Despite killing jobs, cap-and-trade on track

Sept. 24, 2012

By Dave Roberts

Leakage. It sounds like something dribbling from a broken beer stein. It’s also become a buzzword in the implementation of the California Global Warming Solutions Act of 2006, also known as AB 32.

The California Air Resources Board defines leakage in bureaucratese as “a reduction in emissions of greenhouse gases within the state that is offset by an increase in emissions of greenhouse gases outside the state.” In other words, some California businesses will be shutting down, downsizing or moving out of state in response to the legislation’s exorbitant costs and onerous regulations.

Leakage might be more accurately called “floodage.” California will have 262,000 fewer jobs in 2020 than if AB 32 had not been enacted, predicts a study by Andrew Chang & Company. The state could lose as many as 51,000 jobs due to refinery closures alone, warns a study by The Boston Consulting Group.

As a result, “AB 32 requires ARB to design measures to minimize leakage to the extent feasible,” according to CARB. So, at the same time that state government is bashing businesses with a bureaucratic sledgehammer, it’s offering carrots to entice them to stick around a while, if only to receive more cudgeling in the future.

Bureaucratic sledgehammer

The first sledgehammer blow will be felt on Nov. 14 with the first cap-and-trade auction for allowances, which permits businesses to emit greenhouse gases. About 350 businesses emitting at least 25,000 metric tons of carbon dioxide equivalent are targeted. They include oil producers, refiners and electricity generators.

The carrots are the 90 percent of allowances that initially will be dispensed for free. One allowance is equivalent to one metric ton of CO2. Over time, businesses will be squeezed as the cap on emissions is lowered and the number of free allowances is reduced, thereby driving up the cost of complying.

“Leakage” was on just about everyone’s lips at the Sept. 20 CARB meeting, particularly from the scores of business owners, union workers and minority advocates who pleaded with the board to halt cap-and-trade. Many of them cited the Legislative Analyst Office’s finding in an Aug. 17 letter to Assemblyman Henry Perea, D-Fresno, that an allowance auction is not necessary to meet the AB 32 goal of reducing greenhouse gas emission levels to 1990 levels by 2020.

“A key advantage of 100 percent free allocation is that it would significantly offset more of the marginal cost increase resulting from compliance with the program as compared with the Air Resources Board approach and reduce the potential for leakage while preserving the environmental integrity of the program,” the LAO letter states.

On the other hand, a disadvantage of handing out free allowances is that it disguises the cost of complying with the emission reduction mandate.

“[W]hen allowances are introduced through a competitive auction, the market price of allowances indicates the marginal costs that firms bear to reduce GHG emissions,” the letter states. “Price discovery can be especially important when a program (such as cap-and-trade) is in its infancy.”

Another disadvantage of providing free allocations, as far as state officials are concerned, is that the auction is expected to raise anywhere from $660 million to $3 billion, creating a slush fund to dole out money to pet energy projects and favored constituencies.

Union, minority opposition

It’s been natural for business owners and trade associations to lead the opposition to AB 32; so it was noteworthy when 10 United Steel Workers who work for Phillips Petroleum spoke out while wearing “Save Our Jobs” t-shirts.

“The media talk about unions and companies fighting. We are not fighting on this issue; we are in accord,” said Lisa Bowman. “California has a strong tradition of demonstrating that a healthy environment and strong economy can work hand in hand.”

One of her coworkers said that they are concerned that the crackdown on California refineries means “that out-of-state refiners will have an unfair advantage. California refineries need the regulatory certainty that investing in updates is in their long-term interest. Make sure a level playing field is provided.”

Also noteworthy was the opposition from minority advocates, despite the fact that a chunk of the green slush fund is slated for “disadvantaged” communities.

“We will see a significant business flight and job loss, declining revenues and further erosion of the social safety net,” said Andrew Barrera, representing the Los Angeles Metropolitan Hispanic Chambers of Commerce. “Cap-and-trade will likely impair the profitability and sustainability of the small local businesses. In Los Angeles we are feeling the effects of AB 32. It will substantially increase energy costs. Los Angeles water and power rates have continued to go up. In the past few weeks the department has asked for another 11 percent increase. We cannot afford another emission allowance tax on top of that. Without free allowances we are likely to lose companies to other states. We are having trouble understanding why we would even consider this in today’s bad economy.”

Henry Casas, representing Soledad Enrichment Action, which educates and trains at-risk youth in the Los Angeles area, is concerned that increased business costs will result in fewer job internships, reduced financial assistance and training opportunities. “Unemployment and dropout rates in our communities are already alarmingly high,” he said. “This will make them worse.”

Said James Brady, representing 100 Black Men of America and noting that African-American unemployment is almost 19 percent, “Cap-and-trade auctions will drive energy costs up by billions of dollars, forcing many businesses to downsize or leave the state. We don’t need an auction to reduce greenhouse gas emissions.”

Nichols defends cap-and-trade

The cap-and-trade discussion lasted for more than four hours, but it essentially was over after five minutes. That’s about how long it took CARB Chairwoman Mary Nichols to defend AB 32, cap-and-trade and the allowance auction process.

“We are clearly on track to meet the goal to get to 1990 emissions by 2020, then getting to a reduction of about 80 percent over business as usual by 2050,” said Nichols. “While nothing about this program has been uncontroversial, there was an initiative in 2010 [Proposition 23]. Although the recession at that point was in its depths, the measure was rejected overwhelmingly by the voters. Everybody is against air pollution, but they just don’t happen to like the particular regulation that affects them. I think that’s where we are with respect to global warming.

“Cap-and-trade is the most novel and controversial piece of the program. Other than electric utilities, which are subject to a different regulatory scheme, there is no requirement that businesses participate in the auction. Companies subject to the rule will get allowances that cover about 90 percent of the greenhouse gases they are currently emitting for the first years of the program. As time goes on those who have cleaned up their emissions will get extra allowances that they can sell. Others will have to purchase or get offsets from others.

“I think that some form of an auction has been shown to be the most efficient and equitable way to create public information as to what the actual value of what a ton of carbon is. We have gone a long way to making these regulations as simple and palatable as possible. We will keep working to improve them.”

After the public had weighed in, the board members were relieved that they had not been given a harder time. “This hearing is quite a bit different than I expected; it’s far more peaceful,” said Board Member Ron Roberts. “I think we have made significant progress. I’m largely satisfied with where we are.”

Nichols said it’s still possible that the Nov. 14 auction could be postponed if significant problems arise. But at this point it looks like: Damn the leakage, CARB is moving full speed ahead with California’s quixotic effort to save the planet from global warming.


Write a comment
  1. Hondo
    Hondo 24 September, 2012, 11:09

    So many small business started by democratic voting hispanics in California are restaurants which have stoves and ovens which are big carbon users. This cap and trade is a gigantic tax on those small business and to the poor people who buy food. This tax is regresive beyond belief.

    Reply this comment
  2. Carl Souza
    Carl Souza 24 September, 2012, 14:31

    There will be no recovery. This will bring hiring to a standstill.
    The industrial base of CA is doomed.
    So long, Golden State. Hello Gilded State.

    Reply this comment
  3. David
    David 24 September, 2012, 16:13

    Thanks for this very clear explanation of an awful situation. Great article and reporting.

    Reply this comment
  4. Ron Kilmartin
    Ron Kilmartin 24 September, 2012, 21:17

    And where were all these folks when Proposition 23 was before the voters, and did they or did they not support Proposition 23? It was not about dirty air as envirogandist Nichols claims, it was about clean-as-a-whistle CO2 emissions.

    If there are organizations out there who will put their money where there mouth is, they can fund putting Prop 23 (2010) back on the ballot for 2014.

    Reply this comment
  5. C-Lion
    C-Lion 25 September, 2012, 18:26

    This scam was hatched in the mind of “progressives” who demonized dirty, “obsolete” industry while at the same time fantasizing that “clean” computers and software were the wave of the future.
    The truth is that computers can only function in a sterilized, climate-controlled environment that requires massive amounts of energy. Factor in the data-centers that provide the computing power of internet powerhouses like Google and Facebook, and the Big Lie of benevolent, “green” computers is exposed.
    (I’m assuming that government entities have, of course, been exempted)
    Cap & Trade will doom CA’s economy. “Liberals” scream about “crony capitalism.” This is it in spades – government and Wall Street laughing all the way to the bank.
    R.I.P. CA middle class.

    Reply this comment
  6. Solar57
    Solar57 25 September, 2012, 22:37

    California will be a third world state in less than ten years. they need to fix up their beaches and parks to prepare to be a tourist attraction. most other businesses will be gone. Oh yeah, get ready for soaring crime.

    Reply this comment
  7. David Travers
    David Travers 26 September, 2012, 20:15

    These are sick people promoting their Enron created vision for California. Make no mistake about it, this is a massive transfer of wealth from the poor and the middle to those whom the politicians select.

    CARB has again overreached like they did with MTBE. Their vision of energy is built on lies and fraud and we will all pay dearly for their destrictive behaviour couched in “helping the children.”

    Political pedofiles at their worst.

    Reply this comment
  8. hopeandchange1
    hopeandchange1 27 September, 2012, 16:49

    I always feel sad when I read stuff like this or see another California city has gone bankrupt. I love my home state, I wish the Progressives would get electro-shock therapy and change course. So sad to watch, I just can’t stand the injustice of the destruction of this beautiful state by stupid politics. My birthplace has been taken over by selfish, greedy, incompetent trolls. So sad…

    Reply this comment
  9. John Alexander
    John Alexander 28 September, 2012, 10:24

    Most all the people are stupid in CA. because they are going to vote for obama.Everybody should move out of CA. and just leave Hollywood, the environmentalist, progressives, and gays.This cap and trade is straight from the whitehouse, and you won’t be happy when you get your utility bill. Probably be allowances for all illegals.

    Reply this comment
  10. fletch92131
    fletch92131 29 September, 2012, 11:08

    AB 23 was outgunned/outfunded by the very “Greenies” who think the nation’s air is getting worse and that CA could “lead” the nation towards a “a more responsible” environmental policy. Funny thing though, when the federal version of this came-up for a vote, not a single Senator voted, including our CA Senators, were onboard. Perhaps they actually listened to the briefing describing how voting for it would place the nation at a competitive disadvantage, and by voting against, or abstaining, they could say they didn’t support doing that to California citizens.
    Finally, the CA organization that studied the law and predicted a million-person job loss was denounced as “funded by Big-Oil” and the Koch Brothers. Not so funny was the fact that their prediction came true, we’re down more than a million workers, and the tax revenue that goes with their salaries isn’t being collected.

    Reply this comment
  11. Mark Talmont
    Mark Talmont 30 September, 2012, 12:06

    I watched some of the hearings before one of the legislative committees on the California Channel, quite alarming. The testimony from industry made a strong case that for one thing there is no way there is going to be enough ethanol available for blending into California gas so get ready for higher prices there. A glass manufacturer from Kingsburg pleaded his case that under CARB’s rules there is no way they can maintain current production, much less expand even though there is rising demand for their products designed for…solar panels!
    I am increasingly sympathetic to the view at, the scandal about the guy with the fake Phd who cooked up the diesel data should have resulted in a purge, but they are apparently politically protected due to Jerry Brown’s legacy connection to them. Chair Mary Nichols is a belligerent dictacrat.

    Reply this comment

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