Feb 8 carbon tax bill: HB 304

Update: Please see the page for the 1st Substitute bill, HB 304 S1.

Rep Briscoe has introduced HB 304 (Fossil Fuels Tax Amendments, Feb 8) and on Wednesday there should be a fiscal note. Until then, here’s some details on the bill!

Plain language overview

The bill imposes a carbon tax of $10 per ton CO2, increasing at 3.5% plus inflation, on fossil fuels consumed in Utah (other than for electricity generation) and on the carbon content of electricity consumed in Utah. (The tax on electricity is based on the carbon intensity of each utility, so in-state and out-of-state generation are treated the same.)

About 10% of the revenue goes to programs to improve local air quality and to promote rural economic development. The remaining 90% of the revenue goes to tax cuts, including

  • eliminating the state sales tax on grocery store food;
  • eliminating the state sales tax on electricity and heating fuels (as a way to cushion the price impact on customers while still giving utilities an incentive to fuel-switch);
  • extend and expand the Retirement Tax Credit that benefits low- and middle-income retirees;
  • funding a 10% match of the federal Earned Income Tax Credit for low-income working families;
  • and providing a refundable income tax credit to mining and manufacturing companies as a way of helping them maintain competitiveness. (This tax credit effectively cuts their carbon tax liabilities by 50%.)

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 Fund created in section 59-30-301. (Note that carbon taxes on motor fuels enter the Carbon Fund indirectly through section 59-12-103 and that taxes on aviation fuels are required to go into the Airport Fund per sections 59-30-203 and 72-2-126.)

The Carbon Fund then allocates:

  • $45m to local air quality programs, including $3m to the CARROT program and $42m administered by DEQ per section 19-2-401 (see also the changed repeal date in section 63I-1-219); and
  • $5m to the Governor’s Office of Economic Development — Rural Employment Expansion Program to “use for diversifying the economy in rural counties and communities”.

Carbon Fund revenue then gets transferred to the General Fund and the Education Fund to hold them harmless from the following tax cuts:

  • 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 10% 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 Fund revenue goes into a Tax Cut Fund (section 59-30-302) for the legislature to use to reduce other taxes. Section 28 establishes an effective date of Dec 31, 2020.


Details on the various sections of the bill

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 25,000 metric tons of CO2 emissions (that 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 certain petroleum products: any 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 crude oil used in petroleum refining. It may also leave out some natural gas used by refineries. (The refineries consume natural gas and it’s not clear where they get it. Perhaps it’s a byproduct of the refining process, or perhaps it comes in their own pipeline, or ??)

Currently 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. the information provided in that large emitter’s EPA FLIGHT report.

The DEQ then checks to make sure that the report matches up with the EPA FLIGHT report 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 p5-8). 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 should work, 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 should have the electricity provider report to DEQ the first four points 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 in the state. (This is done on lines 152-153.)
  2. The number of megawatt hours delivered to customers in all states, net of wholesale sales. (This is not done and so perhaps needs to be added.)
  3. The number of megawatt hours of electricity that the electricity provider received from from each “declared resource”. (This is the intent of lines 154-155, which require reporting on “the number of megawatt hours of electricity generated by each electricity generator from which the electricity provider received electricity to deliver in the state”, but I think it might be better as “the number of megawatt hours of electricity received by the electricity provider from each declared resource, net of wholesale sales”.)
  4. The carbon intensity of each declared resource. (This could be calculated as an average for each type of declared resource, but ideally it would be calculated for each declared resource based on, for example, FERC Form 1 reports that list “net generation, exclusive of plant use” and “quantity of fuel burned”.)
  5. DEQ can then calculate, for each provider, the number of megawatt hours of electricity delivered that are not from “declared resources” (by subtracting from #2 the sum of the numbers in #3) and use the default value of 1 metric ton of CO2 per megawatt hour to impute the carbon intensity of those undeclared resources.
  6. 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.
  7. 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.”

The bill draft currently has the electricity provider report to DEQ the following:

  1. the number of megawatt hours of electricity that the electricity provider delivered in the state;
  2. the number of megawatt hours of electricity generated by each electricity generator from which the electricity provider received electricity;
  3. for each declared resource that burns coal or natural gas, the amount and type of coal burned or the amount of gas burned (maybe add the large emitter’s EPA FLIGHT report?);
  4. any information provided to FERC by the electricity provider; and
  5. fuel mix information that the electricity provider is required to disclose to another person or another state.

19-2-401 (PDF p8-10). 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 p10-11). Throughput Infrastructure Fund.

This section makes an administrative change regarding sales tax revenue (see section 59-12-103).

35A-8-309 (PDF p11-12). Throughput Infrastructure Fund administered by impact board — Uses — Review by board — Annual report.

Ditto.

59-7-624 (PDF p12-13). Refundable tax credit for mining and manufacturing.

This section allows mining and manufacturing companies to apply for a corporate income tax credit that reduces their tax liabilities: the amount of the refundable tax credit is 50% of their carbon tax liabilities. 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.

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 eliminates the born-before-1953 requirement so that the RTC applies to everyone 65 or older. (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.)

59-10-1102.1 (PDF p16). 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 mining and manufacturing.

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

59-10-1113 (PDF p17-18). Refundable state earned income tax credit — Definitions — Tax credit calculation — Transfers from Carbon Emissions Tax Expendable Revenue Fund.

This section provides a 10% match of the federal Earned Income Tax Credit for low-income working households.

59-12-103 (PDF p18-35). 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 611-613, 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 624-633, 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 552-558, PDF p18-19; and residential use, subsection 1(d), lines 559-565, PDF p19.) The current sales tax rate for those goods is 2%.
  3. Lines 634-641, 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 748-763, 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 755 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 902-1048, PDF pp30-34: I think that these edits consist of some housekeeping changes and possibly also (?) zeroing out impacts on earmarked transportation and water funds.
  6. Lines 1049-1059, PDF p34-35: 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.

59-30-101 (PDF p35). Title.

Introduces the carbon tax.

59-30-102 (PDF p35-36). Definitions.

Definitions for the carbon tax.

59-30-103 (PDF p36-37). Records.

Record-keeping for the carbon tax.

59-30-104 (PDF p37). 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 p37-39). Imposition of a carbon emissions tax on motor fuel.

This section imposes the carbon tax on motor gasoline, starting at $10 per tonne CO2 (8.89 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 p39-42). 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 $10 per tonne CO2 (10.16 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 p42-44). Imposition of carbon emissions tax on aviation fuel.

This section imposes the carbon tax on aviation fuel, starting at $10 per tonne CO2 (9.57 cents per gallon for jet fuel, see EIA; note that aviation gasoline would more accurately be 8.35 cents per gallon, 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 I assume is the fund for airports; see 59-13-402.

59-30-204 (PDF p44-46). Imposition of carbon emissions tax on natural gas.

This section imposes the carbon tax on natural gas, starting at $10 per tonne CO2 (53.12 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 p46-47). Imposition of carbon emissions tax on large emitters.

This section imposes the carbon tax on large emitters.

59-30-206 (PDF p47-48). Imposition of carbon emissions tax on electricity provider.

This section imposes the carbon tax on electricity providers.

59-30-207 (PDF p48-49). 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 p49-51). Carbon Emissions Tax Expendable Revenue Fund.

This section creates the Carbon Fund.

59-30-302 (PDF p51). 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.

63I-1-219 (PDF p51-52). Repeal dates, Title 19.

This section changes the repeal date for Title 19, Chapter 2 (Air Conservation Act) from July 1, 2019, to July 1, 2029.

63N-2-502 (PDF p52-55). Definitions.

This section is a housekeeping change, the only edit being a changed reference 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 p55-56). 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 p56). Effective date.

Effective date is Dec 31, 2020.

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