Companies will exploit Cap and Trade

Aug. 9, 2012

By John Seiler

Anti-capitalists always complain that entrepreneurs exploit loopholes in all those nice laws liberals and progressives pass to help the environment, the baby seals, the rain forests, etc. You can bet that will happen with California’s Cap and Trade program, which launches in January and is preceded by carbon allowance auctions on Nov. 14. Reported Forbes:

“Governor Jerry Brown’s budget plan, released in January, projected auction revenue of $1 billion in 2012-13. When the cap-and-trade program expands to include transportation fuels in 2015, auction revenue will ratchet upwards.”

There’s going to be a lot of Cap and Trade dough swirling around the state like the smoke from an old-fashioned smokestack from the industrial era. But cautionary tales come from the Third World, where many countries, after decades of socialist indolence, have adopted capitalism and are industrializing at a rapid clip. This is especially relevant as California itself slips into Third World status. Reported the New York Times:

“RANJIT NAGAR, India — When the United Nations wanted to help slow climate change, it established what seemed a sensible system.

“Greenhouse gases were rated based on their power to warm the atmosphere. The more dangerous the gas, the more that manufacturers in developing nations would be compensated as they reduced their emissions.

“But where the United Nations envisioned environmental reform, some manufacturers of gases used in air-conditioning and refrigeration saw a lucrative business opportunity.”

Carbon credits

That’s the problem with those pesky entrepreneurs: they’re always looking for a way to make a buck, even off the government.

“They quickly figured out that they could earn one carbon credit by eliminating one ton of carbon dioxide, but could earn more than 11,000 credits by simply destroying a ton of an obscure waste gas normally released in the manufacturing of a widely used coolant gas. That is because that byproduct has a huge global warming effect. The credits could be sold on international markets, earning tens of millions of dollars a year.

“That incentive has driven plants in the developing world not only to increase production of the coolant gas but also to keep it high — a huge problem because the coolant itself contributes to global warming and depletes the ozone layer. That coolant gas is being phased out under a global treaty, but the effort has been a struggle.”

You have to figure the same thing will happen here in California. The California Air Resources Board, which will oversee Cap and Trade, is a typical massive government bureaucracy. It’s good at hamstringing businesses. But it still will miss all the angles that entrepreneurs might see. After all, even though government bureaucrats are paid massive salaries, anyone with high intelligence still can make a lot more money in the private sector. So the private sector usually, although not always, runs circles around the bureaucrats.

Audit CARB

This is why Joel Fox, editor of Fox and Hounds, has called for auditing CARB:

“Last week, the Department of Finance concluded a quick audit of the Special Funds portion of the budget that, whether sufficient to look into the situation or not, hopefully will start a trend in performing audits on government program revenues and costs. Next in line should be an audit on the California Air Resources Board, which the Joint Legislative Audit Committee is considering in a hearing today.

“Many in the business community are concerned with the lack of transparency on CARB’s responses to information regarding the use of administrative fees charged to California businesses under AB 32, the landmark greenhouse gases law. 

“In a letter to the Chair of the Audit Committee, a number of business groups requested the audit to establish “’accountability, transparency, and credibility as CARB embarks on its effort to implement a complex, multi-billion dollar, greenhouse gas trading market that will involve credit exchanges for offsets and emissions allowances issued by foreign governments.’”

On our Web site, Katy Grimes has reported on how CARB has set up a special corporation in Delaware to get around California open-government laws. Under Director Mary Nichols, CARB effectively has become a law — and a corporation — until itself, unaccountable to the democratic process and the people CARB allegedly serves.

One thing I also would like to know is to what extent ex-Gov. Gov. Arnold Schwarzenegger and his associates might exploit AB 32 to their own advantage. In 2006, he signed it into law with great fanfare, promising new jobs that haven’t materialized as state unemployment remains high at 10.7 percent, compared to 8.3 percent nationally.

Arnold’s $700 million fortune could be cut in half with a divorce settlement from wife Maria. And his gas-guzzling Bentley costs a lot every fill-up. Inquiring minds want to know.