NEW JERSEY CARBON CASHBACK POLICY

For reference for the New Jersey Office of Legislative Services

Motivation

As one of the most vulnerable states to climate change and air pollution, New Jersey needs a simple, effective policy to reduce its emissions drastically, in accordance with its goal of an 80% emissions reduction by 2050 from 2006 levels under the Global Warming Response Act.

As an overview, this policy has:

Rising fee on fossil fuel emissions
Revenue used to:

GIVE FLAT CASHBACK TO EVERY HOUSEHOLD, to offset cost increases for working and middle class households, while maintaining the incentive to reduce emissions
INVESTMENT IN GREEN JOBS, INFRASTRUCTURE, AND CLIMATE RESILIENCY
PROTECT VULNERABLE COMMUNITIES, BUSINESSES AND SECTORS

Policy Details

$30/ton of carbon dioxide (CO2) fee on fossil fuels

Rising at $5/ton CO2 per year, plus inflation based on the Producer Price Index (PPI)
Based on fossil fuel carbon dioxide content
Administered by the NJ Department of Taxation
Applied at first point of sale of the fossil fuel into New Jersey
The price increase schedule is reevaluated by the New Jersey Department of Environmental Protection after 5 years to assess compliance with New Jersey’s global warming emissions reduction goals (80% emissions reduction by 2050 from 2006 levels)

The DEP will set the new rate after 5 years.

Exemptions:

If a regional or national pricing policy that affects New Jersey is put into place for a fuel or set of fuels, our policy’s price on that fuel is reduced so that the effective price on that fuel is the greater of the state and the regional/national

For example, if the national policy has $20/ton CO2 and the state has $30/ton CO2, the state price is reduced to $10/ton CO2 so the effective price on the fuel is still $30/ton CO2.
If the national policy has $40/ton CO2 and the state has $30/ton CO2 price, the state price is removed from the fuel and the effective price on the fuel is $40/ton CO2.

Aviation Fuels

Because fees on these fuels are required to go toward airport purposes by federal law

Diesel or Gasoline Fuels used for agricultural purposes
Fuels used to generate electricity mix

Due to RGGI and Renewable Portfolio Standard already addressing emissions from electricity

Fuels used by state and local government agencies whose primary purpose is to provide public transportation by bus, van, rail, or other means to reduce driving by private motor vehicles
Fuels that can be demonstrated to not be combusted to generate emissions

For example, this includes commercial and industrial solvents, such as “acid oil, alkylates, aromatic chemicals, asphalt and asphaltic materials, benzene, butadiene, coke, petroleum, fractionation products of crude petroleum, refinery or still oil, liquefied petroleum, greases, hydrocarbon fluid, kerosene, mineral jelly, mineral oils, mineral waxes, naphtha, naphthenic acids, paraffin wax, petrolatums, road materials, road oils, and tar or residuum

Exemptions on fuels:

Most diesel fuels can be tax exempted by purpose upstream because diesel fuel is dyed depending on what sector it is used for
Other fuels will need to be rebated

Revenue will go into a newly created “Trust Fund for Climate Change Mitigation and Resilience”. A “Climate Change Mitigation and Resilience Commission” will choose the specific way to allocate funds, with audit and review from the state legislature, while adhering to the following guidelines:

Commission membership will be appointed as follows:

The Commission “shall consist of one member appointed by the Governor, one member appointed by the President of the Senate who shall be a member of the Senate, and one member appointed by the Speaker of the General Assembly who shall be a member of the General Assembly. The presiding officer of the commission shall be determined by the members. The members of the commission shall serve without pay in connection with all such duties as are prescribed in P.L.” (language directly taken from S 380, the bill by Sen. Scutari creating a Division of Marijuana Enforcement)

9% to a corporate tax relief will be split between the EITE manufacturing industry and small businesses to compensate for increased energy costs

I.e. the total amount of the corporate tax relief will be equal to 9% of the revenue from the carbon fee in the first year

Note that revenue from the carbon fee will vary annually, as emissions decrease and as the fee rises.
The corporate tax relief amount will be fixed at 9% of the revenue from the first year
The revenue remaining after subtracting off this fixed business tax offset amount will be split in a 8:1 ratio between households and investments

90% will go to energy intensive trade exposed (EITE) manufacturing (As defined in other statutes?)

Would like feedback on possible definitions of “energy intensive trade exposed (EITE) manufacturing”
Energy intensive trade-exposed manufacturing is intended to refer to those manufacturers that would suffer a substantial competitive disadvantage to manufacturers based outside New Jersey, due to the cost increase of fossil fuels from this policy

10% will go to small businesses, which we define as businesses employing less than 500 workers (As defined in other statutes?)

Would like feedback on this definition of “small business”

This tax relief could take the form of:

A corporate tax cut

Given to every business within each sector (EITE manufacturing or small businesses)

We would like to ensure each business gets an equal shift (by percentage) in their tax base whether they pay the minimum tax or the schedule tax

If business A and B have the same Schedule Tax Rate but B pays the Minimum Tax Amount based on its Gross Sales, business B should still have their taxes cut by the same percentage as business A

We would also consider a transferable tax credit as an alternative to the corporate tax cut

May be easier to administer, especially given the issue with Schedule Rate vs Minimum Tax Amount

80% of the first year’s revenue returned as a household rebate

Every New Jersey household

Amount:

Proportional to the number of members of the household, except dependents below the age of 18 will receive ¼ (25%) of the rebate
Households with more than 2 dependents below 18 will receive the same amount of rebate for the dependents below 18 as households with exactly 2 dependents below the age of 18

Format:

Tax credit on income taxes
Some residents may not pay enough in taxes to get the full amount in a tax credit

The Affordable Housing Alliance will administer the rebate for NJ residents who do not file an income tax return

The administration fee should be about 8-9% for rebates made in this way

Household rebates should not count as state or federally taxable income.

Example language: The “amount received by any individual shall not be taken into account as income and shall not be taken into account as resources for purposes of determining the eligibility of such individual or any other individual for benefits or assistance, or the amount or extent of benefits or assistance, under any Federal program or under any State or local program financed in whole or in part with Federal funds.” (language taken from the federal bill on a national Carbon Fee and Dividend, the Energy Innovation and Carbon Dividend Act of 2019)

An assessment should be made to ensure that all NJ citizens are reached via one of the above formats.

Schedule:

Annually

After the first year:

Again, note revenue from the carbon fee will vary annually, as emissions decrease and as the fee rises.
The corporate tax relief amount will be fixed at 9% of the revenue from the first year
The remainder of revenue should be split in a 8:1 ratio among households and investments
So, future amount for household rebates should be calculated as [(Revenue from carbon fee) - (Amount that EITE manufacturers and small businesses would have paid in taxes had no tax relief occurred)] * 8/9

10% toward investments in green jobs, infrastructure, and climate resiliency

In the following areas:

Transportation Infrastructure

Into Transportation Trust Fund; for example, toward public transit, highways, electric vehicle incentives and charging infrastructure

Clean Energy Infrastructure

Into Clean Energy Fund; toward Offshore Wind infrastructure or community solar, etc..

Energy efficiency, retrofits, weatherization, and other ways to substantially reduce energy and heating costs for homes and businesses.

Into Clean Energy Fund; free energy audits, household retrofit rebates and zero-interest loans, etc…
All local government buildings will have their technology upgraded in order to meet current energy efficiency standards.

Green Jobs

Transitional assistance to workers who are displaced by shrinkage of fossil-fuel related and/or energy-intensive industries and communities that experience losses in tax revenues and other economic losses due to such shrinkage
Job Training Programs in association with the other investments

Resiliency to the impacts of climate change, such as sea-level rise and heating

Including but not limited to investment in NJDEP’s Green Acres Program, cooling stations, flood infrastructure

After this year:

Again, note revenue from the carbon fee will vary annually, as emissions decrease and as the fee rises.
The corporate tax relief amount will be fixed at 9% of the revenue from the first year
The remainder of revenue should be split in a 8:1 ratio among households and investments
So, future amount for investments should be calculated as [(Revenue from carbon fee) - (Amount that EITE manufacturers and small businesses would have paid in taxes had no tax relief occurred)] * 1/9

Additional Details:

Of this 10%, at least one-fifth (2%) must target environmental justice communities and low-income communities with excessive exposure to low air quality

1% toward administration of the program

Example language: “The administrative expenses for any year may not exceed [1] percent of amounts appropriated to the [Trust Fund for Climate Change Mitigation and Resilience] during [each] year” (language taken from the federal bill on a national Carbon Fee and Dividend, the Energy Innovation and Carbon Dividend Act of 2019)

Additional Details

Every effort should be made to prevent these revenue dedications from being raided annually for other appropriations

Legal Aspects

The policy is a regulatory “Fee” rather than a “Tax”, so the revenue won’t be required to go into the Transportation Trust Fund despite the 2016 Motor Fuels Amendment. This distinction is supported by the following legal cases:

Bellington v Township of East Windsor
Holmdel Builders Association v Township of Holmdel
Resolution Trust Corp. v Lanzaro

The fee does not violate the Interstate Commerce clause, because it applies the same standards to in and out of state businesses and accomplishes measurable public benefit.