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VII. Conclusions and Recommendations

This paper lays out five possible options to raise state revenues in an environmentally responsible way. Environmental responsibility, however, is just one measure of a fair and adequate tax system. For example, raising the motor fuels tax is environmentally responsible because it directly taxes an activity – driving – that has profound environmental and public health impacts. On the other hand, the motor fuels tax is the most regressive of all taxes in Texas. Any increase in that tax would impact those least able to pay. Consideration of these tax approaches must take into account their impact on different sectors of the population and on different industries.

We believe the five ideas presented here are both viable and politically possible. In particular, raising fees by removing the industrial emissions "volume discount" to fund the state's natural resource agency functions seems like a basic first step to make sure polluting industries pay their fair share.

In addition, the coal industry in Texas should pay its fair share of revenues to the state, just as oil and gas production does. A state coal use tax would raise revenues and ensure fairness among these different energy sources.

A system to make sure the state motor vehicles tax is affected by the fuel efficiency and pollution impacts of particular vehicle models also seems reasonable, particularly since the Texas Emissions Reduction Plan (TERP) already incorporates some fee-bate ideas.

Imposing at least a temporary fee on users of high-sulfur diesel fuel until stricter standards kick in would help make up some of the funding TERP so desperately needs.

Finally, an electricity efficiency fee based in part on the generation of emissions by electricity source could help make up some of the property tax deficit due to electric deregulation. Such a fee would help fund education in Texas and reduce pollution.

This report makes the following recommendations:

  • End the volume discount on air emissions by eliminating the 4,000 per pollutant cap and charging industries $18 per ton for FY 2004 and 2005;

  • Implement a 7.5 percent coal use tax on all coal and lignite used in Texas;

  • Require an added annual registration pollution fee on new motor vehicles depending upon the Bin rating of the car;

  • Impose a 5 cents per gallon (or $2.25 per barrel) high-sulfur diesel fee for any diesel fuels sold above 15 ppm sulfur; and

  • Levy a megawatt per hour electricity generator dispatch efficiency fee, based on 30 cents per pound of NOx per megawatt hour times the total number of megawatt hours generated.

Together these five measures could raise nearly $1 billion over the biennium (see Table 12).

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