Barreling the Poor

One of the tax increase bills that is still afloat at our legislature concerns the environmental response, energy, and food security tax, which we refer to as the barrel tax. This tax started off as the environmental response tax, imposed at 5 cents a barrel of imported petroleum product as a way to create a fund for environmental cleanup in case of an oil spill in Hawaiian waters. It was hoisted to its present rate of $1.05 in 2009, and the difference was used not only to shore up our general fund, but also to feed various special funds that pay for environmental conservation programs, energy and food security, and related activities. As a result of all of the additional responsibilities placed upon the fund, it was given its new and much longer name. Now, faced with the prospect that Hawaiian Electric Industries will be fueling its power plants with liquefied natural gas (LNG) instead of oil, our legislature is thinking of extending the barrel tax to all forms of fossil fuel including coal and LNG. The bill currently in the legislature would impose tax at the “British thermal unit (BTU) equivalent” for energy generated by these other fossil fuels.

So what kind of a tax increase are we talking about? Statistics from the U.S. Energy Information Administration (www.EIA.gov) tell us that Hawaii consumed 42.4 million barrels of oil in energy production in 2012. Multiply that by $1.05 and we are talking about $44.5 million in barrel tax. The same agency tells us that our total energy consumption in that same year was 280 trillion BTUs.House Bill 1471, now being considered by our Senate, would impose the barrel tax on all fossil fuels at the rate of 19 cents per million BTUs consumed, meaning that if the bill passes we are looking at a total tax of up to $53.2 million, which is an increase of about 25%.

How does this impact us as individuals? According to EIA, total energy consumption per capita in Hawaii in 2012 was 202 million BTUs. At a rate of 19 cents per million, the result is about $38 per person that we would pay in this tax alone over the course of a year. But we know it doesn’t stop there. Utilities will pass on the cost of the tax to their customers, although there won’t be a specific line item on your bill for it. When they do, our public service company tax will kick in and add another 5.885% to 8.2% to that cost, in this case another $2.25 to $3.15. That, of course, will also be passed on to customers and generate more tax. The beat goes on.

This tax is on power production, but are we simply beating up big bad utility companies? In these times, power is a necessity for almost all families and businesses. A 2012 study by the American Coalition for Clean Coal Electricity tried to calculate how much in after-tax income goes to energy costs, including the electric bill and the cost of gas to drive the family car. For those with pretax income of less than $10,000, the study concluded that over 75% of after-tax income went toward energy costs in 2012. For those making $10,000 to $30,000, the percentage dropped to 24%; it went to 17% for those making $30,000 to $50,000; and it was 9% for those making $50,000 or more. These, of course, were national averages. Hawaii households use far less power than those in other states because of our climate; in 2012 we had the fourth lowest per capita energy use in the nation. But on the other hand, our electricity prices were the highest in the nation. When considered together, these cost estimates can’t be too far off when applied to people in Hawaii. So: if we increase tax on power production, guess who gets hit the hardest? If you, as a lawmaker, don’t want to overtax the poor, jacking up the barrel tax absolutely is not going to get us there.


Courtesy “Weekly Commentary” by Tom Yamachika. See more on the Tax Foundation of Hawaii website.

Subscribe to our free newsletter!

Get updates on what we're doing to make Hawaii affordable for everyone.
Want more?

Get content like this delivered straight to your inbox. We’ll also send updates on what we’re doing to make Hawaii affordable for everyone.

Recent Posts