Hawaii 2023 Regular Session

Hawaii House Bill HB1498 Compare Versions

Only one version of the bill is available at this time.

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1	1	HOUSE OF REPRESENTATIVES H.B. NO. 1498 THIRTY-SECOND LEGISLATURE, 2023 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	HOUSE OF REPRESENTATIVES H.B. NO. 1498
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13	13	THIRTY-SECOND LEGISLATURE, 2023
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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 around 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 emission of greenhouse gases, leading to a more sustainable environment and reducing local air pollution. Dozens of eminent economists have endorsed a policy that taxes carbon and returns revenues, commonly known as dividends, to households. The University of Hawaii Economic Research Organization (UHERO) conducted a study on a carbon tax that was released in April 2021 entitled, "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. As of 2022, a total of 3,623 economists had signed a statement on carbon dividends endorsing a carbon tax, 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 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. Carbon pricing bills have been introduced in the State 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. Additionally, 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 2024, earlier than the UHERO date, with a modified tax rate and by 2026 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 Act utilizes the metric tons of emissions for carbon dioxide, methane, and nitrous oxide per gallon of fuel. For coal and natural gas, this Act utilizes 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 also finds that this same methodology can be used to derive the CO2e emissions rate for all fossil fuels. These emission rates can then 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 2024): $59/MT of CO2e * 0.37 MT of CO2e/bbl = $18.51/bbl. Therefore, 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. 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. 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, United States 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." Secretary Yellen emphasized its positive effect on jobs, growth, competitiveness and fairness. Accordingly, 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: (1) $65 for 2024 $210 for 2025 $360 for 2026 $380 for 2027 $420 for 2028 $440 for 2029 $440 for 2030 $440 for 2031 $440 for 2032 $450 for 2033 $460 for 2034 $470 for 2035 $480 for 2036 and every year thereafter for taxpayers filing as single or married filing separately; (2) $65 for 2024 $210 for 2025 $360 for 2026 $380 for 2027 $420 for 2028 $440 for 2029 $440 for 2030 $440 for 2031 $440 for 2032 $450 for 2033 $460 for 2034 $470 for 2035 $480 for 2036 and every year thereafter for taxpayers filing as a head of household; or (3) $130 for 2024 $420 for 2025 $720 for 2026 $760 for 2027 $850 for 2028 $880 for 2029 $880 for 2030 $880 for 2031 $880 for 2032 $900 for 2033 $920 for 2034 $940 for 2035 $960 for 2036 and every year thereafter for taxpayers filing a joint return or as a surviving spouse; and (4) $30 for 2024 $100 for 2025 $180 for 2026 $190 for 2027 $201 for 2028 $220 for 2029 $220 for 2030 $220 for 2031 $220 for 2032 $220 for 2033 $230 for 2034 $230 for 2035 $240 for 2036 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 as may be 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 dependent" means a minor who: (1) Resides with the qualified taxpayer; and (2) Is claimed as a dependent by the qualified 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 2024 2025 2026 2027 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 2028 2029 2030 2031 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 2032 2033 2034 2035 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 2036 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 shall continue until the effective date of the next increment. The tax imposed by this subsection shall be paid by the distributor of the petroleum product. (b) Tax revenues collected pursuant to subsection (a) shall be distributed in the following priority each fiscal year, with the excess revenues to be deposited into the general fund: (1) [5 cents of the tax on each barrel] $1,116,000 shall be deposited into the environmental response revolving fund established under section 128D-2; (2) [4 cents of the tax on each barrel] $892,800 shall be deposited into the energy security special fund established under section 201-12.8; (3) [5 cents of the tax on each barrel] $1,116,000 shall be deposited into the energy systems development special fund established under section 304A-2169.1; (4) [3 cents of the tax on each barrel] $669,600 shall be deposited into the electric vehicle charging system subaccount established pursuant to section 269-33(e); [and] (5) [3 cents of the tax on each barrel] $669,600 shall be deposited into the hydrogen fueling system subaccount established pursuant to section 269-33(f)[.]; (6) All taxes paid on gasoline or other aviation fuel sold for use in or used for airplanes shall be deposited in the airport revenue fund established under section 248-8; and (7) All taxes paid on gasoline, diesel, or other fuel sold for use in or used for small boats shall be deposited in the boating special fund established under section 248-8. [The tax imposed by this subsection shall be paid by the distributor of the petroleum product.] [(b)] (c) In addition to subsection (a), the environmental response, energy, carbon emissions, and food security tax shall also be imposed on each one million British thermal units of fossil fuel sold by a distributor to any retail dealer or end user, other than a refiner, of fossil fuel. The tax [shall be 19 cents] on each one million British thermal units of fossil fuel[; provided that of the tax collected pursuant to this subsection:] is set forth in the following table: Fuel 2024 2025 2026 2027 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 2028 2029 2030 2031 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 2032 2033 2034 2035 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 2036 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 shall continue until the effective date of the next increment. The tax imposed by this subsection shall be paid by the distributor of the fossil fuel. (d) Tax revenues collected pursuant to subsection (c) shall be distributed in the following priority each fiscal year, with the excess revenues to be deposited into the general fund: (1) [4.8 per cent of the tax on each one million British thermal units] $49,000 shall be deposited into the environmental response revolving fund established under section 128D-2; (2) [14.3 per cent of the tax on each one million British thermal units] $147,000 shall be deposited into the energy security special fund established under section 201-12.8; and (3) [9.5 per cent of the tax on each one million British thermal units] $98,000 shall be deposited into the energy systems development special fund established under section 304A-2169.1. [The tax imposed by this subsection shall be paid by the distributor of the fossil fuel.] [(c)] (e) The tax imposed under subsection [(b)] (c) shall not apply to coal used to fulfill [a signed] an existing power purchase agreement between an independent power producer and an electric utility that is in effect as of June 30, 2015[.]; provided that this exemption from taxation shall not apply to any extension of an existing power purchase agreement or to any subsequent power purchase agreement. An independent power producer shall be permitted to pass the tax imposed under subsection [(b)] (c) on to an electric utility. In [which case,] any case in which the tax is passed on, the electric utility may recover the cost of the tax through an appropriate surcharge to the end user that is approved by the public utilities commission. [(d)] (f) A gas utility shall be allowed to recover the cost of the tax imposed under subsection [(b)] (c) as part of its fuel cost in its fuel adjustment charge without further approval by the public utilities commission. [(e)] (g) Each distributor subject to the tax imposed by subsection (a) or [(b),] (c), on or before the last day of each calendar month, shall file, in the form and manner prescribed by the department, a return statement of the tax under this section for which the distributor is liable for the preceding month. The form and payment of the tax shall be transmitted to the department in the form and manner prescribed by the department. [(f)] (h) Notwithstanding section 248-8 to the contrary, the environmental response, energy, carbon emissions, and food security tax collected under this section shall be paid over to the director of finance for deposit as provided in subsection [(a) 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 emission, 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 of this Act shall apply to taxable years beginning after December 31, 2023. 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 around 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 emission of greenhouse gases, leading to a more sustainable environment and reducing local air pollution.
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51	51	Dozens of eminent economists have endorsed a policy that taxes carbon and returns revenues, commonly known as dividends, to households. The University of Hawaii Economic Research Organization (UHERO) conducted a study on a carbon tax that was released in April 2021 entitled, "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	As of 2022, a total of 3,623 economists had signed a statement on carbon dividends endorsing a carbon tax, 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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55	55	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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57	57	Carbon pricing bills have been introduced in the State 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	Additionally, 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 2024, earlier than the UHERO date, with a modified tax rate and by 2026 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 Act utilizes the metric tons of emissions for carbon dioxide, methane, and nitrous oxide per gallon of fuel. For coal and natural gas, this Act utilizes 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 also finds that this same methodology can be used to derive the CO2e emissions rate for all fossil fuels. These emission rates can then 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 2024): $59/MT of CO2e * 0.37 MT of CO2e/bbl = $18.51/bbl. Therefore, 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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69	69	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.
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71	71	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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73	73	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, United States 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." Secretary Yellen emphasized its positive effect on jobs, growth, competitiveness and fairness.
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75	75	Accordingly, 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.
76	76
77	77	SECTION 2. Chapter 235, Hawaii Revised Statutes, is amended by adding a new section to be appropriately designated and to read as follows:
78	78
79	79	"§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.
80	80
81	81	(b) The amount of the tax credit shall be equal to the sum of the following:
82	82
83	83	(1) $65 for 2024
84	84
85	85	$210 for 2025
86	86
87	87	$360 for 2026
88	88
89	89	$380 for 2027
90	90
91	91	$420 for 2028
92	92
93	93	$440 for 2029
94	94
95	95	$440 for 2030
96	96
97	97	$440 for 2031
98	98
99	99	$440 for 2032
100	100
101	101	$450 for 2033
102	102
103	103	$460 for 2034
104	104
105	105	$470 for 2035
106	106
107	107	$480 for 2036 and every year thereafter
108	108
109	109	for taxpayers filing as single or married filing separately;
110	110
111	111	(2) $65 for 2024
112	112
113	113	$210 for 2025
114	114
115	115	$360 for 2026
116	116
117	117	$380 for 2027
118	118
119	119	$420 for 2028
120	120
121	121	$440 for 2029
122	122
123	123	$440 for 2030
124	124
125	125	$440 for 2031
126	126
127	127	$440 for 2032
128	128
129	129	$450 for 2033
130	130
131	131	$460 for 2034
132	132
133	133	$470 for 2035
134	134
135	135	$480 for 2036 and every year thereafter
136	136
137	137	for taxpayers filing as a head of household; or
138	138
139	139	(3) $130 for 2024
140	140
141	141	$420 for 2025
142	142
143	143	$720 for 2026
144	144
145	145	$760 for 2027
146	146
147	147	$850 for 2028
148	148
149	149	$880 for 2029
150	150
151	151	$880 for 2030
152	152
153	153	$880 for 2031
154	154
155	155	$880 for 2032
156	156
157	157	$900 for 2033
158	158
159	159	$920 for 2034
160	160
161	161	$940 for 2035
162	162
163	163	$960 for 2036 and every year thereafter
164	164
165	165	for taxpayers filing a joint return or as a surviving spouse; and
166	166
167	167	(4) $30 for 2024
168	168
169	169	$100 for 2025
170	170
171	171	$180 for 2026
172	172
173	173	$190 for 2027
174	174
175	175	$201 for 2028
176	176
177	177	$220 for 2029
178	178
179	179	$220 for 2030
180	180
181	181	$220 for 2031
182	182
183	183	$220 for 2032
184	184
185	185	$220 for 2033
186	186
187	187	$230 for 2034
188	188
189	189	$230 for 2035
190	190
191	191	$240 for 2036 and every year thereafter
192	192
193	193	per qualifying dependent who is a minor.
194	194
195	195	(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.
196	196
197	197	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.
198	198
199	199	(d) The director of taxation:
200	200
201	201	(1) Shall prepare any forms that may be necessary to claim a tax credit under this section;
202	202
203	203	(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
204	204
205	205	(3) May adopt rules under chapter 91 as may be necessary to effectuate the purposes of this section.
206	206
207	207	(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.
208	208
209	209	(f) As used in this section:
210	210
211	211	"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.
212	212
213	213	"Qualifying dependent" means a minor who:
214	214
215	215	(1) Resides with the qualified taxpayer; and
216	216
217	217	(2) Is claimed as a dependent by the qualified taxpayer."
218	218
219	219	SECTION 3. Section 128D-2, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
220	220
221	221	"(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."
222	222
223	223	SECTION 4. Section 201-12.8, Hawaii Revised Statutes, is amended by amending subsection (a) to read as follows:
224	224
225	225	"(a) There is created within the state treasury an energy security special fund, which shall consist of:
226	226
227	227	(1) The portion of the environmental response, energy, carbon emissions, and food security tax specified under section 243-3.5;
228	228
229	229	(2) Moneys appropriated to the fund by the legislature;
230	230
231	231	(3) All interest attributable to investment of money deposited in the fund; and
232	232
233	233	(4) Moneys allotted to the fund from other sources, including under section 196-6.5."
234	234
235	235	SECTION 5. Section 243-3.5, Hawaii Revised Statutes, is amended to read as follows:
236	236
237	237	"§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:
238	238
239	239	Product 2024 2025 2026 2027
240	240
241	241	Butane $4.26 $10.86 $17.73 $18.40
242	242
243	243	Propane $3.80 $ 9.46 $15.35 $15.93
244	244
245	245	Gasoline $5.27 $13.96 $23.00 $23.89
246	246
247	247	Diesel $5.95 $16.06 $26.57 $27.60
248	248
249	249	Kerosene $5.93 $15.97 $26.42 $27.44
250	250
251	251	Aviation gas $3.99 $12.22 $20.77 $21.61
252	252
253	253	Jet Fuel $4.68 $14.33 $24.37 $25.35
254	254
255	255	No. 6 Fuel Oil $6.46 $17.62 $29.22 $30.35
256	256
257	257	LPG $3.78 $ 9.41 $15.26 $15.83
258	258
259	259	Other $5.99 $16.18 $26.76 $27.80
260	260
261	261
262	262
263	263	Product 2028 2029 2030 2031
264	264
265	265	Butane $19.09 $19.81 $20.55 $21.30
266	266
267	267	Propane $16.52 $17.14 $17.77 $18.42
268	268
269	269	Gasoline $24.80 $25.74 $26.71 $27.71
270	270
271	271	Diesel $28.66 $29.75 $30.88 $32.04
272	272
273	273	Kerosene $28.50 $29.58 $30.70 $31.86
274	274
275	275	Aviation gas $22.48 $23.37 $24.28 $25.23
276	276
277	277	Jet Fuel $26.37 $27.41 $28.49 $29.60
278	278
279	279	No. 6 Fuel Oil $31.53 $32.73 $33.98 $35.26
280	280
281	281	LPG $16.42 $17.03 $17.66 $18.31
282	282
283	283	Other $28.87 $29.98 $31.11 $32.28
284	284
285	285
286	286
287	287	Product 2032 2033 2034 2035
288	288
289	289	Butane $22.08 $22.89 $23.72 $24.57
290	290
291	291	Propane $19.09 $19.78 $20.49 $21.22
292	292
293	293	Gasoline $28.74 $29.80 $30.88 $32.01
294	294
295	295	Diesel $33.23 $34.46 $35.73 $37.03
296	296
297	297	Kerosene $33.04 $34.27 $35.53 $36.82
298	298
299	299	Aviation gas $26.20 $27.20 $28.23 $29.29
300	300
301	301	Jet Fuel $30.74 $31.91 $33.12 $34.37
302	302
303	303	No. 6 Fuel Oil $36.57 $37.93 $39.33 $40.77
304	304
305	305	LPG $18.97 $19.66 $20.36 $21.09
306	306
307	307	Other $33.48 $34.72 $36.00 $37.31
308	308
309	309
310	310
311	311	Product 2036 and each year thereafter
312	312
313	313	Butane $25.44
314	314
315	315	Propane $21.97
316	316
317	317	Gasoline $33.16
318	318
319	319	Diesel $38.37
320	320
321	321	Kerosene $38.15
322	322
323	323	Aviation gas $30.39
324	324
325	325	Jet Fuel $35.65
326	326
327	327	No. 6 Fuel Oil $42.25
328	328
329	329	LPG $21.84
330	330
331	331	Other $38.66
332	332
333	333	The tax for each year referenced above shall take effect on January 1 of that year and shall continue until the effective date of the next increment.
334	334
335	335	The tax imposed by this subsection shall be paid by the distributor of the petroleum product.
336	336
337	337	(b) Tax revenues collected pursuant to subsection (a) shall be distributed in the following priority each fiscal year, with the excess revenues to be deposited into the general fund:
338	338
339	339	(1) [5 cents of the tax on each barrel] $1,116,000 shall be deposited into the environmental response revolving fund established under section 128D-2;
340	340
341	341	(2) [4 cents of the tax on each barrel] $892,800 shall be deposited into the energy security special fund established under section 201-12.8;
342	342
343	343	(3) [5 cents of the tax on each barrel] $1,116,000 shall be deposited into the energy systems development special fund established under section 304A-2169.1;
344	344
345	345	(4) [3 cents of the tax on each barrel] $669,600 shall be deposited into the electric vehicle charging system subaccount established pursuant to section 269-33(e); [and]
346	346
347	347	(5) [3 cents of the tax on each barrel] $669,600 shall be deposited into the hydrogen fueling system subaccount established pursuant to section 269-33(f)[.];
348	348
349	349	(6) All taxes paid on gasoline or other aviation fuel sold for use in or used for airplanes shall be deposited in the airport revenue fund established under section 248-8; and
350	350
351	351	(7) All taxes paid on gasoline, diesel, or other fuel sold for use in or used for small boats shall be deposited in the boating special fund established under section 248-8.
352	352
353	353	[The tax imposed by this subsection shall be paid by the distributor of the petroleum product.]
354	354
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 subsection:] is set forth in the following table:
356	356
357	357	Fuel 2024 2025 2026 2027
358	358
359	359	Coal (all
360	360
361	361	forms) $1.29 $3.55 $5.90 $6.13
362	362
363	363	Natural gas
364	364
365	365	(including
366	366
367	367	liquefied
368	368
369	369	natural gas) $0.80 $2.04 $3.34 $3.47
370	370
371	371
372	372
373	373	Fuel 2028 2029 2030 2031
374	374
375	375	Coal (all
376	376
377	377	forms) $6.37 $6.61 $6.87 $7.13
378	378
379	379	Natural gas
380	380
381	381	(including
382	382
383	383	liquefied
384	384
385	385	natural gas) $3.60 $3.73 $3.87 $4.02
386	386
387	387
388	388
389	389	Fuel 2032 2033 2034 2035
390	390
391	391	Coal (all
392	392
393	393	forms) $7.39 $7.67 $7.95 $8.24
394	394
395	395	Natural gas
396	396
397	397	(including
398	398
399	399	liquefied
400	400
401	401	natural gas) $4.16 $4.31 $4.47 $4.63
402	402
403	403
404	404
405	405	Fuel 2036 and each year thereafter
406	406
407	407	Coal (all
408	408
409	409	forms) $8.54
410	410
411	411	Natural gas
412	412
413	413	(including
414	414
415	415	liquefied
416	416
417	417	natural gas) $4.80
418	418
419	419	The tax for each year referenced above shall take effect on January 1 of that year and shall continue until the effective date of the next increment.
420	420
421	421	The tax imposed by this subsection shall be paid by the distributor of the fossil fuel.
422	422
423	423	(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:
424	424
425	425	(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;
426	426
427	427	(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
428	428
429	429	(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.
430	430
431	431	[The tax imposed by this subsection shall be paid by the distributor of the fossil fuel.]
432	432
433	433	[(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.
434	434
435	435	[(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.
436	436
437	437	[(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.
438	438
439	439	[(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.
440	440
441	441	[(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.
442	442
443	443	[(h)] (j) For the purposes of this section:
444	444
445	445	"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.
446	446
447	447	"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."
448	448
449	449	SECTION 6. Section 304A-2169.1, Hawaii Revised Statutes, is amended by amending subsection (b) to read as follows:
450	450
451	451	"(b) Deposits into the special fund may be from the following:
452	452
453	453	(1) Appropriations from the legislature;
454	454
455	455	(2) A portion of the environmental response, energy, carbon emission, and food security tax pursuant to section 243-3.5; and
456	456
457	457	(3) Investment earnings, gifts, donations, or other income received by the Hawaii natural energy institute."
458	458
459	459	SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
460	460
461	461	SECTION 8. This Act shall take effect upon its approval; provided that section 2 and section 5 of this Act shall apply to taxable years beginning after December 31, 2023.
462	462
463	463
464	464
465	465	INTRODUCED BY: _____________________________
466	466
467	467	INTRODUCED BY:
468	468
469	469	_____________________________
470	470
471	471
472	472
473	473
474	474
475	475
476	476
477	477
478	478
479	479
480	480
481	481
482	482
483	483
484	484
485	485
486	486
487	487	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. Applies to taxable years beginning after 12/31/2023. The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.
488	488
489	489
490	490
491	491
492	492
493	493	Report Title:
494	494
495	495	Environmental Response, Energy, Carbon Emissions, and Food Security Tax; Tax Credit
496	496
497	497
498	498
499	499	Description:
500	500
501	501	Establishes a carbon emissions tax credit. Expands the environmental response, energy, and food security tax to include carbon emissions. Applies to taxable years beginning after 12/31/2023.
502	502
503	503
504	504
505	505
506	506
507	507
508	508
509	509	The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.