The following testimony was submitted by the Grassroot Institute of Hawaii for consideration by the Senate Committee on Agriculture and Environment on Feb. 4, 2026.
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Feb. 4, 2026, 3 p.m.
Hawaii State Capitol
Conference Room 224 and Videoconference
To: Senate Committee on Agriculture and Environment
Sen. Mike Gabbard, Chair
Sen. Herbert M. “Tim” Richards, III, Vice Chair
From: Grassroot Institute of Hawaii
Ted Kefalas, Director of Strategic Campaigns
TESTIMONY IN OPPOSITION TO SB2332 — RELATING TO TAXATION
Aloha Chair, Vice Chair, and other members of the Committee,
The Grassroot Institute of Hawaii is deeply concerned about the potential effects of SB2332. Though presented as a “carbon tax” or “carbon emissions tax,” this bill would functionally be 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.”
Supporters of a carbon tax rely heavily on optimistic best-case scenarios for the implementation of a 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, as they would quintuple the current rate of $1.05 per barrel to $5.25 in 2026, raise it by 80% to $9.45 in 2027, and have it reach $43.05 per barrel by 2035. What’s more, this would effectively be an infinite tax hike, as it is proposed to continue increasing by $1 every year after 2035. The bill also would skyrocket taxes on energy from fossil fuel from the current $0.19 per million BTUs to $6.09 by 2035, with another infinite tax-hike scheme to follow.
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 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.
