Hawaii’s most promising pathways to a carbon-free economy are coming into focus with the recent release of the report Hawaii Pathways to Decarbonization. Importantly, state lawmakers have introduced bills (Senate Bill 2525 and House Bill 2178) that would implement one of the report’s key recommendations.

Commissioned by the Legislature in 2022 (Act 238), the Hawaii State Energy Office report includes two dozen recommendations to achieve the state’s decarbonization goals. First among them is a recommendation to keep our existing carbon emission targets: to cut emissions to 50% of Hawaii’s 2005 level by 2030 and reach net-negative emissions by 2045.

Monique Schafer, decarbonization program manager for the energy office, said, “The goals established are not haphazard goals, and are set to avoid some of the most substantial impacts from a warming planet.”

One of the report’s recommendations stands out as an effective way to reduce carbon emissions. It calls for a “carbon surcharge” using the state’s existing barrel tax, with dividends paid back to residents. Also known as “carbon cashback,” this approach would bring about big cuts in emissions by incentivizing a switch away from fossil fuels.

The cashback part of the policy — giving some or all of the revenues back to households in equal shares — would offset the increased cost of fossil fuel products during the transition to a carbon-free economy.
Last week, legislators in the Senate and House introduced bills to establish a carbon cashback program (Senate Bill 2525 and House Bill 2178).

Reducing Emissions

According to the Economic Research Organization at the University of Hawaii, a carbon fee set at the level proposed in the newly introduced bills would reduce the state’s emission level by about 13% after 20 years. By paying back most of the carbon fee revenues to Hawaii residents in equal shares as climate rebates, most households in the state would come out ahead — their rebates would exceed the higher costs they pay for fossil fuel products.

Importantly, the policy proposed in the carbon cashback bills would benefit lower-income households the most. The most vulnerable families — the 20% of Hawaii’s households with the lowest incomes — would receive a net benefit of about $900 per year, on average.

(The Hawaii State Energy Office recommendation differs from the carbon cashback bills in that it would use revenues for both dividends paid to “income qualifying residents” and investments in “lower-carbon infrastructure.”)

This remarkable outcome is due in part to tourism. Visitors would pay the carbon fee through the products and services they buy, but they wouldn’t be eligible for the climate rebates, so they would effectively contribute to the rebates paid to residents.

In this respect, the policy would act like a “green fee” or “climate impact fee.”

The energy office isn’t the first state entity to recommend a carbon cashback program. Hawaii’s 2020-2022 Tax Review Commission put carbon cashback at the top of its recommendations for tax reform.

Hawaii’s Climate Change Mitigation and Adaptation Commission also supports carbon cashback, stating in past testimony to the Legislature that “putting a price on carbon is the most effective single action that will achieve Hawaii’s ambitious and necessary emissions reduction goals.” Hawaii Pathways to Decarbonization gives us a roadmap to those goals.

“We are at a critical point,” said Schafer of the Energy Office. “As a state, although our emissions are small when compared to total emissions globally, we have historically been a leader in the fight against climate change. We must do everything we can. I truly hope the report is thoroughly reviewed and provides a foundation for much needed systematic change.”

It’s time for the Legislature to pass carbon cashback (SB 2525 and HB 2178) and all other policies that will effectively put us on a path to a decarbonized, sustainable, and resilient future. The longer we wait, the steeper and more costly the path will become.