WASHINGTON (Nov. 18, 2015) – The option to use carbon fees to comply with the Environmental Protection Agency’s Clean Power Plan could produce enough revenue for Texas to offset more than $2.5 billion in tax relief in other areas, according to a new R Street Institute study.

Authored by R Street Texas State Director and Senior Fellow Josiah Neeley, the study examines EPA data for the state to determine the “shadow price” of carbon imputed from emissions-reductions goals called for the in the CPP. Neeley extrapolated from that price and Texas’ projected 2030 emissions to determine how much revenue could be generated by using fees, rather than regulatory dictates, to come into compliance.

The $2.5 billion that Texas could collect from carbon-fee collections could be used to eliminate the state’s franchise tax, reduce the sales tax or reform the property tax. But Neeley cautions that Texas must act to address the CPP now, even as the state pursues legal options to fight the plan.

“The choice Texas faces is whether to enact a policy to comply with the CPP, or be saddled with the federal plan,” he said. “Pursuing legal strategies to resist the regulation is a necessary first step, but should not preclude work on a state plan.”

Neeley demonstrates that any legal battle will almost certainly not be resolved by the federally mandated deadline. If a state plan is not in place, the federal plan will take effect automatically.

“Ultimately, Texas must remain in control of its own destiny. A resilient power sector is vital to the state’s economy and the well-being of its citizens,” he said.  “Properly implemented, a carbon fee on electrical generation can both meet Texas’ CPP goals and provide a vehicle for much-needed tax relief and reform.”