The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the House Committee on Energy & Environmental Protection and the House Committee on Agriculture & Food Systems on Jan. 28, 2025.
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Jan. 28, 2025, 10 a.m.
Hawaii State Capitol
Conference Room 325 and Videoconference
To: House Committee on Energy & Environmental Protection
Rep. Nicole E. Lowen, Chair
Rep. Amy A. Perruso, Vice-Chair
House Committee on Agriculture & Food Systems
Rep. Kirstin Kahaloa, Chair
Rep. Matthias Kusch, Vice-Chair
From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns
TESTIMONY IN OPPOSITION TO HB760 — RELATING TO TAXATION
Aloha Chairs, Vice-Chairs, and other members of the committees,
The Grassroot Institute of Hawaii is deeply concerned about the potential effects of HB760. Though called a “carbon tax” or “carbon emissions tax,” this bill is functionally a massive increase in the rate of taxation on petroleum and fossil fuels accompanied by a “carbon cashback” tax credit.
The tax credit provision of this bill is intended to help offset some of the economic harm it would inflict, but research by economists affiliated with the Economic Research Organization at the University of Hawai‘i suggests a carbon tax of this type would cause “a reduction of total economic output of 0.6% in 2045 relative to the baseline and the contraction reduces the demand for imports.”[1]
The economists projected that under a taxation scheme like the one proposed in this bill, “non-tourism exports [would] experience the largest relative impact with a decline of almost 5% in 2025 and 5.7% in 2045. The disproportionate impact occurs because prices of export goods rise relative to the price of goods produced outside of Hawai‘i, causing a loss of competitiveness for Hawai‘i’s non-tourism exports, such as cut flowers and other agricultural products.”
HB760 appears to rely heavily on optimistic best-case scenarios for the implementation of a carbon tax program of this type. However, the bill is not the wisest approach to a tax that stands to profoundly affect every facet of life in Hawaii.
The tax increases proposed in this bill are substantial, tripling the current rate of $1.05 per barrel to $3.15 in 2026, tripling it again two years later, and reaching $40.11 per barrel by 2036. What’s more, this is effectively an infinite tax hike, increasing by $1.26 every year after 2036.
The cashback proposal outlined in this bill appears to be based on the idea that it is possible to reimburse Hawaii residents for the economic impact of a massive tax hike — as though taxes were simply a question of money-in, money-out, with the state government operating as a type of bank. However, such an approach deeply underestimates the impacts that tax hikes, especially energy tax increases, can have on the economy as a whole.
Higher fuel taxes definitely would make it harder for businesses to survive, which could discourage business investment and rebound on Hawaii employment. Many Hawaii companies are still struggling from the effects of the COVID-era economic downturn and the recent inflationary environment.
Hawaii’s residents and businesses cannot afford new taxes, tax increases, fees or surcharges. A massive increase in the tax rates for fossil fuels and petroleum products will only contribute to the high cost of living, especially the state’s high energy and gas prices. This effect cannot be mitigated by a rebate and would serve only to drive more residents out of our state.
Thank you for the opportunity to testify.
Ted Kefalas
Director of Strategic Campaigns
Grassroot Institute of Hawaii
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[1] Makena Coffman, Paul Bernstein, Maja Schjervheim, Sumner La Croix and Sherilyn Hayashida, “Economic and GHG impacts of a US state-level carbon tax: the case of Hawai‘i,” Climate Policy, Vol. 2, No. 7, 2022, p. 941.
