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November 23, 2011

Should the Governor Go Beyond Fuel Taxes to an Overall Carbon Tax?

It is being reported that Governor Snyder intends on seeking a change in the transportation fuels taxing structure, shifting the application of the tax from the retail to the wholesale level. If true, is it time to consider a more general fossil fuel carbon tax? It has long been recognized that transportation fuels lead to “externalities” for which a tax is appropriate. These include the need to build and repair roads, bridges and other infrastructure. Gasoline and diesel tax revenues are intended to cover these costs. Similarly, fossil fuels used for electric generation also have externalities. For example, coal-fired generation has long-term health and environmental impacts (and the need for regulatory oversight) which ultimately costs the state and its citizens money. Without putting the Michigan economy at risk, the Governor could seek a modest carbon tax on coal and natural gas used to produce electricity that would reward the move toward 10 percent renewable, made-in-Michigan, energy. It would create a new economic rationale for increasing our dependence on locally-produced electrons and pursuing the cheapest form of energy - conservation. Let’s start the conversation.

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