LAST FALL, the Legislature passed a bill mandating a massive purchase of industrial energy storage batteries. I wrote about the staggering cost of this endeavor. However, since this ill-advised effort is proceeding, it is important to minimize its fiscal damage.

Massachusetts ratepayers have a newfound interest in charges on their utility bills since the large price spikes of recent months. With a self-imposed deadline of 2050 for Massachusetts to reach net-zero emissions, costly large-scale battery storage is now a key component of the state’s strategy to keep the lights on, given the intermittency and unreliability of alternative energy.

The bill calls for 5,000 megawatts of battery storage. Assuming this would involve four-hour duration batteries, which make up most grid-scale battery systems, this gives 20,000 megawatt hours of storage, which would power the state for just three and a half hours, on average.

The Department of Energy Resources conducted a public comment period on this costly battery procurement. By law, 1,500 megawatts of the 5,000 megawatt total must be purchased by July 31 of this year, with a forthcoming request for proposals. The cost was a concern when we learned of this massive battery buy, and more questions of cost arose once we looked at the logistics.

First, who will pay? Ratepayers across the state are already feeling the financial burden of energy transition policies like this, and minimizing their impact should be a top priority.

There are both supply charges and delivery charges that make up ratepayers’ bills. Supply charges represent the amount of electricity used and distributed by a supplier, and delivery charges include transmission, transition, distribution, and other charges.

Just because distribution companies are responsible for procuring battery storage does not mean their retail customers should bear the full cost. In fairness, the municipal utilities, co-ops, and electricity retailers should also share the billions in costs, with any rate increases fairly apportioned.

We also question whether the Department of Public Utilities has the authority to set rates for these entities unilaterally, or whether new legislation would be required. This complex issue of rate fairness must be resolved before any battery purchases move forward.

Another major cost concern is the unpredictability of site and facility expenses. Unlike offshore wind projects, where lease costs and site development expenses are known before power purchase agreements are negotiated, the specifics of these battery storage sites remain largely unknown. Without knowing their locations, estimating total costs is nearly impossible, making contract pricing highly problematic.

Additionally, the proposal includes the procurement of “environmental attributes,” which can be loosely defined as benefits from avoiding emissions produced by traditional energy sources, which will ultimately shift costs elsewhere.

While these attributes can reduce contract prices, they still require payment—often by ratepayers. For example, clean peak energy certificates, or CPECs, which are credits earned by renewable generators or storage systems that provide energy during peak demand, are typically funded by ratepayers. The goal of the RFP should be to minimize the total cost to the people of Massachusetts, not just the contract price.

The proposed 30-year contract term raises further concerns. Grid-scale lithium batteries typically last 10-15 years, so they would require full replacement at least once, possibly twice, within the contract period. Depending on usage, this could push costs into the tens of billions of dollars over the 30-year term. Locking into such an expensive commitment today would be reckless and replacement should be handled through separate contracts.

Conversely, some predict that grid battery costs could decline significantly—potentially by as much as 80 percent. If that happens and contract payments remain unchanged, developers could reap enormous windfall profits at the expense of ratepayers. The RFP must be structured to account for potential cost reductions to avoid this scenario.

Considering the recent attention to the spike in utility bills, and particularly the added fees related to climate policies, the new industrial battery mandate should be executed with the tangible costs to ratepayers and taxpayers in mind.

Laurie Belsito is the policy director at Massachusetts Fiscal Alliance.

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CLIMATE LEGISLATION, which is pending in the Legislature, is going to be very expensive and offer little bang for the buck.

The legislation,  called “An Act promoting a clean energy grid, advancing equity and protecting ratepayers,” has passed the Senate and is awaiting action in the House.  During the debate in the Senate, the chair of the committee that helped draft the bill said the measure will drive up the cost of electricity.

“Building out an entirely new electric grid is expensive…real expensive,” he said. “You’ve got the electric grid, offshore wind, storage, lots of costs being brought to bare.”

No dollar figure on the cost has been provided, so I set out to calculate how expensive this self-imposed transition will actually be. 

I examined a single measurable part of the legislation mandating that utilities purchase a huge amount of grid-scale batteries between 2025 and 2030. The amount of batteries is somewhat unclear, since the bill specifies that 5,000 megawatts of batteries be bought but this is the discharge capacity, or how fast the batteries can be emptied. The storage capacity is what counts and that is measured in megawatt-hours. Specifying megawatts is like buying juice based on how fast it pours, not how much the bottle holds.

The bill does include a range of storage capacities, which sheds some light on the potential cost. Most of the batteries are called mid-duration, which means they can provide full discharge for four to 10 hours. Almost all grid-scale battery systems these days are of four-hour duration, so for simplicity we will start by assuming the whole 5,000 megawatt buy is for four-hour batteries.

This gives 20,000 megawatt hours of storage. Battery systems today run around $500,000 per megawatt hour, which yields a total cost of $10 billion, which equals roughly 17 percent of the current state budget. If 10-hour batteries are purchased, the cost jumps to $25 billion. The bill actually calls for a good bit of longer-duration batteries, which would make the cost even higher.

These hugely expensive mandatory purchases will do little by way of supporting the transition to a grid run on solar, wind, and batteries.

The average total electricity usage in Massachusetts is about 5,700 megawatt hours per hour. In a solar, wind, and battery world, 20,000 megawatt hours of batteries lasts just three-and-a-half hours on average windless nights. On deadly cold nights, it’s more like just two hours, then you freeze in the dark. If we also electrify home heat and cars, it is more like a mere one hour.

With $25 billion worth of 10-hour batteries, that one hour changes to two and a half hours, which still leaves you freezing all night. Brutally cold nights are typically windless, including offshore, so this is not a rare case in Massachusetts.

Clearly this tiny bit of storage is useless for backing up solar and wind, but it costs $10-25 billion or more.

In addition to being wildly expensive, the bill is in a great rush. It requires that 1,500 megawatts be purchased by July 31, 2025, which works out to about $3 billion to buy four-hour batteries capable of holding 6,000 megawatt hours of electricity. The cost would be a lot more with longer duration batteries. The bill calls for another 1,000 megawatts by July 2026 and another 1,000 megawatts by July 2027 for many billions more.

Presumably these many billions of dollars will all be paid for by the electricity users of Massachusetts, also known as ratepayers. Increasing electric bills is a highly regressive measure as it hits the poor the hardest, and the claim by the bill’s sponsors that the increase in electricity costs will be offset somewhat by a reduction in natural gas purchases rings hollow.

There are also safety concerns. This much storage will require thousands of container-sized lithium batteries. Each container is an unpredictable fire threat. A number of such fires have already occurred around the country. They are very hot, impossible to extinguish, and they can produce a lot of toxic emissions. 

Each container battery weighs around 80,000 pounds, which is about 100 times the weight of an electric vehicle, or EV, battery and is that much more dangerous. Many hundreds of acres of land will be required to site all these containers. The National Fire Protection Association is working on guidelines for spacing them widely enough to prevent a chain reaction.

My estimates may be on the conservative side because they don’t include the cost of new transmission that will be needed, or the cost of wind farms and solar panels that the batteries will be backing up. Which is why it’s puzzling that Beacon Hill is not leveling with us about the cost of the clean energy transition. It’s time to start asking the tough questions. Ratepayers deserve answers.

Laurie Belsito is the policy director at Massachusetts Fiscal Alliance.

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I’LL NEVER FORGET my experience as a first-time homeowner of an almost 200-year-old New England charmer. In our late 20s, and open to learning all that we could in order to be good stewards of a historic home, my husband and I were advised to have someone take a look at reinforcing an old floor joist. We had a younger, ambitious engineer come in that wanted to take out the entire floor of that one room and start fresh.

After some serious anxiety, we looked for a second opinion. We next had an older local contractor come in who said he had been working on old houses in the area for decades. He snickered at the diagnosis that the previous engineer had given and said, if you start fresh on this one room’s floor, soon you will have a door upstairs not closing correctly, and other parts of the house shifting which will cause more problems long term. He was right, and gave us a tangible lesson on considering the big picture of potential unintended consequences before taking well-meaning drastic action.

Having spent many years in the policy world, I’ve similarly found it true that nothing can be done in a vacuum. Even when implementing a seemingly well-intentioned policy, unintended adverse effects can soon follow. Luckily, we have some projections on potential economic consequences for one of the policy measures we will all see on this year’s ballot pertaining to a constitutional amendment to implement an income surtax hike.

Back in June of this year, the Beacon Hill Institute completed a study looking into the fiscal and economic effect a 4 percent surcharge on incomes over a million dollars will have on our state. The study looks at what the tax changes embedded in the law will mean in terms of costs to the state’s economy. It found that in the first year of the new tax, over 4,000 families would leave the state along with over 9,000 jobs, with real gross domestic product dropping by $430 million. These losses are projected to stem from outmigration in addition to a reduction in labor hiring and labor-force participation.

After all, this tax won’t simply affect those with salaries over a million dollars, but all taxable incomes. For many small businesses filing as limited liability corporations, this means the same income they use to pay their employees, keep their lights on, and buy goods they need to keep their businesses running. It would also pertain to business owners who instead of investing money into a retirement account, invested in their business and planned to rely on the eventual sale of their business to fund necessities in their old age.

Other overlooked economic consequences will be a decrease in revenue from other taxable areas. The study finds sales tax revenues, at the state level, would fall by nearly $1.5 million in the first year and by nearly $1 million by the fifth year. There would also be a projected drop in local property tax revenues along with other local tax revenues. So, although there would be an increase in state income tax revenues, other areas funded by different taxes on the state and local levels would take a hit.

This study also looked into the promised projected revenue resulting from this new tax increase. Advocates of the measure have advertised that it could bring in up to $2 billion annually, however the study finds that the revenue yield of the tax will be far less, around $1.2 billion in its first year of implementation, due to the expected shrinkage in economic activity.

The Tax Foundation, a non-partisan Washington, DC-based think tank that is considered the gold standard for tax analysis, has also recently published several reports that reinforce The Beacon Hill Institute’s findings. On October 11, the Tax Foundation said its IRS data indicated  New York, New Jersey, and California are losing very high numbers of taxpayers. One uniting factor among those states is their graduated income tax structure, the same structure Question 1 is hoping to enact into law here in Massachusetts.

The Tax Foundation report stated, “Several of the states losing higher-income taxpayers, especially New York, California, and New Jersey, have highly progressive tax codes under which tax liability rises steeply with income. States that structure their tax codes in this manner have consistently lost higher-income residents to lower-tax states, and not only the residents, but also any associated tax revenue and entrepreneurial activity that goes along with them,” the Tax Foundation report said.

According to the report, Massachusetts was already ranked fourth in the nation for losing taxpayer population. In fact, our population loss totaled more than all of the other New England states combined.

On October 25, the Tax Foundation released its annual “business tax climate index,” which showed that in 2014, Massachusetts was ranked 26^th in the county for business tax climate. Since then, we have consistently dropped each year, ending at 34^th in this year’s report. The Tax Foundation warned that if Massachusetts passed Question 1, the state’s ranking would decline to 46^th, only behind the state of California, New York, and New Jersey.

During the last few years, other states began to adopt policies that encouraged growth, but Massachusetts did not. As states were adapting to workers working from home, 21 states cut individual income taxes and 13 states cut corporate income taxes, greatly improving their competitiveness, and leaving Massachusetts sliding down in the index. The Tax Foundation report highlights that one of Massachusetts’ most significant redeemable factors is its flat income tax rate, which Question 1 aims to forever alter.

The Beacon Hill Institute and the Tax Foundation make a compelling and clear case for Massachusetts voters to consider when voting on Question 1 and it leaves us with a broader picture of a seemingly straight forward policy change. I recommend checking out the Beacon Hill Institute’s full study here and the Tax Foundation reports at their website.

Laurie Belsito is the policy director at The Fiscal Alliance Foundation.

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AS IT MEETS in a constitutional convention on Wednesday, the Massachusetts Legislature has another opportunity to approve the so-called  millionaire’s tax, paving the way for the measure to appear on the November 2022 ballot.

This latest campaign to make the state’s flat tax into a graduated income tax would impose a 4 percent tax surcharge on incomes of $1 million and more. Six past efforts to impose a similar graduated income tax scheme have failed at the ballot box and, more recently, the state’s highest court rejected it as “unconstitutional.”

However, past failures and even the will of the voters have not deterred the proponents. Unlike every single past attempt, this latest attempt is not derived by citizens, but by lawmakers, who want to seek to change the protections in the state constitution and be able to tax at will. While they claim the measure is about raising taxes on high-income earners, what they are attempting to change is the constitional protections that are enshrined in the state constition to protect taxpayers from unequal taxation.

Proponents of  the millionaire tax make two central claims. First, they argue that the tax will impinge only on the Commonwealth’s highest earners while leaving everyone else unaffected.    Second, they promise that the revenue generated from the next tax will raise some $2 billion annually, all of which will go toward spending on education and infrastructure. Both claims are false.

Both claims rest on the premise that it is possible to raise taxes on a small but high-earning group of taxpayers without triggering reductions in employment and investment. But look at the data. The millionaire tax imposes an 80 percent tax increase on 20 percent of state income.  It is simply not believable that the .6 percent of taxpayers who are  affected by this tax increase will go on hiring, working, and investing in Massachusetts at the same pace they did before the tax increase was imposed.  Instead, some of them will move to states like New Hampshire or Florida that impose no income tax at all.

Massachusetts is already suffering from net outmigration, a problem that the millionaire tax will exacerbate.  Other workers will retire earlier or simply cut back on their work hours. Thousands of  businesses will reduce their investment and hiring as the after-tax return on investment falls.  The resulting shrinkage in the state economy will adversely affect taxpayers at all income levels and reduce the amount of revenue that the tax will yield.

In a study released today sponsored by the Fiscal Alliance Foundatio, we used the Beacon Hill Institute’s State Tax Analysis Modeling Program (STAMP) to determine that the tax would drive 4,388 working households (households with at least one employed person) out of the state in its first year of implementation.  Private sector jobs would simultaneously fall by 9,329.  Because income taxes would rise, disposable income would fall by $963 million, and state economic output would fall by $431 million.

Because of this shrinkage in the economy, state tax revenues would rise by only $1.231 billion, not by the promised $2 billion.  This should be a clear warning to taxpayers, who should ask themselves where will the rest of the taxpayer money come from in order to satisy the spending by State House politicians. That would be you, of course.

As for the promise to dedicate the revenues raised by the tax to education and transportation, that, too, is misleading since there is no stopping the Legislature from diverting revenue already raised for those purposes to other programs.

When we consider the actual effects of the millionaire tax, the case for implementing it becomes unconvincing.  The state would get a very low return on its experiment with a graduated tax.  Another billion or so dollars, when compared to the $45.6 billion that the state would spend under the governor’s fiscal year 2022 budget, will mean very little.  Revenue collections for fiscal year 2021 are already $4 billion ahead of last year FY 2020 and there are further questions to be raised about the desirability of lavishing more money on state transportation without serious attention to its notorious ineffiiencies or on the already-well-funded education sector.  Let’s leave the state constitution as it is, and avoid burdening the state economy, still in recovery from the pandemic, with another tax.

David G. Tuerck is president of the Beacon Hill Institute and Laurie Belsito is policy director of the Fiscal Alliance Foundation.

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THE TRANSPORTATION AND CLIMATE INITIATIVE (TCI) bills itself as a regional collaboration designed to improve transportation, develop clean energy sources, and reduce carbon emissions from the transportation sector. To accomplish these goals, TCI proposes implementing a regional “cap and trade” scheme whereby a cap, established by individual states in collaboration with regional authorities, would be set on greenhouse gas emissions from the combustion of finished gasoline and on-road diesel. Emissions allowances under the set cap level would then be sold to the highest bidder at auctions region wide.

With a cap on emissions from the final consumption of finished gasoline and on-road diesel, the price of both products will increase. Essentially, TCI imposes a hidden tax on both fuels.

Motor fuels such as gasoline and diesel are vital components of economic activity. Everything from the price of groceries to local tourism is impacted by the price of motor fuels. Gasoline taxes are regressive in nature insofar as lower income households spend larger portions of their income on gasoline.

The Fiscal Alliance Foundation commissioned the Beacon Hill Institute to study the economic impact that TCI would actually have on our state economy, including the upfront costs average residents will see. The study found that emission caps as stringent as those proposed under TCI could increase the price of finished gasoline by as much as 26 cents per gallon and increase the price of on-road diesel by as much as 52 cents per gallon.

Using its “MA-STAMP” model, the Beacon Hill Institute estimated the economic impacts of various scenarios for implementing TCI in Massachusetts. In the first year, under a 25 percent emissions cap, TCI would cost Massachusetts residents over 9,000 jobs, over $300 million in business investment, and over $900 million in state gross domestic product. It would increase the tax burden on the average Massachusetts household by $738. While TCI would create a new source of tax revenue, Massachusetts would stand to incur considerable losses in other revenue streams.

TCI fails to deliver benefits to justify its substantial costs to the taxpayer. Transportation sector emissions within the TCI region total 340.6 million metric tons of carbon dioxide equivalents, whereas emissions from California, Florida, and Texas alone are 554.9 million metric tons, according to the most recent data from the Environmental Information Agency.

According to the PBL Netherlands Environmental Assessment Agency, global emissions total 50.9 gigatons. The emissions affected by TCI represent 0.6 percent of total global emissions. Since global emissions are increasing year after year, TCI will have negligible effects on greenhouse gas emissions worldwide.

While being a climate leader is considered important, the massive costs incurred by taxpayers under the Initiative will do little to reverse or slow anthropogenic climate change caused by greenhouse gas emissions.

William Burke is director of research at the Beacon Hill Institute and Laurene Belsito is legislative director of the Fiscal Alliance Foundation.

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ON THE MATTER of climate change, politicians have reached a point where they will throw anything they have at the problem without a thought to the economic consequences or, for that matter, the effects on climate change.  Thus, we get unrealistic ideas such as the “Green New Deal” and the resulting talk about getting rid of cows and grounding airplanes.

An example of this mentality is one of several proposed Massachusetts carbon taxes.  H.2810, An Act to Promote Green Infrastructure and Reduce Carbon Emissions, introduced by state Rep. Jennifer E. Benson of Lunenburg, would establish a greenhouse gas pollution charge or carbon tax. The bill would set the tax at $20 per ton of carbon dioxide equivalent in the first year and then increase the rate by $5 each year until the price is $40 per ton.

A study commissioned by the Fiscal Alliance Foundation and carried out by the Beacon Hill Institute found that the average Massachusetts household would be taxed $755 in 2022, the first year the tax is implemented. By the fifth year, that annual tax would grow to $1,263. In addition, we would see a loss of 11,090 private sector jobs in Massachusetts in just the first year and 18,240 by the fifth year. Any economic benefits of the tax would be diminutive, according to the report.

According to a flyer sent out by Benson, “Putting a price on carbon pollution will level the playing field for clean energy solutions, encourage conservation, and help the state meet its legal requirement to reduce emissions.”  The bill, she says, “will raise $400-$600 million per year for a Green Infrastructure Fund” that will help fund public transportation and “storm water and wastewater management systems.”  To offset the impact of the tax, “households and employers will be rebated 70 percent of all funds.”\

Benson claims that “there is worldwide agreement among experts that putting a price on pollution to reflect the harmful impacts of climate change is the most cost-effective way to achieve the deep cuts in emissions that are necessary to protect our climate.”  Indeed, a carbon tax is the policy preferred by some economists.

But what the representative doesn’t say is that economists see a carbon tax as a replacement for the hodgepodge of climate measures that now exist in the form of wind, solar, and electric car subsidies. Benson says nothing about eliminating these measures.  She says nothing as well about the fact that economists recognize a carbon tax – like any tax – to be harmful to economic activity.  The task in determining the correct carbon tax is to achieve the right balance between climate improvement and the resulting harm to the economy.  Her flyer says nothing about that harm or about what her bill would accomplish in terms of reducing worldwide GHG emissions.

The report by the Beacon Hill Institute indicates the tax would cause a loss of $2.254 billion in state production, along with $925 million in private investment and $1.950 billion in disposable income.

Benson wants to rebate 70 percent of the revenue raised by the tax to households and businesses.  What she doesn’t recognize is that, by shrinking the economy, her carbon tax would cause the state to lose revenues from existing taxes.  We find that the carbon tax would raise $1.253 billion in new taxes but cause the state to lose $326 million in existing revenue.  If she uses 70 percent of the remaining revenue to compensate households and businesses, that will leave barely enough for her infrastructure fund.

Also, the inevitable loss of production and jobs makes it an empty promise for her to claim that low to middle-income households “will get back more in rebates than they pay in any cost increase.” Because the contraction in the state economy will reduce household disposable income by $1.950 billion, the average Massachusetts household will lose $755 in 2022, the first year the tax is implemented. The household taxes increase each year. By the second year, the tax is at $911, the third year it’s at $1,075, the fourth year at $1,095 and the fifth year at $1,263.

And how successful will the tax be in mitigating climate change?  Massachusetts accounts for only 0.12 percent of global greenhouse gas emissions.  The tax would reduce global emissions by 0.0027 percent in 2022.  Practically speaking, this diminutive benefit would not mitigate sea water levels, cure asthma, or impact the daily lives of any person or living creature on earth. Benson’s carbon tax does not factor the most obvious barrier, which is that Massachusetts cannot control what air enters the state and what air leaves the state.

We used the much-respected “DICE” model developed by Nobel Laureate William Nordhaus to estimate the economic benefits of this reduction and found that those benefits would come to $57 million in 2022.  Subtracting from the $2.254 billion in lost output, we are left with a net social cost to the economy of $2.197 billion.

Benson’s proposed Massachusetts carbon tax is another example of a reckless policy proposal, echoing many points found in US Rep. Alexandria Ocasio-Cortez’s Green New Deal, which is clearly conceived without a thought to its consequences.  Massachusetts residents who want to do something about climate change should shift their attention to the federal level, or internationally where the possibility of effective change is greater.

David G. Tuerck is president of the Beacon Hill Institute and professor of economics at Suffolk University. Laurie Belsito is the legislative director of the Fiscal Alliance Foundation.

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