Inside Augusta

TCI would raise gas prices by up to 17 cents per gallon, do little to curb emissions

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The Transportation and Climate Initiative (TCI), a regional collaboration of 12 Northeast and Mid-Atlantic states and the District of Columbia, released a draft Memorandum of Understanding (MOU) for participating jurisdictions and the public to review. The states that comprise the collaboration include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont and Virginia.

The goal of TCI is to reduce carbon emissions in the transportation sector by capping emissions and incrementally lowering the cap across the region. According to the US Energy Information Administration (EIA), approximately 43 percent of carbon emissions in the region come from the transportation sector. In Maine, that figure is higher — about 53 percent of carbon emissions come from the transportation sector in the Pine Tree State. 

The MOU outlines the mechanics of a “cap-and-invest” program (known colloquially as a cap-and-trade program) that would be harmful to consumers of gasoline and diesel fuel. The first step of the program would create a cap on transportation-related carbon emissions across the TCI region by 2022. Each participating jurisdiction would receive an emissions budget that is based on its “apportionment of the regional cap for each year of the TCI Program.” The regional cap would decline annually, reducing the amount of carbon released into the environment.

To ensure transportation-related carbon emissions are declining, motor gasoline and on-road diesel fuel suppliers will be required to purchase allowances or permits at auction for the carbon emissions emitted from their products They would also be required to report emissions to the jurisdictions participating in the TCI. This would affect fuel suppliers that operate within and/or deliver to the TCI region. The cost of the allowances would likely be passed onto consumers at the pump in the form of price increases to gasoline and diesel fuel.

Where do those funds go? The proceeds that are collected at auction would be used by each TCI jurisdiction for investments to achieve larger reductions in carbon emissions, improved air quality, more access to public transportation and other projects that further the TCI’s goals. In other words, the proceeds would go toward politicians’ feel-good projects that have little impact on the climate overall.

In addition to the MOU, the TCI jurisdictions released modeling that quantifies potential price increases to gasoline and the reduction in carbon emissions between 2022 and 2032. They compare their estimates to a “reference case,” or the baseline of what would occur if the TCI were not implemented. Based on the results of the modeling, the cost created by the TCI’s implementation outweighs the alleged benefits from the program.

Their model tested three scenarios where carbon emissions are cut by 20, 22 and 25 percent by 2032. According to the most ambitious model, Maine could reduce carbon emissions from the transportation sector by 25 percent. However, emissions in the region would drop by 19 percent if all of the participating jurisdictions decided to do nothing at all. Therefore, the initiative would likely only reduce additional carbon emissions by a mere six percent under the most ambitious plan. If the stated goal is to decrease emissions by a total of 20 percent, then the TCI would only have to reduce emissions by an additional one percent. These results are hardly impressive enough to justify price increases to gas and diesel fuel on low-income Mainers.

As stated before, the net effect of creating an artificial market for fuel suppliers would be a pass-through fee to consumers. According to the TCI models, the price of gasoline would initially increase between five and 17 cents per gallon (cpg) if fuel suppliers decide to pass the cost of the allowances they purchase at auction onto consumers. These prices would likely increase even more between 2022 and 2032.  Proponents argue that this increase is less than the price of volatility in the current market. While this is true, this pass-through fee would be tacked onto the market price regardless of its volatility. In other words, consumers will pay more for gasoline and diesel fuel despite high or low market prices. The chart below outlines the effects of implementing a 20, 22 and 25 percent reduction in carbon emissions under the TCI.

An individual who consumes 400 gallons of gas per year would spend nearly $70 more annually if the price of gas increases by $0.17 cpg. This cost increase would disproportionately harm low-income individuals who already struggle to make ends meet. In addition, the revenue generated from the allowance auctions could produce between $1.4 and $5.6 billion regionally in the first year.

Source: Transportation and Climate Initiative

After the program is active for three years, Maine would receive approximately $400 million. Since Maine hasn’t committed to participating in the initiative, it is too early to tell how the revenue would be used and what projects it might fund. Some scenarios and suggestions offered by the TCI were investments in electric vehicles, low and zero emission busses and trucks, transit expansion and upkeep, pedestrian and bike safety, ride sharing and more.

Massachusetts Governor Charlie Baker, an outspoken proponent of the TCI, already plans to use some of the new revenue for public transportation funding. In contrast, after the debut of the MOU, New Hampshire Governor Chris Sununu swiftly announced he would not support the TCI. His statement said, 

“New Hampshire will not be participating in the Transportation Climate Initiative (TCI). I will not force Granite Staters to pay more for their gas just to subsidize other state’s crumbling infrastructure. We are already taking substantial steps to curb our carbon emissions, & this initiative, if enacted, would institute a new gas tax by up to 17 cents per gallon while only achieving minimal results. This program is a financial boondoggle and the people of NH will never support it. Under this scheme, NH drivers would be forced to pay a significant new gas tax with little environmental benefit to NH. Rural communities would be left at a severe disadvantage if we participated in the TCI, as drivers will bear the brunt of the artificially higher gas prices.”

While it is clear that New Hampshire will not join the TCI, the future appears to be foggier in the Pine Tree State. According to the Press Herald, Lindsay Crete, Governor Mills’ press secretary, said the administration is still monitoring the agreement but has not officially signed onto it. She said, 

“The challenges of climate and transportation issues for rural states like Maine are unique, and the state will be appropriately cautious when considering these issues, along with our own basic transportation needs and emissions challenges.”

She’s right; this program poses significant challenges for Mainers, especially those who live in rural areas but regularly commute to Portland or other service centers. My daily commute to work from York to Yarmouth consists of a total of 110 miles round trip. While this might be larger than the average commute, long distance commuting is a reality many Mainers face, and the TCI would only make it more challenging for those individuals.

This analysis doesn’t account for the increased cost of fuel for businesses that deliver goods and services. These costs would also be passed onto to consumers in the form of higher prices for groceries and other goods.

Regardless of what state officials decide, Mainers need to voice their concerns to the TCI stakeholders. The TCI has invited members of the public to submit comments regarding the MOU until February 28, 2020. After the public comment period, the initiative will release a final MOU for consideration by each participating jurisdiction. Final release is expected in Spring 2020.

To stop this regressive policy from becoming law, individuals can submit public comment here for TCI stakeholders to consider.

About Adam Crepeau

Adam Crepeau serves as a policy analyst at The Maine Heritage Policy Center. He can be reached at acrepeau@mainepolicy.org.

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