

This section creates a program to improve local air quality in Utah. The program is administered by DEQ and must consult with the Air Quality Policy Advisory Board and report annually to the state legislature. The program receives $42m per year (see section 59-30-301(5)(b)(ii)) but it “may not award a grant under this section to a proposed project that targets an air quality control region that has achieved attainment status with respect to a pollutant that the project proposes to address”, so if the state meets all of its Clean Air Act obligations then this money goes into the Tax Cut Fund created in section 59-30-302.

35A-8-308 (PDF p9-10). Throughput Infrastructure Fund.

35A-8-309 (PDF p10-11). Throughput Infrastructure Fund administered by impact board — Uses — Review by board — Annual report.

These sections make administrative changes regarding sales tax revenue (see section 59-12-103). Note that 35A-8-309 was edited to conform with SB248.

59-7-624 (PDF p11-13). Refundable tax credit for certain corporations.

This section allows agriculture, mining, and manufacturing companies to apply for a corporate income tax credit that reduces their tax liabilities: the amount of the refundable tax credit starts at 90% of their carbon tax liabilities and then declines by 5 percentage points per year until it reaches 50%. This tax credit impacts the Education Fund, so in order to hold the Education Fund harmless this section also transfers from the Carbon Tax Fund to the Education Fund an amount equal to these tax credits.

Note that the language in this section applies to corporations; section 59-10-1112 below has similar language for pass-through entities.

Changes from HB304S1: Expanded to include NAICS sector 11 (Agriculture, Forestry, Fishing and Hunting) as well as Mining and Manufacturing. Added phase-in of tax credit starting at 90%. Changed title of section.

59-10-1019 (PDF p13-16). Definitions — Nonrefundable retirement tax credits.

This section extends and expands the Retirement Tax Credit. The RTC currently provides a tax credit of up to $450 per person for those 65 or older who were born before 1953 (i.e., age 65 in 2018). The new section makes two changes: (1) it boosts the RTC from a maximum of $450 per person to a maximum of $650 per person; and (2) it changes the born-before-1953 requirement to born-before-1963. (PS. Note that the RTC has a phase-out for higher-income taxpayers. The phase-out details remain the same—2.5 cents per dollar in income above a certain threshold, e.g., $32,000 for married filing jointly—but boosting the RTC means that more middle-income households will qualify.)

Changes from HB 304 S1: Added the born-before-1963 requirement.

59-10-1102.1 (PDF p15-16). Apportionment of tax credit.

This section apportions the state EITC match (see 59-10-1113) for individuals who are nonresidents or part-year residents.

59-10-1112 (PDF p16-17). Refundable tax credit for certain pass-through entities.

Similar to 59-7-624 above, but for pass-through entities rather than corporations.

59-10-1113 (PDF p18-19). Refundable state earned income tax credit — Definitions — Tax credit calculation — Transfers from Carbon Emissions Tax Expendable Revenue Fund.

This section provides a 20% match of the federal Earned Income Tax Credit for low-income working households.

Changes from HB 304 S1: Changed from 10% match.

59-12-103 (PDF p18-34). Sales and use tax base — Rates — Effective dates — Use of sales and use tax revenue.

This is a very long section because the existing sales and use tax language is complicated, but there are only a few changes:

  1. Lines 615-617, PDF p20: Housekeeping changes that are I think related to the Medicaid ballot measure that raised the general rate from 4.70% to 4.85%.
  2. Lines 628-635, PDF p21: Eliminates the state portion of the sales tax on electricity and heating fuels for commercial and residential use. (The references are to commercial use, subsection 1(c), lines 556-562, PDF p19; and residential use, subsection 1(d), lines 563-569, PDF p19.) The current sales tax rate for those goods is 2%.
  3. Lines 640-643, PDF p21: Eliminates the state portion of the states tax on grocery store food. The current sales tax rate for that is 1.75%.
  4. Lines 752-767, PDF p 25: Some housekeeping changes, plus language to ensure that the carbon tax backfills the General Fund for the lost sales tax revenue on food (the reference on line 759 is to 59-30-301(5)(b)(i)) and that the backfilled revenue is treated appropriately for determining the state and local share of that revenue.
  5. Lines 906-1052, PDF pp30-35: I think that these edits consist of some housekeeping changes and possibly also (?) zeroing out impacts on earmarked transportation and water funds.
  6. Lines 1053-1063, PDF p35: Background: (1) The state constitution requires taxes on motor fuels to go into the Transportation Fund; (2) existing law puts some sales tax revenue into the Transportation Fund as well. This language essentially accomplishes a transfer by shifting into the Carbon Fund some of the sales tax revenue currently targeted to the Transportation Fund: the transfer amount equals 97% of the carbon tax revenue that is constitutionally required to go into the Transportation Fund. So for every $100 million in carbon tax revenue that goes into the Transportation Fund (because the state constitution requires taxes on motor fuels to go into that fund), $97 million in sales tax revenue that was previously slated to go into the Transportation Fund will now go into the Carbon Fund.

Changes from HB 304 S1: Edits due to SB72 and SB95.

59-30-101 (PDF p34). Title.

Introduces the carbon tax.

59-30-102 (PDF p34-35). Definitions.

Definitions for the carbon tax.

Changes from HB 304 S1: Definition of “large emitter” changed.

59-30-103 (PDF p35-36). Records.

Record-keeping for the carbon tax.

59-30-104 (PDF p36). Amended return for large emitter or electricity provider.

Amended returns for large emitters (Section 19-1-207) or electricity providers (Section 19-1-208).

59-30-201 (PDF p36-38). Imposition of a carbon emissions tax on motor fuel.

This section imposes the carbon tax on motor gasoline, starting at $11 per tonne CO2 (9.78 cents per gallon, see EIA). This portion of the carbon tax piggybacks on the existing per-gallon motor gasoline tax: see the Motor and Special Fuel Tax Act, especially 59-13-201(3)(a).

59-30-202 (PDF p38-41). Imposition of carbon emissions tax on special fuel.

This section imposes the carbon tax on diesel fuel intended for highway use (called “special fuel”), starting at $11 per tonne CO2 (11.18 cents per gallon, see EIA). This portion of the carbon tax piggybacks on the existing per-gallon special fuel tax; see the Motor and Special Fuel Tax Act, especially 59-13-301. Note that subsection (7) references the International Fuel Tax Agreement (IFTA) provision for interstate trucking.

59-30-203 (PDF p41-43). Imposition of carbon emissions tax on aviation fuel.

This section imposes the carbon tax on aviation fuel, starting at $11 per tonne CO2 (10.53 cents per gallon for jet fuel, see EIA; note that aviation gasoline would more accurately be a bit different, but we got push-back from the tax commission about the definitions of jet fuel versus aviation gasoline and since jet fuel is over 99% of aviation fuel used in Utah it made sense to just use the jet fuel number for all aviation fuels). This portion of the carbon tax piggybacks on the existing per-gallon tax on aviation fuel. In accordance with federal DOT requirements, the revenues are placed in the Aeronautics Restricted Account, which is the fund for airports; see 59-13-402.

59-30-204 (PDF p43-45). Imposition of carbon emissions tax on natural gas.

This section imposes the carbon tax on natural gas, starting at $11 per tonne CO2 (58.43 cents per thousand cubic feet, see EIA). The tax is levied on the “purchaser” (“a person in this state that buys natural gas for consumption”) but collected and remitted by the “natural gas supplier” (“a person supplying natural gas to a purchaser”). The tax does not apply to “electricity providers for natural gas purchases that are also subject to a tax under Section 59-30-206” (i.e., the tax on electricity providers).

59-30-205 (PDF p45-46). Imposition of carbon emissions tax on large emitters.

This section imposes the carbon tax on large emitters, starting at $11 per tonne CO2, for emissions from combustion of coal, dyed diesel fuel, or fuel gas.

59-30-206 (PDF p46-47). Imposition of carbon emissions tax on electricity provider.

This section imposes the carbon tax on electricity providers, starting at $11 per tonne CO2.

59-30-207 (PDF p47-48). Exemptions.

This section provides a carbon tax exemption for fossil fuels that (a) are brought into the state in the fuel supply tank of a car, etc; (b) the state is prohibited from taxing by state or federal law; or (c) are being exported out of the state.

59-30-301 (PDF p48-50). Carbon Emissions Tax Expendable Revenue Fund.

This section creates the Carbon Fund.

59-30-302 (PDF p50). Carbon Emissions Tax Refund Restricted Account.

This section creates a Tax Refund Restricted account in case the carbon tax brings in more revenue than the tax cuts described above. The excess revenues are put in this account, which is to be used only for additional tax cuts as determined by the legislature.

63N-2-502 (PDF p50-54). Definitions.

This section is a housekeeping change, the only edit being a changed reference (toward the end, in subsection 28) to sales taxes imposed under 59-12-103 because the state sales tax was zeroed out for grocery store food and for electricity and heating fuels.

72-2-126 (PDF p54-55). Aeronautics Restricted Account.

The only edit here involved putting into this account revenue from the carbon tax on aviation fuels in 59-30-203

Section 28 (PDF p55). Effective date.

Effective date is Jan 1, 2022, with the Retirement Tax Credit (section 59-10-1019) and the 10% match of the federal Earned Income Tax Credit for low-income working families (sections 59-10-1102.1 and 59-10-1113) taking effect in the 2021 tax year.

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