The weather is warming up and so are gas prices. Drivers seem to be putting more miles on their vehicles, which is part of the reason prices are quickly jumping, up 28 cents a gallon statewide from a month ago. In Santa Cruz County, the average price of a gallon of gasoline this month is $3.78, up 22 cents from last month. The average for Northern California is higher, at $3.84.
To keep this in perspective, gas prices are still 26 cents a gallon cheaper than a year ago. Moreover, prices typically go up during the spring, peaking in the summer months.
But Californians face another looming price hike at the gas pump from the state’s greenhouse gas-reduction law. The law already is being felt in the industrial sector, which has paid out more than $1.5 billion in pollution permit fees. Starting next year it will also affect fuel distributors, who will be in the same cap-and-trade marketplace as utilities and big manufacturers.
The oil industry predicts this will lead to price increases of at least 12 cents a gallon immediately. State regulators counter by saying say any price spikes could vary widely, from barely noticeable to double-digits.
The potential spike in gasoline prices is behind a proposal by Senate President Pro Tem Darrell Steinberg, D-Sacramento, that the state should nix the plan to put fuel producers under the cap-and-trade provisions, and instead institute a 15-cent-per-gallon “carbon tax.” Steinberg says his tax would create stable pricing, while still cutting down on gasoline consumption as prices rise.
Cap-and-trade sets a limit, or cap, on emissions of greenhouse gases and requires companies to pay for each ton of pollution they emit. The price is determined in a state-run allowance auction on which companies buy permits to emit greenhouse gases. Companies that cut emissions below the cap can sell leftover pollution permits to companies that need additional allowances. This provides an incentive to reduce emissions, and the money raised goes to programs to further reduce pollution and energy use.
Cap-and-trade is the central tenet of AB 32, the state’s greenhouse gas reduction law passed by the Legislature and signed by then-Gov. Arnold Schwarzenegger in 2006.
The California Air Resources Board, which oversees cap-and-trade, projects no noticeable increase in gas costs after Jan. 1.
Under Steinberg’s proposal, introduced in the Legislature as SB 1156, the tax would rise to 24 cents a gallon by 2020 and more than 40 cents a gallon by 2029. About three quarters of the estimated $3.6 billion raised by Steinberg’s carbon tax would go back to households earning less than $75,000 a year in the form of a state-level Earned Income Tax Credit.
The legislative prospects for Steinberg’s tax proposal, especially during an election year, are unlikely. But the oil industry likes his plan.
The law’s author, Democratic Sen. Fran Pavley of Agoura Hills, said projections of price spikes are “worst-case scenarios and scare tactics” developed by oil companies that found an unlikely ally in the Senate leader. She said she believes Steinberg wants to use the money raised by a carbon tax to fund tax breaks for low- and middle-income families, but that oil companies want to get out from under the cap and still pass on higher costs to motorists.
The biggest problem with Steinberg’s proposal is it comes too late in the game. According to UC-Berkeley energy economist Severin Borenstein, removing transportation fuels from the auctions at this point would be nearly impossible.
Still, he says he could support a carbon tax in the future, even though he doesn’t think the current program will lead to wild fluctuations in gas prices. But that doesn’t mean there aren’t risks of price spikes — particularly if demand for emissions credits was to increase more than expected. Borenstein thinks the air board could set a price ceiling on emissions permits to dampen volatility fears and that the Legislature could still decide to re-direct auction proceeds to help poorer Californians, from programs to reduce energy use and pollution.
Good ideas and more realistic than Steinberg’s tax proposal.