Down the rabbit hole on cap and trade

Sept. 14, 2012

By Katy Grimes

The clean, green fairy tale is really a nightmare in California, and all sense has gone down the rabbit hole.

Nonsensical is the best word for what is occuring in California with cap and trade. Nonsense may be fun and is fine when children and adults are being delighted by a tall tale, but there is no delight in the nightmare California is about to face. A harsh reality is about to come crashing down on all businesses and consumers, and a wrecking ball will hit California’s economy.

This fairy tale is more like the strange world of Alice in Wonderland, where nothing is as it appears.

Central governmentland

The California Legislature had a chance to do something useful with the state’s flawed cap-and-trade plan before they ended the two-year session on August 31. But they did not. Instead, they passed a spate of bad spending bills, which some claimed would assist the California Air Resources Board with the implementation of AB 32, they keystone legislation for cap and trade.

But every government-created green economy has collapsed in dismal failure.

Numerous studies have shown that California’s cap and trade auctions will lead to significantly higher energy costs. California already suffers under high energy costs — piling on even higher costs will surely speed up the mass business exodus out of the state.

“The business community has long supported a well-designed cap and trade program to help meet the goals of AB 32, the 2006 Global Warming Solutions Act,” Jack Stewart, president of the California Manufacturers and Technology Association, recently wrote in Capitol Weekly. “AB 32 instructs CARB to implement AB 32 in the most cost-effective, technologically feasible manner.”

But like Alice, businesses have quickly discovered that cap and trade Wonderland will not fulfill any of their desires. Wonderland thwarts their expectations at every turn.

Carbon horse trading

CARB, the notorious rogue state agency led by Mary Nichols, made the decision to withhold some of the carbon emission allowances, thereby forcing California businesses to compete for carbon allowances in a global market.

This proved what many have been saying all along about AB 32, and Nichols — she wants to play in an international arena, and AB 32 implementation gets her there. It also goes a long way in explaining why CARB registered its new corporation, Western Climate Initiative Inc., in Delaware, not California.

CARB’s handling of cap and trade thus far has been abominable, embarrassing, and like the events following Alice’s fall down the rabbit hole in wonderland, confusing but symbolic.

California Wonderland

Nichols, as the director of the California Air Resources Board, is reminiscent of the Queen of Hearts from Alice in Wonderland, and private sector businesses are the vulnerable Alice.

As the ruler of Wonderland, the Queen of Hearts is the character that Alice must inevitably face to figure out the puzzle of Wonderland.

California businesses must face CARB in order to figure out the puzzle of cap and trade.

Unlike many of the other characters in Wonderland, the Queen of Hearts is not as concerned with nonsense and perversions of logic as she is with absolute rule and execution.

“We will be combing the record for every minor glitch we can possibly find to fix, but I am delighted that everything so far shows that the practice auction went well, and that the participants found the auction website easy to use,” Nichols said after the mock cap and trade auction was held on August 30.

Mock cap and trade auction

In what could have been a Wonderland Mad Hatter tea party, 150 utilities and businesses across California participated in a mock three-hour cap and trade auction on Aug. 30, run by the California Air Resources Board, to “put the system to the test.”

The businesses made fake bids on 60 million fictitious carbon allowances.

But one utility apparently decided to deliberately muck things up to see how CARB would react. California Energy Markets reported that the San Francisco Public Utility Commission was assigned $90 million in “funny money” to use in a carbon-allowance buying spree. But SFPUC made a bid for 10 billion allowances at $9.99 each, after their first initial offering of 900,000 allowances at the $10 floor price.

“The bid was not rejected, even though the total settlement price for the bid would have been way over the SFPUC’s bid guarantee of $90 million,” California Energy Markets reported. “When the SFPUC finally logged out of the auction system, about 30 minutes after starting, staff had placed eight bids for more than 10 billion carbon allowances at bid prices ranging from $1.17 to $300 per allowance.”

“The SFPUC, which will receive an initial allocation of about 95,000 allowances from CARB, stands to reap at least $950,000 at auction given the $10 floor price.”

Barbara Hale, the assistant manager of SFPUC’s power enterprise, stated that the proceeds “would be very meaningful,” given that the SFPUC recently cut more than $1 million out of its capital plan, including funding for energy-efficiency programs and renewables,” California Energy Markets reported.

LAO gives thumbs down on cap and trade

Even the non-partisan Legislative Analyst’s Office gave California’s cap and trade program a two-thumbs down.

In a recent letter, several members of the Assembly requested that the LAO provide information about the free allocation of allowances under the cap and trade program proposed by CARB.

The LAO explained in a return letter that an allowance auction is not needed to meet the mandate of AB 32, reducing the greenhouse gas emissions statewide to 1990 levels by 2020.

The LAO also stated that cap and trade regulation will greatly increase production costs for businesses forced to comply with CARB’s regulations.

Other views

“The California Air Resources Board acknowledges AB 32 will result in a net loss of up to $35 billion in gross state product, while researchers at Andrew Chang and Co. found that California will lose $153 billion, even under optimistic conditions,” Andrew Chang recently wrote in a Sacramento Bee op ed, removing all fairy dust from the situation.

“ARB’s current AB 32 programs, including cap and trade, will cost the average California family $2,500 per year and destroy 260,000 jobs. The Sacramento metropolitan area alone can expect to lose more than $93 million in local tax revenue by 2020. The rosy message propagated by ill-informed and self-serving proponents is the real fairy tale.”

But no one is listening to California business owners and CEO’s.

“It’s frighteningly clear that the California Air Resources Board, in its eagerness to pursue the goals of Assembly Bill 32, the state’s global warming law, has lost sight of the significant flaws and disastrous economic impacts its policies will have California businesses and residents,” Ronald Stein, vice president of PTS Staffing Solutions in Irvine wrote in the Orange County Register.

“CARB certainly doesn’t need another report to tell it that as long as California is the only jurisdiction with policies as stringent as those associated with AB 32, all their programs combined won’t make a dent in global warming – the agency has acknowledged as much in the AB32 Scoping Plan. Yet CARB insists on its quixotic crusade to lead the world in climate change policy.”

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