A Different Kind of Carbon Tax

My primary policy areas at the California Chamber of Commerce are privacy and tax. Yet, when I heard there was going to be a proposal for a “carbon tax” this session, I didn’t pay a lot of attention at first. I assumed that the “carbon tax” would be a tax on fossil fuel emissions, and that my brilliant, climate change-specializing, CalChamber colleague, Leah Silverthorn, would be participating in some sort of renewed “carbon tax” versus cap-and-trade debate this year.

Well, you know what they say about making assumptions….

I was wrong. The “carbon tax” being contemplated this session would replace California’s sales-and-use tax with a “carbon tax” based on the “carbon intensity” of specific products.

Yes, you read that right—it’s basically the creation of a “carbon sales tax”: retail products sold or used in this state with greater “carbon intensity” will be taxed at a higher rate. The goal is to use higher prices to influence Californians to purchase products in a way that is supposed to help reduce climate change.

Fortunately, the “carbon sales tax” bill, SB 43 (Allen; D-Santa Monica), is a study bill—because there is a lot to study!

Questions

Here are just some of the initial questions I have:

• Who within the California Air Resources Board (CARB) or the California Department of Tax and Fee Administration (CDTFA) will determine the “carbon intensity” of every single product sold or used in California? Would it be a team of scientists? Would companies around the country and the world have to send the CDTFA some sort of form assessing the “carbon intensity” of every single one of their products sold in California? How will the CDTFA verify the accuracy of such information? How will they enforce this new requirement here in California when so many products come from out of state or from another country?

• Assuming they can do this, how will they convey the specific carbon sales tax for every single product to retailers in this state? Could they assign the different rates of carbon sales taxes to categories of products? Or would this be unfair because two companies could produce the same type of product with significantly different carbon intensities?

• What will be included in the determination of “carbon intensity”? Some of the factors contributing to “carbon intensity” can include the amount of fuel combusted, the number of animals used, certain industrial processes, and distances traveled. What else?

• What will be the impact of assessing a carbon sales tax based—in part—on how far a product must travel to get to our state? If the same company produces a product in two different states, one closer to California than the other, will that same product from the same company have two different prices? Will the distance to each local jurisdiction in our large state be part of the “carbon intensity” measurement? For example, if a product is manufactured in Oregon and sold in San Diego, will it have a different “carbon intensity” measurement than the same product sold in Sacramento?

• How will the carbon sales tax impact lower-income Californians? Will there be some Californians who don’t have many options when trying to buy products with a lower “carbon intensity”? Will it impact their ability to buy meat and dairy products, including milk and formula? Will it increase the cost of their utilities and driving? Will their cost of living go up?

• Per SB 43, the carbon sales tax has a goal of revenue neutrality. Yet, if the carbon sales tax is successful at getting consumers to stop purchasing products with higher carbon emissions, via their higher tax rates, wouldn’t revenue ultimately be diminished?

• California’s sales-and-use tax is one of the state’s most stable forms of revenue. How would a carbon sales tax impact budget volatility?

Considering the seismic shift of our tax system contemplated by SB 43 and the correspondingly massive administrative burden, I hope any study would pursue these questions and many more. But I—for one—will not be making any more assumptions!

Staff Contact: Sarah Boot

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Sarah Boot
Sarah R. Boot joined the CalChamber in March 2018 as a policy advocate specializing in privacy/technology, telecommunications, economic development, and taxation issues. Before joining CalChamber, Boot was a top adviser to now-Senate President Pro Tem Toni G. Atkins, serving as the senator’s legislative director and as lead staffer on legal, privacy, telecommunications, business, and technology issues, among many others. Boot also was principal consultant to Atkins during her time as Assembly Speaker and Speaker Emeritus. For three years, Boot was an assistant U.S. attorney in the Southern District of California. She prosecuted a broad array of federal crimes, including bank robbery, sex trafficking of minors, and narcotics trafficking. In private practice, Boot spent three years litigating complex civil and intellectual property litigation, primarily representing Internet and technology companies. Boot earned her J.D. from the University of Michigan Law School. She graduated from the University of Michigan with an honors degree in political science and a minor in Spanish