For the first time in Hawaii’s history, a carbon pricing bill has passed through one of its legislative chambers. On Tuesday, March 5th, “An Act Relating to Taxation” (Senate Bill 1463), introduced by Sen. Karl Rhoads and six others, unanimously passed through the 25-member Senate.

Replacing Hawaii’s Fuel Tax with a Carbon Tax

The state of Hawaii already implements various fuel-based taxes that generate nearly $115 million for the state each year, most of which goes toward the state highway fund.

Sen. Rhoads’s bill repeals the “environmental response, energy and food security tax” — more commonly known as the barrel tax — and replaces it with a tax that is based on carbon content. To ensure the state maintains the same revenue stream, the bill imposes a $6.25 per ton of carbon fee that applies to any retail dealer or end-user of a fuel other than a refiner, and is paid for by the distributor. With this $6.25 per carbon ton fee, the bill is expected to generate the same amount of money for the state that the barrell tax currently does.

However, in its current form, the bill will actually lower the gas tax, from 16 cents per gallon to 5.5 cents. “Aviation fuel and electricity are taxed relatively lightly if you look at the per-carbon content,” Rhoads said in a Climate XChange interview.

Improving the Current Legislation

To ensure the bill does not result in a tax decrease, Rhoads proposed an amendment to the legislation (House Draft 1) that will raise the carbon fee to $18 per ton. The additional revenue from this fee increase will not be kept by the Hawaii government, but instead be rebated back to consumers through a fee and dividend program. Rhoads hopes this increase will more effectively incentivize businesses and consumers to shift toward renewable energy. The amended bill has been referred to the House Committee on Energy and Environmental Protection, but the exact language is not yet available.

The Environmental Caucus of Hawaii’s Democratic party also proposed an amendment to the bill that will gradually increase the per-ton price of carbon until the state meets its net zero emissions goals by 2045. Similarly to Rhoads, the Caucus proposed that a dividend be returned to lower-income consumers to offset the potential regressivity of the legislation.

Rhoads said that in a sea of carbon pricing bills, he hadn’t initially expected his to pass through the Senate. But much to his surprise, the legislation did not garner much attention from the public.  

“If it’s possible for an issue of this magnitude to fly under the radar, this has flown under the radar so far,” Rhoads said. “You would think a change this fundamental would draw out hundreds of testifiers, but it just hasn’t. It’s really been a yawn.”

Studying Carbon Pricing

Three other carbon pricing bills were introduced this session in the Hawaii state legislature, but the only other one still alive is a study bill (HB 1584) that appropriates funding for the University of Hawaii to conduct a comprehensive study on statewide carbon pricing.

That bill, sponsored by House Energy and Environment Chair Nicole Lowen, passed through the House and is now in the Senate.

According to the bill, the study should do the following:

• Examine different carbon pricing policy options
• Determine what level a price would need to be in order to reduce emissions and change consumer behavior
• Project how much revenue a tax would raise
• Discuss whether the tax should gradually increase
• Recommend how to implement the tax in an equitable manner

“Part of the study is assessing whether we need carbon pricing, or whether we can look at existing taxes and achieve the desired results [of GHG reductions],” Lowen told Climate XChange in a February interview. “I believe that at some point, we will have to tax based on carbon intensity.”

But Kimiko Walter, the chair of the Democratic Caucus Energy and Climate Change Subject Committee, said the state needs to implement carbon pricing right away.

“We believe that, given the IPCC special report, we do not have the time to do a Hawaii specific study,” Walter told Climate XChange. “The research already exists and carbon fee and dividend programs are being successfully implemented around the world.”

Overcoming the Opposition

Rhoads said many have expressed concern regarding the fact that Hawaii, a relatively low polluter compared to larger, oil-exporting states, already possesses the nation’s highest electricity and natural gas rates. Opponents have questioned why the island should undergo further price hikes when no other American state has imposed a fee on pollution. But Rhoads has rejected this rhetoric.

“If everyone waits for everyone else to move, we are driving off the edge of a cliff,” Rhoads said. “I get discouraged if I think about it too hard, but you have to do the best you can and enact reasonable policies.”

The reality is that Hawaii is an isolated island state that will continue to suffer from high energy prices as long as it depends on imported fossil fuels. Their energy mix is extremely outdated – Hawaii imports a whopping 11 million barrels of petroleum per year just to generate electricity. These petroleum-fired generators have been uneconomic for decades, which is why despite having the 3rd lowest electricity consumption of all US states, 40-50% of all petroleum consumed in the US for electricity generation occurs in Hawaii.

Every dollar spent on fossil fuel imports sends economic activity out of the state. According to the Energy Information Administration, Hawaii spends $3.4 billion per year on fossil fuel energy consumption. By redirecting this consumption to in-state renewable resources, Hawaii can circulate billions of more dollars through the local economy, reduce energy rates, and thrive as an island state.

Looking Ahead

A hearing was never held for the House version of Rhoads’s bill (HB 1459), so Rhoads said it seems unlikely that the same bill would receive one this time around. And while Democrats maintain an astounding majority in the House (46-5), the chamber is not as stunningly progressive as it appears, Rhoads said.

“We’re really not as blue as our reputation indicates,” Rhoads said. “Hawaii legislators have to run as Democrats in order to have a viable chance at election, so the notion of this ‘overwhelming Democratic majority’ is a bit misleading. I think it’s a misunderstanding of how Hawaii politics works.”

Rhoads said it seemed likely that neither the original language of the legislation, nor the proposed amendment, will receive a hearing in the coming weeks.

“I’d be surprised if it got a hearing, and I’d be even more surprised if it passed out of committee,” Rhoads said. “But hey – I could be wrong.”

Regardless of what ultimately happens next, the recent news coming out of Honolulu serves as a reminder that Hawaii has long led the fight against climate change. In 2015, the island made headlines when it became the first state to set a deadline for a 100% renewable portfolio standard. Who knows? Maybe 2019 will be the year it will become the first US state to price carbon.