Policy Studies Energy and Environment

The Texas Path: Preserving energy sovereignty to cut taxes

Texas faces some tough energy choices. Under the U.S. Environmental Protection Agency’s Clean Power Plan (CPP), Texas is expected by 2030 to have reduced carbon dioxide (CO2 ) emissions from existing electrical generation units (EGUs) by between 21 and 33 percent. Dealing with the fallout from the CPP will have profound implications for Texas’ economy, environment and electric grid.

Given this, it is important to make a clear-eyed evaluation of Texas’ options to respond. This paper looks at one such option: imposing a fee on electricity generated from CO2 – emitting sources, with all resulting revenue returned to taxpayers in the form of cuts to existing taxes. This approach would not foreclose existing or future legal or legislative challenges to the CPP. However, it would achieve three other crucial goals:

  1. Using market mechanisms to achieve emissions reductions at the lowest-feasible cost;
  2. Providing needed tax relief to Texans; and
  3. Allowing Texas to escape a federal regulatory approach.

It also would reassert the traditional division of power between states and the federal government on matters of environmental policy.

Part I will briefly summarize the CPP, both in general and as it is proposed to apply to Texas. Part II lays out the details of an emissions-fee approach to CPP compliance and gives several specific examples of how the tax swap could be implemented. Part III looks at how an emissions-fee approach can be incorporated into alternate strategies for how Texas should respond to the CPP.

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