Hawaii 2022 Regular Session

Hawaii Senate Bill SB2732 Compare Versions

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1	1	THE SENATE S.B. NO. 2732 THIRTY-FIRST LEGISLATURE, 2022 STATE OF HAWAII A BILL FOR AN ACT RELATING TO TAXATION. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
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3	3	THE SENATE S.B. NO. 2732
4	4	THIRTY-FIRST LEGISLATURE, 2022
5	5	STATE OF HAWAII
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7	7	THE SENATE
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9	9	S.B. NO.
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11	11	2732
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13	13	THIRTY-FIRST LEGISLATURE, 2022
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17	17	STATE OF HAWAII
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31	31	A BILL FOR AN ACT
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37	37	RELATING TO TAXATION.
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43	43	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
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47	47	SECTION 1. The legislature finds that assessing a tax on producers and importers of fossil fuels has been successful in countries throughout the world in reducing the consumption of fossil fuels. The effect of the tax, which is commonly known as a carbon price or carbon tax, has been to reduce the emissions of greenhouse gases, leading to a more sustainable environment and reducing local air pollution. The legislature further finds that dozens of eminent economists have endorsed a policy that taxes carbon and returns revenues, commonly known as dividends, to people. The University of Hawaii Economic Research Organization (UHERO) conducted a study on a carbon tax that was released in April 2021 and titled, "Carbon Pricing Assessment for Hawaii: Economic and Greenhouse Gas Impacts". The study explored how a carbon tax and dividend policy would affect Hawaii and found that it would substantially reduce the consumption of fossil fuels while financially benefiting most Hawaii households. Low-income households would experience the greatest financial benefit. The legislature additionally finds that more than forty countries have adopted a carbon tax or other carbon pricing policy, and even more are considering it. The World Bank asserts that "carbon pricing is the most effective way to reduce emissions, and all jurisdictions must go further and faster in using carbon pricing policies as part of their climate policy packages." The level of pricing is key, and according to the World Bank, fossil fuels must be priced between $50 and $100 per ton of carbon dioxide emissions in the next few years to put the world on the path to achieving the goals of the Paris Agreement. The Group of 20 (G20), which includes the United States, the European Union, China, India, and Russia, representing ninety per cent of the world's economy, encourages the appropriate use of carbon pricing when used among a wide set of tools to control climate change. The legislature also finds that a total of 3,500 economists have signed a statement endorsing carbon pricing, 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: "To 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." The legislature further finds that carbon pricing bills have been introduced in the Hawaii Legislature for the past several sessions. Basic economics explains how carbon pricing would reduce the consumption of fossil fuels. Though some have questioned the financial impacts of carbon pricing on Hawaii's families, particularly on those in the lowest income bracket, this concern was addressed in the UHERO study. The legislature additionally finds that the UHERO study examined two levels of carbon taxes, a low tax scenario and a high tax scenario. The study also examined two uses of the tax revenue, one with all of the tax revenue used to finance government programs, and the other with most of the tax revenue distributed to Hawaii's households. The study concluded that the consumption of fossil fuels would be substantially reduced in both tax scenarios. The study also concluded that distributing most of the tax revenue to Hawaii's households in the low tax scenario would create a net financial benefit to most of Hawaii's households, with the largest net financial benefit to low-income households. Further, the study found that the dividend makes the carbon tax and dividend model progressive rather than regressive. This model addresses the concerns of those who had questioned the effect of a carbon tax on low-income families. Under this model, in the low tax scenario, low-income households would benefit financially, on average, because their dividend would be larger than their increased spending resulting from the carbon tax. This Act incorporates many of the elements of the low tax scenario of the UHERO study and distributes most of the tax revenue to Hawaii's households in the form of refundable tax credits. The level of taxation is within the range that the World Bank has determined would achieve the goals of the Paris Agreement. This Act establishes carbon tax rates that are derived from the low tax scenario of the UHERO study. The study based its assessment on dollars for the year 2012 and a carbon tax starting in year 2025. This Act starts the tax in 2023, earlier than the UHERO date, with a modified tax rate and by 2025 this Act's tax rates will be equivalent to those in the study. To ease implementation, this Act uses the same units of measure as the existing Environmental Response, Energy, and Food Security Tax, commonly known as the barrel tax, specifically: dollars per barrel for crude oil and refined petroleum products and dollars per million British thermal units (Btus) for coal and natural gas. To convert from dollars per metric ton of carbon dioxide equivalent (CO2e) to dollars per unit of fuel, this Act uses the U.S. Environmental Protection Agency's Emission Factors for Greenhouse Gas Inventories (modified April 1, 2021). For petroleum and refined petroleum products, this document reports the metric tons of emissions for carbon dioxide, methane, and nitrous oxide per gallon of fuel. For coal and natural gas, this document reports the metric tons of emissions for carbon dioxide, methane, and nitrous oxide per MMBtu of fuel. The emissions of carbon dioxide, methane, and nitrous oxide can be combined into emissions of carbon dioxide equivalent (CO2e) by multiplying the amount of carbon dioxide, methane, and nitrous oxide by their 100-year global warming potential (GWP). The GWPs for carbon dioxide, methane, and nitrous oxide are one, twenty-five, and two hundred ninety-eight, respectively. Then to arrive at the tax rate, the CO2e emissions factor is multiplied by the carbon tax. The emissions factors for gasoline, for example, for carbon dioxide, methane, and nitrous oxide are 8.78 kg CO2/gallon, 0.38 g CH4/gallon, and 0.08 g N2O/gallon, respectively so its CO2e emissions rate is: (8.78/1000 + 0.3825/1000 + 0.08298/1000) = 8.81 kg CO2e/gallon. There are forty-two gallons in each barrel of crude oil (bbl). Multiplying by forty-two gallons/bbl and dividing by 1000 to convert from kilograms to metric tons (MT) yields a rate of 0.37 MT CO2e/bbl. The legislature further finds that this same methodology can be used to derive the CO2e emissions rate for all fossil fuels. Then these can be used to convert carbon tax rates to tax rates in more familiar units. Again, using gasoline as an example, the per barrel tax rate for a $59/MT of CO2 tax rate is computed as follows (converting from dollars based in year 2012 to dollars based in year 2023): $59/MT of CO2e * 0.37 MT of CO2e/bbl = $18.51/bbl. This Act adds to the existing barrel tax so the final barrel tax on non-aviation petroleum based fuels includes an additional $1.05/bbl, and for gas and coal an additional $0.19/MMBtu is included. So the final per barrel tax corresponding to a $50/MT of CO2 is: $18.51 + 1.05 =$19.56/bbl. The legislature additionally finds that in Hawaii, a carbon tax would very likely have the effect of raising the selling prices of fossil fuels. Such an increase would move fossil fuel prices closer to their true unsubsidized prices. The fossil fuel industry receives subsidies from the federal government that include both direct subsidies to corporations, as well as indirect subsidies to the fossil fuel industry. Fossil fuel prices do not include the social cost of degradation of the environment that results from the burning of fossil fuels and the resulting damage to human health and welfare. A recent report by the International Monetary Fund estimates total U.S. fossil fuel subsidies and social costs to be $649 billion a year. This Act distributes an amount equivalent to most of the tax revenue to individuals who file Hawaii income tax in the form of refundable tax credits. The refundable tax credit is the same amount for each category of taxpayer. For example, all taxpayers filing as single or married filing separately are eligible for the same amount. This methodology is consistent with the UHERO study in distributing most of the tax revenue to Hawaii's households. The legislature also finds that interest in a carbon tax is growing in the United States at all levels of government because it is effective and because it can be used with other efforts to control carbon emissions. Recently, for example, Secretary of the Treasury Janet Yellen signed a commitment to the Group of 7 (G7) to meet net zero goals and environmental objectives by making "the optimal use of the range of policy levers to price carbon." She emphasized its positive effect on jobs, growth, competitiveness and fairness. The purpose of this Act is to establish the carbon cashback program, which sets a carbon tax on fossil fuels and returns an equivalent amount of the money generated by the carbon tax less administrative costs to Hawaii residents in the form of a refundable tax credit or cash payment. SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows: "§235- Tax credit; carbon emissions tax. (a) There shall be allowed to each qualified taxpayer subject to the tax imposed under this chapter, a refundable income tax credit that shall be deductible from 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: (A) $ 65 for 2023 $ 210 for 2024 $ 360 for 2025 $ 380 for 2026 $ 420 for 2027 $ 440 for 2028 $ 440 for 2029 $ 440 for 2030 $ 440 for 2031 $ 450 for 2032 $ 460 for 2033 $ 470 for 2034 $ 480 for 2035 and every year thereafter for taxpayers filing as single or married filing separately; (B) $ 65 for 2023 $ 210 for 2024 $ 360 for 2025 $ 380 for 2026 $ 420 for 2027 $ 440 for 2028 $ 440 for 2029 $ 440 for 2030 $ 440 for 2031 $ 450 for 2032 $ 460 for 2033 $ 470 for 2034 $ 480 for 2035 and every year thereafter for taxpayers filing as a head of household; or (C) $ 130 for 2023 $ 420 for 2024 $ 720 for 2025 $ 760 for 2026 $ 850 for 2027 $ 880 for 2028 $ 880 for 2029 $ 880 for 2030 $ 880 for 2031 $ 900 for 2032 $ 920 for 2033 $ 940 for 2034 $ 960 for 2035 and every year thereafter for taxpayers filing a joint return or as a surviving spouse; and (D) $ 30 for 2023 $ 100 for 2024 $ 180 for 2025 $ 190 for 2026 $ 201 for 2027 $ 220 for 2028 $ 220 for 2029 $ 220 for 2030 $ 220 for 2031 $ 220 for 2032 $ 230 for 2033 $ 230 for 2034 $ 240 for 2035 and every year thereafter per qualifying dependent who is a minor. (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; 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: "Qualified taxpayer" means a resident taxpayer who files an individual income tax return, whether as a single taxpayer, a head of household, a married individual filing a separate return, a married couple filing a joint return, or a surviving spouse. "Qualifying child" means a minor who: (1) Resides with the taxpayer; and (2) Is claimed as a dependent by the taxpayer." SECTION 3. 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 4. 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 5. 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 in the following table: Product 2023 2024 2025 2026 Butane $4.26 $10.86 $17.73 $18.40 Propane $3.80 $ 9.46 $15.35 $15.93 Gasoline $5.27 $13.96 $23.00 $23.89 Diesel $5.95 $16.06 $26.57 $27.60 Kerosene $5.93 $15.97 $26.42 $27.44 Aviation gas $3.99 $12.22 $20.77 $21.61 Jet Fuel $4.68 $14.33 $24.37 $25.35 No. 6 Fuel Oil $6.46 $17.62 $29.22 $30.35 LPG $3.78 $ 9.41 $15.26 $15.83 Other $5.99 $16.18 $26.76 $27.80 Product 2027 2028 2029 2030 Butane $19.09 $19.81 $20.55 $21.30 Propane $16.52 $17.14 $17.77 $18.42 Gasoline $24.80 $25.74 $26.71 $27.71 Diesel $28.66 $29.75 $30.88 $32.04 Kerosene $28.50 $29.58 $30.70 $31.86 Aviation gas $22.48 $23.37 $24.28 $25.23 Jet Fuel $26.37 $27.41 $28.49 $29.60 No. 6 Fuel Oil $31.53 $32.73 $33.98 $35.26 LPG $16.42 $17.03 $17.66 $18.31 Other $28.87 $29.98 $31.11 $32.28 Product 2031 2032 2033 2034 Butane $22.08 $22.89 $23.72 $24.57 Propane $19.09 $19.78 $20.49 $21.22 Gasoline $28.74 $29.80 $30.88 $32.01 Diesel $33.23 $34.46 $35.73 $37.03 Kerosene $33.04 $34.27 $35.53 $36.82 Aviation gas $26.20 $27.20 $28.23 $29.29 Jet Fuel $30.74 $31.91 $33.12 $34.37 No. 6 Fuel Oil $36.57 $37.93 $39.33 $40.77 LPG $18.97 $19.66 $20.36 $21.09 Other $33.48 $34.72 $36.00 $37.31 Product 2035 and each year thereafter Butane $25.44 Propane $21.97 Gasoline $33.16 Diesel $38.37 Kerosene $38.15 Aviation gas $30.39 Jet Fuel $35.65 No. 6 Fuel Oil $42.25 LPG $21.84 Other $38.66 The tax for each year referenced above shall take effect on January 1 of that year and continue to be applicable 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, with the excess revenues to be deposited into the general fund: (1) [5 cents of the tax on each barrel] $1,291,000 shall be deposited into the environmental response revolving fund established under section 128D-2; (2) [4 cents of the tax on each barrel] $3,872,000 shall be deposited into the energy security special fund established under section 201-12.8; (3) [8 cents of the tax on each barrel] $2,582,000 shall be deposited into the energy systems development special fund established under section 304A-2169.1; [and [](4)[]]3 cents of the tax on each barrel shall be deposited into the electric vehicle charging system subaccount established pursuant to section 269-33(e)[.]; (5) 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 created by section 248-8; and (6) 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 created by 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:] is set forth in the following table: Fuel 2023 2024 2025 2026 Coal (all forms) $1.29 $3.55 $5.90 $6.13 Natural gas (including liquefied natural gas) $0.80 $2.04 $3.34 $3.47 Fuel 2027 2028 2029 2030 Coal (all forms) $6.37 $6.61 $6.87 $7.13 Natural gas (including liquefied natural gas) $3.60 $3.73 $3.87 $4.02 Fuel 2031 2032 2033 2034 Coal (all forms) $7.39 $7.67 $7.95 $8.24 Natural gas (including liquefied natural gas) $4.16 $4.31 $4.47 $4.63 Fuel 2035 and each year thereafter Coal (all forms) $8.54 Natural gas (including liquefied natural gas) $4.80 The tax for each year referenced above shall take effect on January 1 of that year and continue to be applicable 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) or (b),] (b) or (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 6. 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 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored. SECTION 8. This Act shall take effect upon its approval; provided that section 2 and section 5 shall apply to taxable years beginning after December 31, 2022. INTRODUCED BY: _____________________________
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49	49	SECTION 1. The legislature finds that assessing a tax on producers and importers of fossil fuels has been successful in countries throughout the world in reducing the consumption of fossil fuels. The effect of the tax, which is commonly known as a carbon price or carbon tax, has been to reduce the emissions of greenhouse gases, leading to a more sustainable environment and reducing local air pollution.
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51	51	The legislature further finds that dozens of eminent economists have endorsed a policy that taxes carbon and returns revenues, commonly known as dividends, to people. The University of Hawaii Economic Research Organization (UHERO) conducted a study on a carbon tax that was released in April 2021 and titled, "Carbon Pricing Assessment for Hawaii: Economic and Greenhouse Gas Impacts". The study explored how a carbon tax and dividend policy would affect Hawaii and found that it would substantially reduce the consumption of fossil fuels while financially benefiting most Hawaii households. Low-income households would experience the greatest financial benefit.
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53	53	The legislature additionally finds that more than forty countries have adopted a carbon tax or other carbon pricing policy, and even more are considering it. The World Bank asserts that "carbon pricing is the most effective way to reduce emissions, and all jurisdictions must go further and faster in using carbon pricing policies as part of their climate policy packages." The level of pricing is key, and according to the World Bank, fossil fuels must be priced between $50 and $100 per ton of carbon dioxide emissions in the next few years to put the world on the path to achieving the goals of the Paris Agreement. The Group of 20 (G20), which includes the United States, the European Union, China, India, and Russia, representing ninety per cent of the world's economy, encourages the appropriate use of carbon pricing when used among a wide set of tools to control climate change.
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55	55	The legislature also finds that a total of 3,500 economists have signed a statement endorsing carbon pricing, 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: "To 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."
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57	57	The legislature further finds that carbon pricing bills have been introduced in the Hawaii Legislature for the past several sessions. Basic economics explains how carbon pricing would reduce the consumption of fossil fuels. Though some have questioned the financial impacts of carbon pricing on Hawaii's families, particularly on those in the lowest income bracket, this concern was addressed in the UHERO study.
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59	59	The legislature additionally finds that the UHERO study examined two levels of carbon taxes, a low tax scenario and a high tax scenario. The study also examined two uses of the tax revenue, one with all of the tax revenue used to finance government programs, and the other with most of the tax revenue distributed to Hawaii's households. The study concluded that the consumption of fossil fuels would be substantially reduced in both tax scenarios. The study also concluded that distributing most of the tax revenue to Hawaii's households in the low tax scenario would create a net financial benefit to most of Hawaii's households, with the largest net financial benefit to low-income households.
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61	61	Further, the study found that the dividend makes the carbon tax and dividend model progressive rather than regressive. This model addresses the concerns of those who had questioned the effect of a carbon tax on low-income families. Under this model, in the low tax scenario, low-income households would benefit financially, on average, because their dividend would be larger than their increased spending resulting from the carbon tax. This Act incorporates many of the elements of the low tax scenario of the UHERO study and distributes most of the tax revenue to Hawaii's households in the form of refundable tax credits. The level of taxation is within the range that the World Bank has determined would achieve the goals of the Paris Agreement.
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63	63	This Act establishes carbon tax rates that are derived from the low tax scenario of the UHERO study. The study based its assessment on dollars for the year 2012 and a carbon tax starting in year 2025. This Act starts the tax in 2023, earlier than the UHERO date, with a modified tax rate and by 2025 this Act's tax rates will be equivalent to those in the study. To ease implementation, this Act uses the same units of measure as the existing Environmental Response, Energy, and Food Security Tax, commonly known as the barrel tax, specifically: dollars per barrel for crude oil and refined petroleum products and dollars per million British thermal units (Btus) for coal and natural gas.
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65	65	To convert from dollars per metric ton of carbon dioxide equivalent (CO2e) to dollars per unit of fuel, this Act uses the U.S. Environmental Protection Agency's Emission Factors for Greenhouse Gas Inventories (modified April 1, 2021). For petroleum and refined petroleum products, this document reports the metric tons of emissions for carbon dioxide, methane, and nitrous oxide per gallon of fuel. For coal and natural gas, this document reports the metric tons of emissions for carbon dioxide, methane, and nitrous oxide per MMBtu of fuel. The emissions of carbon dioxide, methane, and nitrous oxide can be combined into emissions of carbon dioxide equivalent (CO2e) by multiplying the amount of carbon dioxide, methane, and nitrous oxide by their 100-year global warming potential (GWP). The GWPs for carbon dioxide, methane, and nitrous oxide are one, twenty-five, and two hundred ninety-eight, respectively. Then to arrive at the tax rate, the CO2e emissions factor is multiplied by the carbon tax. The emissions factors for gasoline, for example, for carbon dioxide, methane, and nitrous oxide are 8.78 kg CO2/gallon, 0.38 g CH4/gallon, and 0.08 g N2O/gallon, respectively so its CO2e emissions rate is: (8.78/1000 + 0.3825/1000 + 0.08298/1000) = 8.81 kg CO2e/gallon. There are forty-two gallons in each barrel of crude oil (bbl). Multiplying by forty-two gallons/bbl and dividing by 1000 to convert from kilograms to metric tons (MT) yields a rate of 0.37 MT CO2e/bbl.
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67	67	The legislature further finds that this same methodology can be used to derive the CO2e emissions rate for all fossil fuels. Then these can be used to convert carbon tax rates to tax rates in more familiar units. Again, using gasoline as an example, the per barrel tax rate for a $59/MT of CO2 tax rate is computed as follows (converting from dollars based in year 2012 to dollars based in year 2023): $59/MT of CO2e * 0.37 MT of CO2e/bbl = $18.51/bbl.
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69	69	This Act adds to the existing barrel tax so the final barrel tax on non-aviation petroleum based fuels includes an additional $1.05/bbl, and for gas and coal an additional $0.19/MMBtu is included. So the final per barrel tax corresponding to a $50/MT of CO2 is: $18.51 + 1.05 =$19.56/bbl.
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71	71	The legislature additionally finds that in Hawaii, a carbon tax would very likely have the effect of raising the selling prices of fossil fuels. Such an increase would move fossil fuel prices closer to their true unsubsidized prices. The fossil fuel industry receives subsidies from the federal government that include both direct subsidies to corporations, as well as indirect subsidies to the fossil fuel industry. Fossil fuel prices do not include the social cost of degradation of the environment that results from the burning of fossil fuels and the resulting damage to human health and welfare. A recent report by the International Monetary Fund estimates total U.S. fossil fuel subsidies and social costs to be $649 billion a year.
72	72
73	73	This Act distributes an amount equivalent to most of the tax revenue to individuals who file Hawaii income tax in the form of refundable tax credits. The refundable tax credit is the same amount for each category of taxpayer. For example, all taxpayers filing as single or married filing separately are eligible for the same amount. This methodology is consistent with the UHERO study in distributing most of the tax revenue to Hawaii's households.
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75	75	The legislature also finds that interest in a carbon tax is growing in the United States at all levels of government because it is effective and because it can be used with other efforts to control carbon emissions. Recently, for example, Secretary of the Treasury Janet Yellen signed a commitment to the Group of 7 (G7) to meet net zero goals and environmental objectives by making "the optimal use of the range of policy levers to price carbon." She emphasized its positive effect on jobs, growth, competitiveness and fairness.
76	76
77	77	The purpose of this Act is to establish the carbon cashback program, which sets a carbon tax on fossil fuels and returns an equivalent amount of the money generated by the carbon tax less administrative costs to Hawaii residents in the form of a refundable tax credit or cash payment.
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79	79	SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
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81	81	"§235- Tax credit; carbon emissions tax. (a) There shall be allowed to each qualified taxpayer subject to the tax imposed under this chapter, a refundable income tax credit that shall be deductible from the taxpayer's net income tax liability, if any, imposed by this chapter for the taxable year in which the credit is properly claimed.
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83	83	(b) The amount of the tax credit shall be equal to the sum of the following:
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85	85	(A) $ 65 for 2023
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87	87	$ 210 for 2024
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89	89	$ 360 for 2025
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91	91	$ 380 for 2026
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93	93	$ 420 for 2027
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95	95	$ 440 for 2028
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97	97	$ 440 for 2029
98	98
99	99	$ 440 for 2030
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101	101	$ 440 for 2031
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103	103	$ 450 for 2032
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105	105	$ 460 for 2033
106	106
107	107	$ 470 for 2034
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109	109	$ 480 for 2035 and every year thereafter
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111	111	for taxpayers filing as single or married filing separately;
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113	113	(B) $ 65 for 2023
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115	115	$ 210 for 2024
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117	117	$ 360 for 2025
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119	119	$ 380 for 2026
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121	121	$ 420 for 2027
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123	123	$ 440 for 2028
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125	125	$ 440 for 2029
126	126
127	127	$ 440 for 2030
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129	129	$ 440 for 2031
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131	131	$ 450 for 2032
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133	133	$ 460 for 2033
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135	135	$ 470 for 2034
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137	137	$ 480 for 2035 and every year thereafter
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139	139	for taxpayers filing as a head of household; or
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141	141	(C) $ 130 for 2023
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143	143	$ 420 for 2024
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145	145	$ 720 for 2025
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147	147	$ 760 for 2026
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149	149	$ 850 for 2027
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151	151	$ 880 for 2028
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153	153	$ 880 for 2029
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155	155	$ 880 for 2030
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157	157	$ 880 for 2031
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159	159	$ 900 for 2032
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161	161	$ 920 for 2033
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163	163	$ 940 for 2034
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165	165	$ 960 for 2035 and every year thereafter
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167	167	for taxpayers filing a joint return or as a surviving spouse; and
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169	169	(D) $ 30 for 2023
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171	171	$ 100 for 2024
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173	173	$ 180 for 2025
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175	175	$ 190 for 2026
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177	177	$ 201 for 2027
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179	179	$ 220 for 2028
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181	181	$ 220 for 2029
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183	183	$ 220 for 2030
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185	185	$ 220 for 2031
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187	187	$ 220 for 2032
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189	189	$ 230 for 2033
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191	191	$ 230 for 2034
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193	193	$ 240 for 2035 and every year thereafter
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195	195	per qualifying dependent who is a minor.
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197	197	(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; 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.
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199	199	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.
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201	201	(d) The director of taxation:
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203	203	(1) Shall prepare any forms that may be necessary to claim a tax credit under this section;
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205	205	(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
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207	207	(3) May adopt rules under chapter 91 necessary to effectuate the purposes of this section.
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209	209	(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.
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211	211	(f) As used in this section:
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213	213	"Qualified taxpayer" means a resident taxpayer who files an individual income tax return, whether as a single taxpayer, a head of household, a married individual filing a separate return, a married couple filing a joint return, or a surviving spouse.
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215	215	"Qualifying child" means a minor who:
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217	217	(1) Resides with the taxpayer; and
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219	219	(2) Is claimed as a dependent by the taxpayer."
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221	221	SECTION 3. Section 128D-2, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
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223	223	"(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."
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225	225	SECTION 4. Section 201-12.8, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
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227	227	"(a) There is created within the state treasury an energy security special fund, which shall consist of:
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229	229	(1) The portion of the environmental response, energy, carbon emissions, and food security tax specified under section 243-3.5;
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231	231	(2) Moneys appropriated to the fund by the legislature;
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233	233	(3) All interest attributable to investment of money deposited in the fund; and
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235	235	(4) Moneys allotted to the fund from other sources, including under section 196-6.5."
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237	237	SECTION 5. Section 243-3.5, Hawaii Revised Statutes, is amended to read as follows:
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239	239	"§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 in the following table:
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241	241	Product 2023 2024 2025 2026
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243	243	Butane $4.26 $10.86 $17.73 $18.40
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245	245	Propane $3.80 $ 9.46 $15.35 $15.93
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247	247	Gasoline $5.27 $13.96 $23.00 $23.89
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249	249	Diesel $5.95 $16.06 $26.57 $27.60
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251	251	Kerosene $5.93 $15.97 $26.42 $27.44
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253	253	Aviation gas $3.99 $12.22 $20.77 $21.61
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255	255	Jet Fuel $4.68 $14.33 $24.37 $25.35
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257	257	No. 6 Fuel Oil $6.46 $17.62 $29.22 $30.35
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259	259	LPG $3.78 $ 9.41 $15.26 $15.83
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261	261	Other $5.99 $16.18 $26.76 $27.80
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265	265	Product 2027 2028 2029 2030
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267	267	Butane $19.09 $19.81 $20.55 $21.30
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269	269	Propane $16.52 $17.14 $17.77 $18.42
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271	271	Gasoline $24.80 $25.74 $26.71 $27.71
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273	273	Diesel $28.66 $29.75 $30.88 $32.04
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275	275	Kerosene $28.50 $29.58 $30.70 $31.86
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277	277	Aviation gas $22.48 $23.37 $24.28 $25.23
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279	279	Jet Fuel $26.37 $27.41 $28.49 $29.60
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281	281	No. 6 Fuel Oil $31.53 $32.73 $33.98 $35.26
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283	283	LPG $16.42 $17.03 $17.66 $18.31
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285	285	Other $28.87 $29.98 $31.11 $32.28
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289	289	Product 2031 2032 2033 2034
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291	291	Butane $22.08 $22.89 $23.72 $24.57
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293	293	Propane $19.09 $19.78 $20.49 $21.22
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295	295	Gasoline $28.74 $29.80 $30.88 $32.01
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297	297	Diesel $33.23 $34.46 $35.73 $37.03
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299	299	Kerosene $33.04 $34.27 $35.53 $36.82
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301	301	Aviation gas $26.20 $27.20 $28.23 $29.29
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303	303	Jet Fuel $30.74 $31.91 $33.12 $34.37
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305	305	No. 6 Fuel Oil $36.57 $37.93 $39.33 $40.77
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307	307	LPG $18.97 $19.66 $20.36 $21.09
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309	309	Other $33.48 $34.72 $36.00 $37.31
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311	311
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313	313	Product 2035 and each year thereafter
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315	315	Butane $25.44
316	316
317	317	Propane $21.97
318	318
319	319	Gasoline $33.16
320	320
321	321	Diesel $38.37
322	322
323	323	Kerosene $38.15
324	324
325	325	Aviation gas $30.39
326	326
327	327	Jet Fuel $35.65
328	328
329	329	No. 6 Fuel Oil $42.25
330	330
331	331	LPG $21.84
332	332
333	333	Other $38.66
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335	335	The tax for each year referenced above shall take effect on January 1 of that year and continue to be applicable until the effective date of the next increment.
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337	337	The tax imposed by this subsection shall be paid by the distributor of the petroleum product.
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339	339	(b) Tax revenues collected pursuant to subsection (a) shall be distributed in the following priority, with the excess revenues to be deposited into the general fund:
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341	341	(1) [5 cents of the tax on each barrel] $1,291,000 shall be deposited into the environmental response revolving fund established under section 128D-2;
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343	343	(2) [4 cents of the tax on each barrel] $3,872,000 shall be deposited into the energy security special fund established under section 201-12.8;
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345	345	(3) [8 cents of the tax on each barrel] $2,582,000 shall be deposited into the energy systems development special fund established under section 304A-2169.1; [and
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347	347	[](4)[]]3 cents of the tax on each barrel shall be deposited into the electric vehicle charging system subaccount established pursuant to section 269-33(e)[.];
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349	349	(5) 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 created by section 248-8; and
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351	351	(6) 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 created by section 248-8.
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353	353	[The tax imposed by this subsection shall be paid by the distributor of the petroleum product.
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355	355	(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
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357	357	subsection:] is set forth in the following table:
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359	359	Fuel 2023 2024 2025 2026
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361	361	Coal (all
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363	363	forms) $1.29 $3.55 $5.90 $6.13
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365	365	Natural gas
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367	367	(including
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369	369	liquefied
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371	371	natural gas) $0.80 $2.04 $3.34 $3.47
372	372
373	373
374	374
375	375	Fuel 2027 2028 2029 2030
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377	377	Coal (all
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379	379	forms) $6.37 $6.61 $6.87 $7.13
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381	381	Natural gas
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383	383	(including
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385	385	liquefied
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387	387	natural gas) $3.60 $3.73 $3.87 $4.02
388	388
389	389
390	390
391	391	Fuel 2031 2032 2033 2034
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393	393	Coal (all
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395	395	forms) $7.39 $7.67 $7.95 $8.24
396	396
397	397	Natural gas
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399	399	(including
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401	401	liquefied
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403	403	natural gas) $4.16 $4.31 $4.47 $4.63
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405	405
406	406
407	407	Fuel 2035 and each year thereafter
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409	409	Coal (all
410	410
411	411	forms) $8.54
412	412
413	413	Natural gas
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415	415	(including
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417	417	liquefied
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419	419	natural gas) $4.80
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422	422
423	423	The tax for each year referenced above shall take effect on January 1 of that year and continue to be applicable until the effective date of the next increment.
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425	425	The tax imposed by this subsection shall be paid by the distributor of the fossil fuel.
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427	427	(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:
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429	429	(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;
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431	431	(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
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433	433	(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.
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435	435	[The tax imposed by this subsection shall be paid by the distributor of the fossil fuel.
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437	437	(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.
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439	439	[(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.
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441	441	[(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.
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443	443	[(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) or (b),] (b) or (d), as the case may be.
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445	445	[(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.
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447	447	[(h)] (j) For the purposes of this section:
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449	449	"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.
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451	451	"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."
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453	453	SECTION 6. Section 304A-2169.1, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:
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455	455	"(b) Deposits into the special fund may be from the following:
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457	457	(1) Appropriations from the legislature;
458	458
459	459	(2) A portion of the environmental response, energy, carbon emissions, and food security tax pursuant to section 243-3.5; and
460	460
461	461	(3) Investment earnings, gifts, donations, or other income received by the Hawaii natural energy institute."
462	462
463	463	SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
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465	465	SECTION 8. This Act shall take effect upon its approval; provided that section 2 and section 5 shall apply to taxable years beginning after December 31, 2022.
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467	467
468	468
469	469	INTRODUCED BY: _____________________________
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471	471	INTRODUCED BY:
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473	473	_____________________________
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479	479	Report Title: Environmental Response, Energy, Carbon Emissions, and Food Security Tax; Tax Credit Description: Establishes a carbon emissions tax credit. Expands the environmental response, energy, and food security tax to include carbon emissions. The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.
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485	485	Report Title:
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487	487	Environmental Response, Energy, Carbon Emissions, and Food Security Tax; Tax Credit
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491	491	Description:
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493	493	Establishes a carbon emissions tax credit. Expands the environmental response, energy, and food security tax to include carbon emissions.
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501	501	The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.