CARB ‘Rogue Agency’ Snubs Legislators

MAR. 1, 2012

By KATY GRIMES

A Wednesday hearing in the Legislature to discuss pending state cap-and-trade auction revenues produced very few answers. But it did prove that no one in the state has a handle on the implementation of AB 32, the Global Warming Solution Act of 2006, or the potential repercussions from the vast law.

Even the Legislative Anaylyst’s Office, always well versed on the detail of state policy, had more questions for the California Air Resources Board. But all that came back from CARB was bureaucratic doublespeak, and few answers.

CARB Director Mary Nichols did not show up for the hearing, much to the “extreme dismay” of the committee chairman, Assemblyman Richard Gordon, D-Menlo Park. Gordon told CARB Deputy Director Richard Corey to convey to Nichols that the committee was upset with her.

Assemblyman Brian Jones, R-Santee, took Nichols to task for skipping the meeting, and said  CARB is a rogue agency that has gone far beyond its authority.

CARB To Give Away ‘Allowances’

Instead of selling carbon credits, the program will begin with CARB giving away free carbon allowances “to the State’s large industrial emitters as well as the State’s electric utilities in order to reduce the economic impact of the cap-and-trade program,” a background paper explained.

Assemblywoman Diane Harkey, R-Dana Point, expressed her concerns about how the overall program will work, and whether the program will actually result in lower greenhouse gas emissions. She suggested that it may just be a program to allow a great deal of money to change hands, with investors eventually getting rich off of market speculation, with no improvement in the reduction of emissions.

Harkey asked for a flow chart showing who controls the program, and who is responsible. “Who controls all of this? Who controls what?” Harkey asked Corey. “What role does the Legislature play? I can see multiple issues here.”

Corey said that when CARB designed the regulation, it looked at what had already been done. “The program provides flexibility for businesses. How you hand out allocations, is not necessarily how you achieve in the process,” Corey added.

“We are in a recession,” said Harkey. “What happens when the economy starts to grow again? Will the state have to buy all of the allowances back from companies banking them?”

If that is the case, Harkey said that the state will not be getting a reduction of emissions.  And if the state instead just issues more certificates for credits, the value of the credits goes down, similar to what happens when the federal government prints more money.

Delaware Corporation In CA Carbon Market

CARB created the WCI, Inc., registered as a Delaware corporation, “to perform administrative and technical services to support the carbon trading market, including market monitoring of allowance auctions, and market trading of compliance instruments.”

On the WCI Board of Directors is Matt Rodriquez, the newly appointed secretary for the California Environmental Protection Agency; James Goldstene, CARB Chairman and CEO; and the equivalent officials for the Canadian provinces of British Columbia and Quebec. No other America states are involved.

Harkey asked Corey why WCI was registered in Delaware and not in California. “WCI is an established … it’s a program to link with others,” Corey said. “Many California companies are incorporated in Delaware, like Chevron and Disney,” Corey added. “And the Delaware incorporation law is taught in law schools around the country. It was on the advice of counsel.”

“California has Sunshine laws and open hearing regulations,” Harkey said. “We have public funds we are dealing with here, not like Chevron or Disney.” Harkey noted that Delaware is not subject to California state open meeting or sunshine laws.

CARB Bureaucrat-speak

At times, it sounded as of Corey was speaking in tongues. “What is plan B?” asked Assemblyman David Valadeo, R-Hanford. “You know we are going to lose a lot of businesses to leakage.”

The “leakage” Valadeo referenced is the anticipated loss of businesses to other states, due to the implementation of AB 32, and the additional costs to businesses in the state. “The leakage was a specific requirement of AB 32,” Corey said. “We looked at it, evaluated it, and have it in a monitoring process….”

“What’s the sign of leakage after they’ve left?” Valadeo asked. Chuckles from the audience could be heard.

“Leakage is at the top of our list,” Corey said. “There are a number of checks and balances on these issues should they arise.”

Cap and Trade Program

California’s Cap and Trade program is a key component in AB 32, the climate change law requiring California to reduce greenhouse gas emissions to 1990 levels by 2020, effectively a 25 percent cut.

California’s new cap-and-trade program places a limit on greenhouse gas emissions from the businesses and entities responsible for approximately 80 percent of the state’s greenhouse gas emissions.  CARB will issue carbon allowances to these businesses and entities, which will be able to sell them to other businesses on the open market.

The “cap” is the limit on greenhouse gas emissions, and the “trade” is the sale of carbon credits to other businesses. It’s the ultimate example of the government picking winners and losers, because not just anyone can sell carbon credits — only the businesses chosen by CARB get to sell, and profit, from selling carbon credits to polluters.

This is not a new concept. For years, the state’s many air quality districts have been requiring businesses to purchase “clean air credits” from the large companies, which were allowed to purchase up most of the credits. It’s a government run pay-to-play scheme.

Greenhouse Gas Hedge Funds

Harkey is worried about another financial meltdown, but this time over greenhouse gas carbon credit auctions.

Known as hedge derivatives, the program sounds as the state is getting into a derivative market, where investors get involved in betting, trading and profiting on the value of carbon credit shares.

“The state should not be doing this,” Harkey said. “It’s okay if the private sector does this, but not the state. These are risk decisions with the public’s money.”

She’s asking for a full review of the program by the legislative Banking and Finance committees, the Securities and Exchange Commission and finance specialists.

LEED Certified Urban Ghetto

The last part of the hearing was testimony from the public, which consisted entirely of lobbyists, in support of or opposed to cap-and-trade. Most of the speakers were in favor of AB 32, and cap-and-trade. But they had a motive.

The lobbyists spoke primarily in favor of SB 535, a new bill by Sen. Kevin de Leon, D-Los Angeles. It specifies that some of the money raised by the carbon auctions be used solely in the low-income communities. So that, when provided to existing programs, the money supplement rather than supplant those programs.

Many of the lobbyists spoke about supporting the auctions in order to fund the building of new affordable, high-density housing that is close to transit and for low-income residents. The aim is to get people out of cars and onto public transit.

“AB 32 will help create jobs,” Ryan Young with the Greenlining Institute said.

“This creates job opportunities in low-income areas,” said a representative from Green Collar Jobs with the Ella Baker Center.

“SB 535 ensures that money gets directed to disadvantaged communities,” said a representative from the Coalition for Clean Air.

But Dorothy Rothrock, with the California Manufacturers and Technology Association, said that her organization, as well as the AB 32 Implementation Group, have asked CARB two times to conduct a public workshop to discuss the design and scope of the auction and treatment of the funds generated by the sale of carbon credits. But there was no answer from CARB.

“CARB’s decision to hold auctions without holding hearings, simply acts as a tax on business,” Rothrock said. “It acts like a tax if the burden cannot be met.”