News: CJ Exclusives

Bill Would Impose Tax on Appliances Lacking Energy Certificate

Proposal would use tax to encourage purchases, tiered rates to boost conservation

Several Democratic state House members are seeking to boost energy conservation, energy efficiency, and renewable energy efforts by making it more expensive to purchase products that do not meet federal energy efficiency standards. House Bill 135 also would establish an inverted electricity rate structure on customers using power generated by electric public utilities. Under that rate structure, consumers who use higher quantities of energy would pay more per kilowatt hour than those who consume less energy.

Critics of such measures point out that North Carolina already has passed a host of laws encouraging energy efficiency and conservation. These measures have boosted energy prices artificially and pushed consumers toward the use of so-called clean energies that cost a lot more than fossil fuels while making inconsequential environmental improvements.

H.B. 135, Efficient and Affordable Energy Rates Bill, sponsored by Reps. Patsy Keever, D-Buncombe, Diane Parfitt, D-Cumberland, and Rodney Moore, D-Mecklenburg, also creates an incentive for consumers to purchase federal Energy Star-qualified household products by taxing products that don’t get that certification. The incentive, called the “Avoidable Pollution Tax” provision, would impose two new taxes on retailers selling household products that do not qualify for the federal Energy Star label. The new privilege and excises taxes, totaling 5 percent of the product purchase price, would be added to existing state sales and use taxes.

Keever told Carolina Journal that the avoidable pollution tax would encourage consumers to purchase Energy Star products because inefficient products would cost more. She said an Energy Efficiency Public Benefit Loan Fund established by H.B. 135 would offer grants to low-income households and ratepayers and loans to other consumers to invest in energy efficiency and renewable energy projects, offsetting the higher costs to poorer consumers.

The loan fund would be paid for primarily with revenues from the avoidable pollution tax, money generated by tiered rate structure, and interest from loans made from the fund. The fund would be administered by an independent government agency or a contract with a third-party administrator. The Department of Revenue would collect the taxes.

The bill is being reviewed by the House Public Utilities Committee but has not been scheduled for a hearing. Keever said a hearing on a companion bill, Senate Bill 367, is before the Senate Commerce Committee.

If energy efficiency is good for a company’s bottom line and a household’s budget, why are new taxes and regulations needed? “Companies are always interested in making a profit but that’s not always good for the consumer or the environment,” Keever said. “This is not a perfect bill but it moves people to think about energy conservation more positively.”

Impact of energy legislation

The state has numerous laws aimed at encouraging energy efficiency and promoting renewable energy, with a record that is mixed at best. Federal stimulus funds earmarked more than $1 billion for states to implement energy efficiency, conservation, and renewable energy projects. Nonprofits including NCGreenpower and Advanced Energy also promote energy efficiency, conservation, and green technologies.

House Bill 1389, passed in 2009, authorized municipalities and counties to establish a revolving loan fund to finance energy improvement projects for residential, commercial, or other real property. House Bill 512, also passed in 2009, extended tax credits for wind, solar, hydroelectric, and biomass projects.

In 2007, Senate Bill 3 established a state Renewable and Energy Efficiency Portfolio Standard that mandates public electric utilities increase the percentage of electricity generation from new renewable sources. The bill allows utilities to recover the incremental costs of meeting these standards by levying fees on customers, meaning North Carolinians now are paying more for electricity without the new taxes and tiered rates proposed in H.B. 135.

A 2009 report from The Beacon Hill Institute for Public Policy Research at Suffolk University, in conjunction with the John Locke Foundation, examined the impact of REPS mandates on North Carolina’s economy from 2008 through 2021, the period covered by the bill.

With cost recovery caps in place, BHI estimates “North Carolina will lose 3,592 jobs, investment will decrease by $43.20 million and real disposable income will fall by $56.80 million by 2021.” Without the cost recovery caps, by 2021, “the state would shed more than 15,373 jobs; and would lose $182.61 million in investment and $271.15 million in real disposable income.”

The BHI report concluded that the recovery caps in S.B. 3 hide the true cost by artificially holding down the additional cost of renewable electricity. Energy officials have said publicly that the cost of meeting these standards cannot be done within the price cap. In that case, electricity rates would skyrocket. Paul Bachman, director of research at BHI, told CJ that renewable energy and energy efficiency standards don’t account for opportunity costs, a situation that quickly creates diminishing, even negative, returns.

Meantime, the EPA’s Energy Star program has much-publicized flaws. In 2010, the Government Accountability Office found after a yearlong investigation that Energy Star is “vulnerable to fraud and abuse.” Some bogus products received Energy Star certification and the EPA didn’t verify independently company claims about the energy efficiency of their products. The program since has been modified.

Thirty-one states already have implemented renewable energy standards. Clint Woods, director of the American Legislative Exchange Council’s Energy, Environment, and Agriculture Task Force, told CJ that several states are “dialing back” on implementation of renewable energy standards by making them voluntary or trying to repeal them because costs are escalating.

Rep. George Cleveland, R-Onslow, has introduced House Bill 431, which would repeal S.B. 3. At press time, Cleveland’s bill was in the House Committee on Public Utilities.

Karen McMahan is a contributor to Carolina Journal.