Tax 'Brown Out' from Cap-and-Trade?

MAY 13, 2011

By WAYNE LUSVARDI

Will working class opposition to California’s cap-and-trade program lead to a tax “Brown Out”?

The usual meaning of “brown out” means a lowering of power voltage for a period of time, as in “rolling brown outs.” Now it will be reinterpreted to mean a “Brown Out” — a loss of political legitimacy for tax increases and utility rate hikes by usurping democracy for political expediency.

Bill McGavern of Sierra Club California has written an open letter to Gov. Jerry Brown. The letter concerns AB 32, the Global Warming Solutions Act of 2006. AB 32 was affirmed by voters in November 2010 when Proposition 23, which would have suspended AB 32, was defeated.

McGavern’s letter pleads with Brown to override the democratic process and rule by fiat to eliminate the “trade” provisions of the cap-and-trade sections of AB 32. The Sierra Club wants the “cap” but not the “trade.”

Cap-and-trade, also known as emissions trading, is an administrative approach used to control pollution by providing economic incentives for achieving reductions in the emissions of pollutants.

California has spent five years since the passage of its green-power law to put the framework for cap-and-trade into place. Now the Sierra Club wants one man to throw most of it out.  But why is the Sierra Club trying to overthrow California’s cap-and-trade law when the Environmental Defense Fund, the Nature Conservancy and the Natural Resources Defense Council support it?

The Sierra Club’s letter advocates:

1. Forbidding industries from buying pollution credits from out of state.

2. In so doing, reducing air pollution in low-income communities near refineries and industry.

3. Eliminating “forest offsets” to avoid forests being turned into “tree plantations”

4. Avoiding accounting and enforcement problems of how many trees equals one ton of abated carbon.

5. Eliminating “gifts” to low-polluting industries such as oil refining and extraction industries in the form of pollution credit revenues. Such revenues should go to the state.

Cap-and-Trade is Tax on Working Class

The Sierra Club letter comes on the heels of a lawsuit filed by six environmental organizations that represent low-income communities. The lawsuit contends that alternatives to cap-and-trade, such as a direct carbon tax or carbon fee, were not adequately evaluated in the environmental impact process.

A San Francisco Superior Court judge has agreed with them, but has not issued a final order yet. The Associated Press widely misreported that the judge had suspended the state’s cap-and-trade program.

The lawsuit, on behalf of working-class communities mainly in the South Bay area of Los Angeles County, is on to something big: a cap-and-trade program would be a highly regressive tax on the working class.

What the lawsuit and the Sierra Club’s actions are apparently angling for is a judicial or executive ruling that exempts so-called working-class communities from the brunt of the electricity and water rate shocks and cap-and-trade costs loaded into the price of everything. Such costs now are looming for 2012 as a result of complying with AB 32.  But doing so would shift all the burden of California’s Green Power Law onto the middle class —  thus allowing a large economic “minority” to opt out of a law affirmed by a statewide vote!

The California Environmental Quality Act (CEQA) does not generally provide for mitigations for economic impacts. But this lawsuit is framing its complaint in environmental terms that low-income communities, mainly in the South Bay of Los Angeles, are disproportionately affected by pollution. Don’t tell the judge to visit the predominantly middle-class west end of San Bernardino County on a hot smoggy day, where the smog backs up against the mountains.  Nor should the judge visit all those upper-middle-class neighborhoods in the City of Long Beach that are affected by pollution from the Los Angeles-Long Beach ports. Fresno and Visalia also have air quality problems that do not necessarily affect only low-income areas.

What if higher green-power rates and the higher cost of everything that will result from cap-and-trade are imposed on lower-income Californians? Then all the technical mumbo jumbo about unfair pollution credits, forest offsets, green accounting problems, gifts to industries and environmental justice would be shown as a subterfuge covering for the fact that ruling Democratic politicians would lose their working-class and Latino constituencies.

Shifting Cap & Trade to Middle Class May Kill Any Tax Increase

But this creates another dilemma for Gov. Brown: How is he going to get what he calls “the popular will of the people” on his side for his much sought after tax increase if he shifts all the “rate shock” of green power onto only the middle class, which would have to ratify the tax?

Brown is faced with a double-sided legitimacy crisis.  If he somehow overthrows just those portions of AB 32 that would adversely affect the working class, his proposed tax increase will be seen as illegitimate by those middle-class taxpayers who will have to pay for it.  If he is unable to exempt the working class from utility rate shocks, his party’s working class coalition may unwind.

Moreover, the whole cap-and-trade program may implode before it gets off the ground if Brown cannot figure out 1) how to protect the working class from a regressive pollution tax loaded into the price of everything; and 2) how to avoid shifting all the burden of cap-and-trade onto the middle-class, thus undermining his tax-increase proposal.  And if cap-and-trade does implode, the environmental wing of the Democratic Party coalition may be alienated, thus resulting in a three-sided legitimacy crisis.

A four-sided crisis might occur if cap-and-trade triggers another middle-class tax revolt, such as happened with Proposition 13 in 1978.  Ironically, Democrats had an escape hatch out of this legitimacy crisis when Prop. 23 was on the Nov. 2010 ballot. But they helped defeat Prop. 23’s suspension of AB 32.

What the Sierra Club letter actually does is alert the middle class that it is going to get stuck with all the “rate shock” from AB 32 and the bulk of the costs of cap-and-trade, albeit covered up as a hokey environmental lawsuit against the so-called discriminatory impacts of AB 32 on low-income communities.

The Sierra Club is a political organization that is using environmental laws and language to obscure its political objective to hold together the Democratic Party coalition. Environmentalism serves some of the same functions that religion once did in legitimating certain duplicitous actions of the state, only under the rubric of science.  When the state drags out the Sierra Club, you can most likely suspect that there is some action of the state to be covered up or reframed as “environmental justice.”

Routine Eclipse of Democracy

Brown is not facing a legitimacy crisis as much as he is facing a legitimacy dilemma. How long he can maintain social cohesion and political legitimacy with mainly the help of the mainstream media, while continuing to undermine democracy, remains to be seen.

The usurpation of democracy may be politically adroit, but may unravel any political legitimacy for Brown’s much touted tax increase package for the continuation of temporary sales tax and vehicle license fee hikes.  Ironically, the historical usurpation of democracy by the Democratic Party continues to morph California into an oligarchic democracy ruled by a coalition of elites and non-elites against the private-sector middle class.

Now, a “Brown Out” by the middle-class could lead to a democratic revolt against the governor and his party.