Democrats in the New Jersey state legislature and their activist allies continue to move full speed ahead with their climate superfund legislation that would target the American energy industry with a $50 billion retroactive tax for historical emissions and are completely disregarding how this would raise costs for their constituents.

Last Thursday, the New Jersey General Assembly’s Environment and Solid Waste Committee voted 4-2 to advance the “Polluters Pay to Make New Jersey More Affordable Act,” and on Monday, the Senate Budget and Appropriations Committee subsequently voted 3-2 to advance the companion bill.

During the General Assembly hearing, Committee Chairman Rhavi Bhalla (D) responded to the warning that the bill would destroy New Jersey’s oil and gas industry by defiantly stating:

“Good…we don’t want those jobs.”

That revealing moment was followed by testimony during the Senate hearing from Gernot Wagner, a climate economist at the Columbia University Business School, who bizarrely claimed that the massive energy tax would have no impact on the prices paid by New Jersey consumers at the gas pump:

“There’s theoretical and empirical evidence that gas prices won’t, can’t change because of this bill.”

This absurd premise is completely illogical, considering that if New Jersey’s proposed $50 billion tax could be stacked on top of tens, if not hundreds of billions in superfund taxes from other states, including New York and Vermont.

A Dose of Reality

Thankfully, cooler heads are providing a dose of reality to comments like those made by Wagner, including from Jonathan Klick, a professor at the University Pennsylvania Law School, who published a paper last month, titled, “You Can’t Tax the Past Without Pricing the Present: The Hidden Costs of Climate Superfund Laws.”

Klick clearly lays out that the New Jersey bill will have a both a harmful impact on how energy is produced and priced while also hitting the pensions and retirement funds of working Americans:

“What these advocates fail to grasp is that these superfund laws put producers on notice that similar fines and taxes are sure to continue into the future. This knowledge raises all firms’ expected marginal costs going forward, leading to price increases both in theory and in fact. Further, these increases will apply to any firm looking to do business in the covered markets, so there will be no unaffected competitors around to bid down prices. Consumers will see higher prices as a result of the state climate change superfund laws.”

“The implicit claim envisions industry fat cats barely feeling the pinch of the retrospective tax given their immense wealth. The reality is that counted among the shareholders of ExxonMobil and Chevron are numerous middle class residents of New York and Vermont. What’s more, the public pensions in both states have billions invested in the industry, such that any assessments that are not passed through to consumers will be borne by teachers, cops, and firefighters, to say nothing of the innumerable people counting on their 401(k)s and 403(b)s for their retirements.” [emphasis added]

Klick also personally address an analysis performed by the Institute for Policy Integrity and supported by Joseph Stiglitz that claims any such harms from the legislation would be resolved by market forces, writing:

“The fundamental problem with the Stiglitz and Policy Integrity Institute’s analysis is a failure to recognize that expected marginal costs are endogenous to state policy. That is, the passage of the state climate change superfund laws in New York and Vermont (and likely the anticipated passage in a number of other states) puts sellers on notice that they will eventually be fined for their current production despite its legality which means they will build these expected fines into their current marginal costs which raises consumer prices in the present.” (emphasis added)

He also addressed the issue of the business climate, concluding that no energy company would want to do business in New Jersey or New York in the future because of the fear of being smacked with a massive retroactive tax:

“However, there is no good reason for any firm to presume they will escape future iterations of the superfund laws. First, under the Stiglitz competitive scenario, these low price competitors will sell more gas making them stronger targets the next time legislation is passed.  Beyond that, the New York legislature already tipped its hand on whether it is likely to preserve the safe harbor for smaller entities when it lowered the annual production threshold by changing the covered period from 2000-2018 to 2000-2024.  Regarding the possibility that rising prices will draw new competitors to the state, any firm would recognize the risk of creating the state connections necessary for application of the state penalty scheme. Even if the state swore up and down that these things will not happen, absent legally binding constraints, no potential competitor will perceive the promises as being credible.” [emphasis added]

Lastly, Klick wrote in a blog for the Washington Legal Foundation that the climate superfund bill would essentially make New Jersey an energy desert and called out the legislators look for a pain-free solution to their own fiscal challenges:

“Additionally, the state laws will chill competition by driving out existing companies.  These laws will discourage new firms from doing business in these States; otherwise, they will be subject to these burdensome liability regimes. Consumers will have fewer energy options at higher costs.”

“Politicians excel in promising free lunches. The introductory economics lesson that has never been falsified is that those free lunches always come with a cost.” [emphasis added]

What Will Governor Sherril Do?

Governor Mikie Sherril is only six months into her first term in office and proudly signed a Day One executive order declaring the energy affordability crisis “an emergency that warrants decisive leadership and coordinated action.”

But Governor Sherril’s promise to address energy affordability is directly contradicted by the state legislature attempt to apply a $50 billion energy tax. As the bill quickly moves through the process, will Governor Sherril signal her intent to sign or veto the legislation?

Even the legislature is starting to recognize the political impacts of pushing a bill that would increase energy prices as sponsors have craftily renamed the bill to the “‘Polluters Pay to Make New Jersey Affordable Act.” In reality, the bill would do anything but make the Garden State more affordable.

Bottom Line: No matter how lawmakers brand New Jersey’s superfund legislation, the bill is the antithesis of an affordability agenda. Lawmakers should instead look to act in the spirit of Governor Sherrill’s executive order and do what they can to tackle the energy affordability crisis plaguing the Garden State.