Flemming: ‘Cap and invest’ is another gas tax

By David Flemming, Ethan Allen Institute

Last week, Jared Duval a member of the Climate Council and the Energy Action Network, testified virtually to the Senate Natural Resources and Energy Committee.

One striking admission: carbon taxes don’t work. “Carbon pricing has been really has historically proven ineffective at reducing fossil fuel use because people’s demand for those fuels is highly inelastic and it…can be very regressive. Having lower income and rural folks paying a higher share of that transition which is something that that we do not want….”

Highly inelastic demand means Vermonters don’t drastically change the quantity of fossil fuels they purchase after a tax increase. Transportation and heat are not luxuries for most people on the lower income bracket. They are necessities.

Duval brought up the Climate Council’s alternative for reducing fossil fuels: “a cap-and-invest strategy which, unlike carbon pricing gives you the clarity of setting an emissions reduction cap that declines over time… the polluters, the fossil fuel suppliers, have to purchase allowances for those emissions. And then those funds go to the participating states to invest in emissions reducing activities.” Duval alludes to the section in the Climate Action Plan, which endorses an immediate requirement for legislative action to authorize the generation and collection of auction revenue from the sale of allowances in a transportation fuel cap and invest program, whether its TCI-P or a comparable approach.”

So, what’s the difference between “Carbon Pricing” and “Cap and Invest”? Both drive up the cost of gas and diesel for the consumer. With a carbon pricing (a straight carbon tax), most plans are sold as “revenue neutral”, meaning the money raised from the carbon tax is used to lower a tax somewhere else. For example, the VPIRG carbon tax of 2015 recommended using the revenue to lower the sales tax. The ESSEX carbon tax of recommended using the revenue to lower electric rates. However, under cap-and-invest, the government keeps the money and spends it on programs it deems important – in this case EV subsidies, charging stations, weatherization, etc. Cap and invest is lose/lose for the taxpayer.

Despite TCI being dead in the water, the Climate Council is still holding out for another “comparable approach.” Only time will tell what that looks like. A statewide credit auction seems most likely.

Under cap-and-invest, gas stations would be coerced into purchasing “allowances for emissions,” to stay in business. These allowances would function quite similarly to a tax. Rather than using a tax to decrease the number of gallons of gas sold, the bureaucracy would set a continuously decreasing number of gallons of gasoline that can be sold in Vermont annually. To obtain permission to sell this gasoline, sellers will enter a state auction.

Increasing the seller’s price ultimately results in an increase in a higher price at the pump. This is especially true when buyers are highly unresponsive to price/tax changes for necessities like gasoline. In such a scenario, economic theory suggests consumers will bear more of the tax burden than suppliers (excluding variables such as state borders).

But the wording of the Climate Plan makes it easy to believe that the government wants to keep this cap-and-invest money to pay for other climate action policies, similar to the first Vermont carbon tax from 2016.

If a statewide auction is set up, gas stations on Vermont’s border will have to consider two hefty competitors with artificial advantages, before they bid for gasoline: 1) centrally located Vermont gas stations, who can afford to pass on more of the government’s burden to their customers because they aren’t competing against out-of-state gas stations and 2) New Hampshire gas stations who currently pay gas taxes at $0.06/gallon less than Vermont, a gap which would grow larger under cap-and-invest. New York gas stations could factor in as well, if the cap-and-trade difference exceeds Vermont’s current $0.15/gallon tax advantage vs. NY.

Any cap-and-invest scheme would eventually make Vermont border gas stations so noncompetitive on price that they would go out of business, long before gasoline is banned entirely. If the cap-and-invest limit becomes 0 gallons of gasoline, centrally located Vermont gas stations wouldn’t be far behind. At that point, one wonders if close-to-the-border Vermonters will be the only ones with gasoline powered cars, spending a Saturday drive filling up across the border. Symbols of fossil fuel defiance to the end, when everyone else is stuck with EV’s.

To watch Duval’s testimony and comments from senators, click here.

Categories: Energy

10 replies »

  1. The first lesson to be learned is that no oligarchy in the world has ever demonstrated the expertise to successfully manipulate the economy without increasing the aspect of unintended consequences. Centralized economic management is, at best, whack-a-mole. The only economic system to ever reasonably adjust to an ever-changing economic environment is one of ‘free markets’. As Milton Freidman taught us,

    “One of the great mistakes is to judge policies and programs by their intentions rather than their results.”


    “[I]f an exchange between two parties is voluntary, it will not take place unless both believe they will benefit from it. Most economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.”

    On VPR this morning, certain legislators expressed concern for the extreme push to electric vehicles. Doing so will significantly decrease the taxes the State procures from the sale of gasoline and diesel fuel.

    Ya think!?

    This isn’t all our legislative nincompoops must cope with. As they stifle the economy (and make no mistake – that’s what they’re doing), tax revenue will continue to decline, inflation will increase, or both. This explains why, with the Trump tax cuts still in place for the most part, federal and state tax revenues are higher today than at any time in history.

    But don’t let that stop the legislature from butchering the goose that laid the golden egg.

    Freidman continues:
    “Most of the energy of political work is devoted to correcting the effects of mismanagement of government.”


    “A major source of objection to a free economy is precisely that it … gives people what they want instead of what a particular group thinks they ought to want. Underlying most arguments against the free market is a lack of belief in freedom itself.”

    I take issue with Freidman on this last sentiment. I’m more cynical. It’s not the ‘lack of belief in freedom itself’ that festers in the legislature. It’s the ‘tyranny of the common’. The cronyism rampant in today’s government will not go away because of good intentions. These people will protect their fiefdoms at all costs. They will bankrupt all of us before they see the light… if they ever do see the light.

    If one projects this scenario out to its end, the final straw that breaks the camel’s back will be a near total reliance on ‘property tax’ to fund the progressive juggernaut. The proposal to tax unrealized capital gains is just such a maneuver. They will deem whatever it is that you own to be more valuable than what they have. It won’t matter that they have lost whatever equity they have accumulated by virtue of our existing ‘free market’ system. As they go personally bankrupt, ‘equity’ becomes their holy grail. They will force you to support their irresponsibility and ignorance.

    Praemonitus praemunitus.

  2. What a bunch of convoluted nonsense ! How come when self important idiots get together to make things “better” for all the little people, the little people get screwed ?

  3. Last week on his first day in office, Virginia’s new Governor Glenn Youngkin issued an Executive Order requiring that the costs and benefits arising from participating in a Regional Greenhouse Gas Initiative be determined.—eo/74—eo/EO-9–RGGI.pdf

    Can you imagine that…….A Governor demanding that the costs and actual benefits for taxpayers be determined before continuing with a major, costly and questionable initiative …….Now, can anyone in the Vermont legislature and/or on the Climate Council tell the taxpayers of Vermont what the Climate Act Plan and all other initiatives tied to the Global Warming Solution Act will cost Vermonters and what benefits they’ll enjoy as result?

    Or could it be that the actual costs and tangible benefits for Vermonters have never been determined and remain unknown?……..Did the legislature/Climate Council simply charged ahead based on climate ideology, Greta Thunberg’s word and intense pressure from the renewable energy interests……Interests that will benefit handsomely from the Action Plan mandates.

    Running a State based on unknowns and ignorance is not sound governance.


      CHAPTER I.

      Article 9. [Citizens’ rights and duties in the state; bearing arms; taxation]

      “….previous to any law being made to raise a tax, the purpose for which it is to be raised ought to appear evident to the Legislature to be of more service to community than the money would be if not collected.”


      Sometimes, more often than not it appears, our governor and legislature just do whatever they damn well please. If we don’t elect people who respect the law, we don’t have law.

      • Is there a basis for suing the State over the Global warming Solution Act based on the provisions of Article 9?

        There has been no reporting to the taxpayers (That I’m aware of) on the costs/benefits to arise from the Climate Action Plan. There have been public statements made based on GWSA comments and testimony that the fight against climate change would cost a fortune with vague or no sources of funding cited.

        Beyond statements of cost, there has been a written statement made by Rep. Scott Campbell, a member of the House Committee and Technology saying:

        ” Let me start by repeating that no one, least of all me, believes Vermont can stop climate change — or even affect climate change.”

        As a member of the House Committee on Energy and Technology, Rep. Campbell heard the testimony that lead to the passing of the GWSA. Based on hearing Committee testimony and what ever other information he may have, Campbell states that “….no one, least of all me, believes Vermont can stop climate change – or even affect climate change.”…….That looks like a basis for a suit under Article 9.

        Maybe an interested party such as the Vermont fuel dealers association that represents a group of businesses targeted to be put out of business by the GWSA should look into suing.

        What do Vermont tax payers think about this situation?……..Undefined and likely very substantial costs to them with no accompanying benefit……Article 9 problem?…….What do you think Jay?

      • Remember, what we ‘believe’ and what we can ‘prove’ are mutually exclusive.

        Can the State be sued? It’s called ‘Sovereign Immunity’. And it has several permutations. Under the 11th Amendment of the U.S. Constitution, a State can’t be sued in Federal Court unless the State waives the immunity – which it is allowed to do. And then there is the difference between “Qualified Immunity’ and ‘Absolute Immunity’.

        State Laws and Acts, on the other hand, can be ‘challenged’ in Federal Court on the basis of constitutionality. Recent School Choice cases, for example, have successfully challenged so-called Blaine Amendment statutes.

        It seems to me, (and while I have stayed in a Holiday Inn Express, I’m not a lawyer) any Vermont law that has been passed without the prerequisite financial analysis can be challenged. But the language in Article 9 seems to be sufficiently vague so as to be unenforceable. That the purpose for which [a tax] is to be raised ‘ought’ to appear a certain way is different than if Article 9 stated that it ‘shall’ appear a certain way. The word ‘ought’ can indicate an ‘obligation or duty’, or it can indicate ‘desirability’. A lawyer’s playground.

        I think a reasonable course of action is to have our conservative legislators demand the financial analysis specified in the Vermont Constitution before calling a vote. At the very least, if an irresponsible majority takes action on a bill and refuses to provide the analysis (as is usually the case), the conservative legislators can cry foul in any number of ways. But there is likely limited remedy available to them.

        Just remember the bruhaha in the U.S. Congress when the Congressional Budget Office (CBO) didn’t provide its financial analysis of the Build Back Better bill in a timely fashion. ‘All’ that did was give Senators Manchin and Sinema support for their position against the bill. And in that case, it was ‘all’ that was necessary to hold the progressives at bay.

  4. Two words to describe this, Clinical Insanity, I’m SURE all these sellers would just LOVE attending these “auctions” too. My favorite? “The Gov.;t keeps the money & spends it on programs it deems important”..Isn’t THAT nice of them! “WE need to pat back our student loans, so WE’ll embed ourselves like ticks and draw OUR sustenance from YOUR wallets” is more like it, these folks are prime examples of educated idiots..

  5. Jay……The sad reality today in Montpelier is that so much of what is done is based on what people say they believe as opposed to what they can prove……This is particularly true of bills pushed by activist groups that are filled with supposition as justification for action versus the citing of hard facts.

    With climate change, we know that there has been no cost/benefit done. If it was done, the legislature must be keeping it a secret because it’s never been shared with the voters. If a cost/benefit analysis has been done but not shared, then let the legislature now show it to the people of Vermont.

    Like you, I’m not a lawyer and don’t know what is legally possible under Article 9 or any other Vermont law. I did however make my living as a banker who completely analyzed ever transaction before acting. Nothing was done without being fully analyzed, fully documented and put forward for approval up to the board of directors depending the size of the transaction. If no such analytical/documentary action was taken by the bank there would be severe consequences from both state and federal bank regulators. In Vermont, bankers have been put in jail for not properly analyzing, justifying, documenting and getting formal board approval for new transactions.

    In the case of the GWSA, it appears that no such cost/benefit analysis has been done. No analysis done on the largest single undertaking in Vermont history……This is governing malpractice and should be formally challenged. Challenged in the court system by citizens or challenged by Gov. Scott via Executive Order as was done by Gov. Youngkin in Virginia.

    • Re: ….much of what is done is based on what people say they believe as opposed to what they can prove……This is particularly true of bills pushed by activist groups that are filled with supposition as justification for action versus the citing of hard facts.”

      A deeper dig, Peter, will expose the underlying fact that it’s not ‘activist groups’ per se pushing these bills, but corrupt cronies taking advantage of paranoia and personal guilt (Mass Formation Psychosis?) to manipulate the sheep into supporting bills from which those cronies profit.

      But I’d hate to be in their shoes when Greta Thunberg, for example, figures out she’s been manipulated by the likes of John Kerry and Al Gore as they profit from policies that, in the final analysis, don’t have the effect on our climate she’s been told they do. Of course, it’s possible that Greta is one of them and profiting from climate change conspiracy theory too.

      That’s why I always follow the money. Which Vermont Public Interest Research Group (VPIRG) members, for example, will be the next to profit from the legislation they lobby for? As did James Moore and Duane Peterson when they sold SunCommon for $40 Million.

      How might politician Peter Welch and his wife, Vermont Public Utilities Commissioner Margaret Cheney, have a conflict of interest?

      Consider Pat Leahy and his wife, Marcelle Pomerleau (niece of real estate tycoon Tony Pomerleau) who lobbied for the now infamous EB-5 real estate debacle.

      And on a national scale, look at Dr. Anthony Fauci, highest paid federal employee in charge of billions of dollars (if not trillions) in Covid research and vaccine distribution collaborations with ‘big pharma’. Where are the ‘bioethics’ folks when we need them? Oh, you didn’t know. Fauci’s wife, Dr. Christine Grady, is Chief of the Department of Bioethics at the NIH – responsible for guiding the ‘ethics’ of the National Institutes for Health work, under which her husband’s National Institute of Allergy and Infectious Diseases (NIAID) operates.

      What’s shameful is that this is all common knowledge. But because, in Vermont at least, more than 40% of the workforce is employed in government, health and education (the heavily tax subsidized sectors of the economy) and the State has the highest per capita formation of non-profit companies, almost everyone is ‘on the take’. And they won’t stop what they’re doing until we go bankrupt – as have all socialist enterprises in the history of the planet. From the U.S.S.R. to Cuba, to East Germany, to Venezuela, to North Korea, and soon-to-be-China – their last vestiges of control are manifest in their totalitarian command of the population.

      Unfortunately, Vermont, indeed, the U.S., are apparently, soon to follow.

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