A regulatory cost analysis submitted by the Department of Energy and Environmental Protection (DEEP) regarding the proposed phasing out of new gasoline powered car sales beginning in 2027 does not include potential revenue impact to one of the state’s major revenue sources for the Special Transportation Fund.
DEEP’s cost impact for the controversial phase out of gasoline powered car sales posits a 5 percent decrease in Connecticut’s gasoline excise tax with a cumulative loss of $762.2 million between 2027 and 2040. However, the analysis does not account for the potential revenue impact to Connecticut’s Petroleum Gross Earnings Tax – also called the Oil Companies Tax.
The Oil Companies Tax is an 8.1 percent tax levied on the total of all oil products sold in the state, including for gasoline sales up to $3 per gallon. The gross receipts tax accounted for $397 million in revenue during fiscal year 2022, according to the Department of Revenue Service’s annual report, and it’s one of the highest revenue generators for the transportation fund.
According to consensus revenue estimates published by the Office of Policy and Management in May of 2023, the oil companies tax is expected to bring in $390 million to the STF this fiscal year, while the motor fuels tax, is expected to generate $532 million.
DEEP’s estimate was based on a similar estimate submitted by the California Air Resources Board (CARB). Connecticut is one of fourteen states that choose to adhere to California’s emission standards as opposed to federal standards. When California announced its decision to phase out the sale of gasoline powered cars in 2022, Connecticut was statutorily obligated to follow suit. Connecticut’s legislature already approved implementing California’s standards for medium and heavy-duty trucks in 2022.
According to DEEP’s cost analysis, they compared revenue effects calculated by CARB and then accounted for Connecticut’s lower gasoline excise tax, smaller fleet of vehicles and higher consumer uptake of electric vehicles in California as opposed to Connecticut, generating their estimate of a 5 percent impact to the gasoline tax.
An 8.1 percent tax on $3 of gasoline equates to 24.3 cents per gallon, slightly less than Connecticut’s flat gasoline tax of 25 cents per gallon, but the overall effect if the regulation is implemented could potentially double the estimated revenue loss to the STF.
The agency also submitted a small business impact statement indicating the change will have no effect on small businesses in Connecticut, however, CARB estimated a net decrease of job growth of more than 40,000 jobs, noting the estimate is “conservative.”
“In 2040, the regulations are estimated to result in job gains of 24,995, primarily in services, manufacturing and constructions sectors and 65,811 jobs foregone, predominantly in the retail, wholesale, and government sectors,” CARB wrote. “The net job impact of the ACC II regulations in 2040 is estimated as 40,816 jobs foregone.”
The California report also posits that government revenue loss due to a decline in gas tax revenue – which impacts job growth in the government sector – could possibly be ameliorated with “roadway pricing” to reduce the regulation’s effect on government jobs. However, CARB’s report indicates these decreases are minor compared to California’s economy, amounting to only a .16 percent job growth decline and .18 percent decline in state economic growth.
Overall, however, the report predicts a net gain to California of $91 billion over the life of the regulatory change when accounting for potential health improvements from cleaner air, the avoided “social cost of carbon,” and the potential savings for consumers in purchasing an EV, including not paying for gas.
DEEP’s analysis for Connecticut found a total cumulative loss for state government of $85 million when accounting for revenue losses from the gasoline tax and revenue gains from increased sales tax revenue, registration fees and “energy resources fees from increased electricity use.” The cost estimate also noted the regulation could impact municipalities with less gasoline tax revenue to be dispensed through the STF for road maintenance and repair but said municipalities could expect to see increased property tax revenue “given the higher cost of vehicles.”
However, DEEP’s analysis – not including potential decreases to the oil companies tax or potential economic impact – found Connecticut would see a net benefit of $272 million between 2027 and 2040 when accounting for health benefits, including decreased sick time and healthcare costs.
DEEP initially indicated they would provide comment on this matter, however, after several follow-ups the department was unable to get comment to Inside Investigator before publication.
Chris Herb, president of the Connecticut Energy Marketers Association (CEMA), which represents oil and gas distributors across the state, says DEEP’s cost analysis should not be trusted by lawmakers. The bi-partisan Regulation Review Committee is set to hold a meeting to vote on the regulation change on November 28 and will determine whether the phase out of new gasoline powered car sales moves forward.
“It is clear that DEEP did not do their due diligence when calculating the cost that these regulations would have on businesses and the state budget,” Herb said in an emailed statement. “DEEP specifically states in its small business impact statement that the regulations will have no impact on Connecticut businesses, while California took the time to be honest about the tens of thousands of jobs that will be lost due to the implementation of the same set of regulations. Either way, it is incorrect and legislators who will be voting on them should entirely disregard DEEP’s claims that employers will not be impacted by the transition to electric vehicles.”
Republicans have thus far stood opposed to the change, saying such a massive shift in policy should be voted on in the legislature, which means the approval vote will likely hinge on Democrat committee members.
In the event of a tie vote, the regulation would be deemed approved. According to the Uniform Legislative Procedure Act, if the regulation is voted down by the committee, it can still be taken up in the legislature where Democrats, who have signaled their support for the change, vastly outnumber their Republican counterparts.
“The wholesale elimination of gas-powered vehicles by 2035 is a policy decision that a majority of Americans don’t agree with, yet Democrats here, using scary words such as ‘survival,’ aggressively insist on forcing Connecticut down California’s ideological regulatory rabbit hole no matter the financial cost to our state or the people who live here,” Republican House Leader Vincent Candelora, R-North Branford, said in a press release.
Senate Republican Leader Kevin Kelly, R-Stratford, said passing this regulation without the General Assembly weighing in is an “abdication of our duties as lawmakers.”
“Our constituents elected us—not California Gov. Gavin Newsome—to craft policy in Connecticut,” Kelly said