Hawaii’s leaders are moving along one of the most consequential climate policies considered by our Legislature — a carbon fee and refundable tax credit.

The measure, House Bill 2278, promises to create an environment that will accelerate our transition away from fossil fuels, contributing to much-needed emissions reductions while protecting our low-to-moderate income households. It does this by putting a predictable increasing price on carbon pollution.

This will increase the cost of fossil fuels and incentivize reducing their utilization — much as a tax on cigarettes reduced consumption. Furthermore, HB 2278 mandates that the tax revenue be returned to residents to offset the expected increase in prices. This allows the tax to be progressive — it does not grow government but will enable residents, especially those in low-to-moderate income households, to benefit.

HB 2278 has garnered significant support from many during its committee hearings in the House. This acknowledges its effectiveness in reducing emissions and allowing for an equitable transition to a lower carbon reality. It is now facing a House vote before crossing over to the Senate.

HB 2278 is effective because it adopts a carbon fee and dividend model, much as was described in a UHERO study and recently recommended by the Hawaii Tax Review Commission.

The UHERO study was commissioned to understand the impact of carbon pricing on low-to-moderate income households. It concluded that it is possible to cut emissions to 40% below 2019 levels with a carbon tax.

Further, the policy would benefit low-to-moderate income households if revenues were returned to residents.

Does It Work?

Questions have been raised about the efficacy of the strategy. One need only look at the global stage to realize that many governments have implemented carbon pricing. There are currently close to 30 countries with one. The U.S. and Australia are among the countries with developed economies that don’t have a carbon tax.

Sweden implemented a carbon tax in 1991 and has the highest price globally at $137 per ton. It reduced its emissions by 25% by 2000. At the same time, its economy grew by 60%.

British Columbia implemented its carbon tax in 2008, which is currently at $45 per ton. Studies have shown that it had a minimal impact on the economy while reducing emissions between 5% and 15%.

Carbon pricing will encourage investment and innovation in clean energy solutions. The European Union’s carbon price has been cited as one of the main reasons electric vehicle penetration in Europe far exceeds that of the U.S. Furthermore, Metcalf and Stock find that the EU’s carbon price has a very negligible impact on its overall economy.

Carbon Pricing Is Popular, Will Benefit All

Placing a price on carbon pollution has been endorsed by thousands of economists, former chairs of the Federal Reserve, the U.S. Chamber of Commerce and Business Roundtable, prominent religious groups, Pope Francis, and many prominent individuals and businesses.

A gradually rising price on carbon pollution, as proposed in HB 2278, offers flexibility in the response. Carbon pricing can maximize resources by implementing energy efficiency measures, deploying renewables and cutting fuel consumption. While added costs can be passed on to consumers, they can come out ahead by reducing their energy and fuel consumption.

With HB 2278, consumers can adjust to gradually increasing costs, and with the refundable tax credit, they will be better able to accommodate the price increases. Additionally, they can save even more by adopting energy efficiency measures — conserving electricity, driving more efficient cars and making homes more efficient. This will allow more of their refundable tax credit to be spent on other necessities.

Notably, a market shift away from fossil fuels will increase investment in and adoption of renewable energy and clean transportation. This will ultimately result in lower energy costs (renewables are cheaper than fossil fuel-based electricity) and lower transportation costs (electric cars are more affordable to fuel and maintain).

Global Pressure Is Growing

The EU and Canada have announced plans to implement carbon border adjustments — tariffs on high carbon product imports from countries without a similar carbon tax. This border tax allows importing countries to level the playing field for their businesses.

It has the effect of encouraging countries to implement a price on carbon. While members of Congress have discussed U.S. carbon border taxes, they cannot implement one effectively without a domestic carbon tax.

There are carbon pricing bills in the current Congress and support for including a carbon price in the Budget Reconciliation. Notably, developments in the U.S. Supreme Court highlight how regulations are fraught with the risk of political threats. (They are also complex, costly and often regressive.)

The Climate Emergency Is Here

The climate crisis is our existential threat. The latest IPCC report reiterates the need for urgent climate action and confirms the consequences of inaction.

“The world faces unavoidable multiple climate hazards over the next two decades with global warming of 1.5 degrees Celsius (2.7 degree Fahrenheit). Even temporarily exceeding this warming level will result in additional severe impacts, some of which will be irreversible. Risks for society will increase, including to infrastructure and low-lying coastal settlements.”

We cannot afford to sit back and hope that the rest of the globe will solve global warming. While our emissions are a fraction of the globe’s, we contribute to the ever-increasing atmospheric CO2 (recently at 420 PPM). As global citizens, we have a responsibility to act and do our share to cut greenhouse gas emissions.

Importantly, we have an opportunity to not only reduce our fossil fuel dependence and our global-warming emissions, but we can influence the rest of the nation to do the same. If the most petroleum-dependent state in the nation with a strong reliance on fossil fuel imports from countries like Libya and Russia can price carbon, others will follow.

We need carbon cashback. We must pass HB 2278.