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The Honolulu Advertiser
Posted on: Monday, March 29, 2010

Hawaii barrel tax may rise nearly 3,000%

By Derrick DePledge
Advertiser Government Writer


HB 2421: State lawmakers may raise the tax on petroleum products from 5 cents a barrel to $1.55 to help finance food and energy security programs and reduce the state's budget deficit. The tax was originally intended to help the state respond to oil spills. Read the full bill at


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State lawmakers are again looking to raise the barrel tax on petroleum products to finance food and energy security programs, but this year there is a twist: most of the new revenue could initially help reduce the state's budget deficit.

The state Senate Ways and Means Committee has agreed to raise the tax from 5 cents a barrel to $1.55. Most of the tax increase would go into the state's general fund to help close a $1.2 billion budget deficit through June 2011, while the rest would be divided among food security and alternative energy programs.

The tax increase could raise an estimated $33 million a year, according to the committee, with $22 million going to the general fund. The petroleum industry would likely pass the tax hike on to consumers, who could pay 2 to 5 cents more per gallon of gasoline and a few dollars more on their monthly electricity bills.

Environmentalists believe the barrel tax can provide revenue to help sustain local agriculture and develop clean energy to reduce the state's dependence on fossil fuel. While many would prefer that all of the new revenue go to food and energy security programs, as in last year's version of the bill, they are pragmatic about the need to narrow the deficit.

"We need to make a down payment on our clean energy future, and that's what this does. It does so by tapping the source of our problem, which is imported oil, and funding our preferred solution, which is clean energy," said Jeff Mikulina, executive director of the Blue Planet Foundation.

Gov. Linda Lingle has told environmentalists that she would veto the barrel tax because it would increase the cost of living for consumers as the state is emerging from the recession.

Lingle vetoed the barrel tax increase last year, and while the state House had the votes to override, the state Senate declined because of late objections from the airline industry that it would be an undue burden on interisland carriers. Lawmakers would exempt aviation fuel from the tax increase in this year's version.


Kurt Kawafuchi, the state's tax director, described the barrel tax increase as dramatic and poorly timed. "This tax is highly regressive and will impact the poor the most," he told the House in written testimony last month.

The environmental response tax, known as the barrel tax, was created in 1993 and applies to petroleum products sold by distributors to retail dealers and end users other than refiners.

The money from the barrel tax is intended to help the state Department of Health respond to oil spills and hazardous materials releases.

Lawmakers would rename the tax the environmental response, energy, and food security tax and divide the money among environmental response, agricultural development and food security, energy security, and energy systems development.

The House passed a $1 increase in the 5-cent barrel tax, while the Senate Ways and Means Committee pushed it up by $1.50 to $1.55 with $1 devoted to the general fund to help with the deficit.

"It's critical that we give full support to the clean energy initiative and getting off fossil fuel, and this is a step in that direction," said state Senate Majority Leader Gary Hooser, D-7th (Kaua'i, Ni'ihau).

While the barrel tax would increase consumer costs, environmentalists believe consumers could minimize the impact by being more energy efficient, such as making sure their automobiles have properly inflated tires or installing compact fluorescent light bulbs in their homes.

Blue Planet and the Sierra Club's Hawai'i chapter have suggested that revenue from the barrel tax could be invested in energy-efficiency programs, such as encouraging conversion to solar.


State Rep. Denny Coffman, D-6th (N. Kona, Keauhou, Kailua-Kona), one of the House freshmen originally behind the barrel tax increase, said the new revenue would be used as seed money for food and energy security programs that will pay off in the future.

"This is really a long-term project. Both energy and food sustainability are 20- or 30-year projects. Some people say, 'Why tax now?' But these programs are going to extend through the next recession and carry on," he said. "We need to get started."

State Sen. Sam Slom, R-8th (Kāhala, Hawai'i Kai), called the tax increase a "terrible idea." He said that while the state will eventually move to alternative energy, affordable and effective systems are not widely available now, so a tax hike would only punish consumers for driving their cars or turning on the lights at home.

Slom said many of the people pushing the concept actually want a $5 per barrel increase and a tax on coal and palm oil. Blue Planet has argued that a barrel tax hike of $1 to $5 would be unlikely to radically change consumer and business behavior but would raise substantial money to help build a more sustainable future.

"It's not to help people use alternative energy," Slom said. "It's to punish people for still using oil."