by Hadley Barndollar, New Hampshire Bulletin

If the New Hampshire Legislature passes House Bill 1486, the state would be required to consider proxy carbon prices in its spending decisions relative to transportation and buildings.

Carbon pricing is an economic instrument and market-based mechanism to curb greenhouse gas emissions, one that is becoming increasingly popular across the globe. According to the World Bank, 73 carbon pricing initiatives have been implemented, covering 23 percent of global greenhouse gas emissions in 2023. 

The U.S. doesn’t currently have a federal tax on carbon, though various lawmakers in Congress have proposed related legislation in recent years.

Anticipating a future carbon tax, Rep. Nicholas Germana, a Keene Democrat, is proposing that the state start taking one into account – what he’s calling “proxy” carbon pricing. HB 1486 would apply specifically to state spending decisions, such as the construction of a new building or purchase of new vehicles. In practice, this would mean state agency purchasing departments would have to consider the cost analysis of carbon impacts in their acquisitions.

“This is a situation I think where we can walk and chew gum at the same time,” Germana said. “We can reduce the burden on taxpayers and reduce carbon emissions. Markets are based on incentives. Absent incentives, it is pretty close to the literal definition of insanity to believe someone will change their behavior.”

Though carbon pricing is often discussed primarily as a tool to fight climate change, Germana presented it to lawmakers as a way to save taxpayers money. He warned members of the House Executive Departments and Administration Committee earlier this month that a federal carbon tax “is coming,” citing existing ones in Canada and the European Union. 

If the U.S. doesn’t go that route, he argued, the country could be at a “significant economic disadvantage,” as it will hurt exports to those international markets. Last October, for example, the European Union began the initial phase of a Europe-wide tax on carbon in imported goods.

As written, the Democrat-sponsored bill would direct the Department of Administrative Services, which manages state government procurement, to take into account a proxy carbon price of $85 per ton starting Jan. 1, 2025, and increase the cost per ton by $10 every Jan. 1 until 2050. 

The $85 per ton is in line with current pricing in Europe, as well as recommendations by the United Nations’ Intergovernmental Panel on Climate Change.

Carbon pricing is ‘the fiscally responsible thing to do’

Charles Wheelan, a senior lecturer and policy fellow at the Rockefeller Center at Dartmouth College, testified that markets don’t “necessarily get things right” when there’s a cost that parties don’t have to incur. In this case, Wheelan was referring to pollution and climate change – fossil fuel generators impact the environment and public health, he argued, but aren’t held financially responsible for those impacts.

“The most important thing about this bill is that it would give the state the power to look at the real social cost of whatever they’re purchasing,” he said. 

A carbon price, Wheelan said, is a more efficient way to manage pollution than regulation. He also called it “the fiscally responsible thing to do.”

“If you’re making a procurement decision and one option involves a significant amount of carbon emissions that then does damage elsewhere in the state, whether its climate change-related damage to the ski industry, or erosion on the Seacoast, or health effects that are borne by the state, then in your purchasing decision, you can incorporate those costs,” Wheelan said, adding that he was agnostic about the price of carbon, but that “it is not zero.” 

John Gage, a Windham resident and member of Citizens Climate Lobby, said there are different ways to price carbon. It can be priced by the social cost, as detailed by Wheelan, or based on a temperature target “that we want to hold warming to.” 

Canada and Switzerland use a carbon fee and dividend method, in which the countries collect fees for the burning of fossil fuels and then return the money to citizens. In 2017, the V20, then a group of 20 developing countries vulnerable to climate change, announced a commitment to introduce carbon pricing by 2025.

Sweden established a carbon tax decades ago, in 1991. 

Of HB 1486, Gage said: “We’re not taxing anybody, we’re not spending extra money on something to do good. We’re taking a look at the chance of a federal carbon price coming down on New Hampshire and we are using our insight to save money by purchasing things that will be cheaper to operate in the long-run.”

Rep. Tom Dolan, a Londonderry Republican, said what he gathered from the bill’s testimony were “attempts at social engineering,” specific to driving the electrification of buildings and vehicles. 

“Have you started to consider the stress on our electric grid that has struggled to keep up with all of this electrification?” he asked. 

Gage said it’s likely that Congress and the state of New Hampshire will need to change energy permitting rules, since federal Inflation Reduction Act subsidies have “opened up the floodgates to generate clean energy.” He argued carbon pricing isn’t manipulation, but rather reflects the true costs of different energy options.

A resident of Bradford, Barbara Southard asked the committee to “not be shortsighted on this.”

“We are in a fantastically huge transition right now,” she said. “Not just in New Hampshire, but the whole United States and all of the countries. The whole globe.”

Regional Greenhouse Gas Initiative

All six New England states, including New Hampshire, are currently part of what was the first mandatory market-based program in the U.S. to reduce greenhouse gas emissions.

 Numbers from the Regional Greenhouse Gas Initiatives annual 2020 report show where New Hampshire has invested allowance proceeds. (Screenshot)

Similar to carbon pricing but with a different mechanism, the Regional Greenhouse Gas Initiative is a cap-and-trade program among 10 Eastern states to reduce carbon dioxide emissions from power plants. Within the RGGI states, fossil fuel electric power generators with a capacity of 25 megawatts or more are required to hold allowances equal to their carbon dioxide emissions over a three-year control period. The number of allowances shrinks every year, incentivizing power generators to emit less carbon – or pay more to do so.

Since 2009, the initiative has raised at least $3 billion in proceeds that have been invested back into states in the forms of energy efficiency, clean and renewable energy, electrification, greenhouse gas abatement, and direct bill assistance. 

According to the RGGI’s annual report in 2020, the nine states that participated in the initiative from the beginning experienced a reduction of over 90 million short tons of annual power sector carbon emissions.

In 2020, New Hampshire received approximately $18.8 million in allowance proceeds, the majority of which was used to provide direct bill assistance to electric consumers. The rest was allocated to the state’s Energy Efficiency Fund and related initiatives. From 2009-2020, the Granite State received $176 million in proceeds.

The RGGI is at a critical juncture. The state of Virginia withdrew from the RGGI in December, and this month, Democrats drafted budget language to return to it. Virginia Republicans have long opposed the state’s membership in the market, and Gov. Glenn Youngkin has called it a “hidden tax” because the state law authorizing participation allows utilities to recover the costs of the allowances from ratepayers. 

Meanwhile, a November court ruling in Pennsylvania blocked the state from joining the RGGI, saying it violates the state constitution. Pennsylvania lawmakers would have to vote to join the RGGI, the state said, rather than the state’s Department of Environmental Protection making the decision on its own.

Originally published in New Hampshire Bulletin. New Hampshire Bulletin is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity.

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