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Cost of cap-and-trade
June 20, 2014, 05:00 AM By Jon Mays Daily Journal

Assembly Bill 32, signed by former governor Arnold Schwarzenegger in 2006, requires California to reduce its emissions to 1990 levels by 2020 — an approximate 16 percent reduction than what would naturally take place without this action.

The purpose of this legislation was to address the rising amount of greenhouse gases in the state by capping the amount of emissions but allowing certain groups to continue with higher emissions if they pay to do it. In theory, the financial disincentive would force polluters to reduce emissions and we’d all breath cleaner air and contribute less to the causes of greenhouse gases, specifically water vapor, carbon dioxide, methane, nitrous oxide and ozone. It would also provide the state money to invest in projects that would also do their part to reduce these gases, though I don’t know if there is much that can be done about water vapor. It seems carbon dioxide is the main culprit.

Through AB 32, California established a cap-and-trade program through the California Air Resources Board. The first phase of the program targeted large sources of emissions like electricity companies and refineries and provided allowances to these companies to make up for their emissions. At first, these allowances were free but a small percentage were auctioned off in 2013 and are available to be purchased by companies who exceed their emissions targets. That auction provided the state with money that was deposited in the state’s treasury to further its clean energy goals. This year, the state began allocating that funding into, I’ll stop short of calling it a slush fund, a raft of programs that includes $250 million for high-speed rail, $25 million each for transit and intercity rail capital programs and low carbon transit operations; $200 million for low carbon transportation, $65 million for water action plans and $42 million for sustainable forests, among others. It also allocated $130 million for affordable housing and sustainable communities, specifically transit-oriented development. The total allocation this year was $872 million. It also created a structure for continuous allocation of future revenue for rail programs, low carbon transit operations and affordable housing. And the budget also complies with 2012’s Senate Bill 535 that 25 percent of all cap-and-trade funds benefit low-income areas.

The budget deal hammered out Sunday not only allocates $250 million this year for high-speed rail, it outlines 25 percent of future revenue from the auctions for it — or around $3 billion to $5 billion a year.

In 2008, California voters passed Proposition 1A, which approved $10 billion in bonds for the project. But selling bonds that would cover the first phase of construction in the Central Valley has been held up in court and there are underlying questions over matching federal funds and private investment for the project last estimated to cost $68 billion. However, the dedicated funds from the cap-and-trade auctions could total $25 billion by 2020 — a big chunk of change.

So what does this all mean to you? Ostensibly, it means we should be breathing cleaner air, but the way the allowance, or permit process works, it also means organizations that pollute will pay more money to pollute. And that means energy producers and distributors will have to pay more to provide us with the energy we require to make things, keep our homes lit and our cars fueled for our daily transit needs. And that means the cost will rise for all of us.

Next year, fuel distributors must also comply with the state’s cap-and-trade rules. The intent was not to make money of this plan so it would not be seen as a tax. However, in January, gas prices for the average consumer will go up 10 cents to 20 cents a gallon as wholesalers are required to buy more allowances, or permits. And anyone who knows anything about economics knows that the cost of everything rises when fuel costs rise. In addition, it is likely that home electricity costs will rise as utilities try to put their books in the black. So even if you are an electric car driver, you will still be paying more because of these new rules.

I’m not saying the goals outlined in California’s new policy are bad. I’m not saying they’re good. I’m simply making the point that nothing is free and that there is a cost to pay in any change in behavior, warranted or otherwise.

And when it comes to the state’s elected officials determining what to do with the proceeds, it also shows that politics is alive and well. High-speed rail in theory should cut emissions. Affordable housing near transit should also make it easier for people to take the train. But both are a reflection of the state’s prior struggling policies in which it allowed the costs for a train from San Francisco to Los Angeles to elevate and decimated its affordable housing program through the elimination of redevelopment agencies.

Jon Mays is the editor in chief of the Daily Journal. He can be reached at Follow Jon on Twitter @jonmays.



Tags: million, emissions, transit, would, billion, carbon,

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