By: Rob Underwood, President, Energy Marketers of America

First, I would like to thank the Maine Energy Marketers Association for giving the Energy Marketers of America (EMA), formerly known as the Petroleum Marketers Association of America (PMAA), the opportunity to discuss the Georgetown Climate Center’s (GCC) Transportation & Climate Initiative (TCI) which is a regional collaboration of 12 Northeast and Mid-Atlantic states and the District of Columbia that seeks to reduce carbon emissions from the transportation sector. Of the states targeted to participate, many have either said they will not be part of TCI or are undecided because of the prospect of a motor fuels tax increase.  The targeted states include Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont and Virginia, and the District of Columbia.

EMA has been closely monitoring the GCC’s TCI process and lending support to our member state associations including Maine as they determine how to best address TCI initiatives in their respective states. TCI would likely resemble a “cap-and-invest” program which would require wholesale motor fuel suppliers to purchase carbon allowances via auctions covered under a cap for every ton of carbon they are responsible for, with the states receiving the proceeds. (See PA pictured attached). Suppliers would be able to buy and sell those credits and pass along any of the cost to motorists.

Governors and/or state legislators will likely decide whether their state will join TCI. The goal of reducing greenhouse gas emissions and cutting down the reliance on high-carbon fuels would provide incentives for electric car owners and mean states would need to find ways to increase funding to pay for the program. In many cases, this would require raising the gas tax.  However, it is now clear there is no one size fits all approach to the challenges posed by TCI. Instead, each state must chart a course that reflects the unique interests of the marketers they represent.  Some conservative states may seek to defeat TCI outright such as New Hampshire while others in more liberal leaning states may need to be at the table.

EMA believes the TCI “cap and invest” program amounts to a de facto gasoline and diesel fuel tax that will disproportionately impact middle-class families and the working poor.  According to the Boston Globe, gasoline prices from Virginia to Maine could jump as much as 17 cents per gallon. A tax on diesel fuel will go up 52 cents a gallon according to The Beacon Hill Institute.  For motor fuel distributors and suppliers, TCI means they will face increased competition from out-of-state businesses that have lower gas taxes and can offer fuel at a reduced cost.   Unfortunately, TCI falls short on providing additional details on how to implement the program and fails to acknowledge advancements the liquid fuels industry has made to bring cleaner and greener fuels to the market.

Furthermore, EMA questions GCC’s GHG modeling which suggests emissions in the transportation sector will decline by 19 percent by 2032 without the creation of any new programs. The modeling further estimates that TCI would effectively be a $1.4 billion annual carbon tax on the region to achieve a one percent marginal reduction (20 percent overall) in GHG emissions. Achieving a six percent marginal reduction (25 percent overall) would cost $7 billion annually. This is simply too high of a price to achieve such relatively small emissions reductions.

In fact, it seems that much of the justification for TCI lies not on the marginal environmental or public health benefits, but on the anticipated government revenue to fund new state programs.  GCC does not attempt to make a case that such a “cap-and-invest” program would represent the most cost-effective way to reduce GHG emissions in the region’s transportation sector, much less in the region economy-wide.

Other key questions that must be addressed deal with the diverging emissions reduction targets among the participating jurisdictions. Will allowance prices change at different rates over time, as states like Massachusetts and New York pursue far more aggressive targets than Pennsylvania? Furthermore, how will these allowances be sold to entities that sell fuel in multiple states, including states not participating in the program? These are critical implementation questions that need to be answered given that this program will dramatically affect the liquid fuel supply chain for more than 70 million consumers.

The bottom line is that TCI will likely be disastrous for Maine’s motor fuel retailers.