Poor cap-and-trade revenues batter bullet train budget


In yet another blow to California’s besieged bullet train, revenues from this year’s cap-and-trade carbon credit auction fell drastically below the state’s goals, triggering a selloff that left analysts unsure of the system’s long-term viability.

“The results of last week’s quarterly auction were posted and revealed that instead of the $500-plus million expected from the sale of state-owned allowances, the state will get only about $10 million, less than 2 percent,” the Sacramento Bee reported

“The poor results confirmed reports circulating in financial circles that the cap-and-trade program has begun to stumble. February’s auction resulted in some allowances being left unsold — the first time that had happened. Afterward, there was a brisk trade in the secondary market as speculators began dumping their holdings due to uncertainty about the future of the program, which may expire in 2020.”

Officials and activists swiftly sought to downplay the damage. “Over the long-term allowances will be needed, and so the allowances that will be offered through the auction will need to be purchased,” said Ross Brown of the Legislative Analyst’s Office. “But in the short-term it’s hard to know and it depends on the underlying supply and demand.” From an environmentalist standpoint, meanwhile, “it’s important to remember that […] it’s the declining cap — not the price or number of allowances sold at auction — that drives emissions reductions,” wrote Alex Jackson at the National Resources Defense Council. “That is the purpose of the program, not raising revenue.” But with 2020 looming, Jackson allowed, the one-two punch against high-speed rail and cap-and-trade have cast doubt on California’s strategy of fusing infrastructure and environmentalism into a single economic policy.

Case and controversy

Adding to the upheaval, the carbon credit regime itself has wound up in court, as the state Chamber of Commerce pushes to prove that the legislation authorizing its creation — AB32 — has run afoul of the state constitution. “Propositions 13 and 26 require a two-thirds majority for the Legislature to approve new or higher taxes and fees,” as Hoover Institution fellow Carson Bruno wrote at the Bee. “Whether or not AB32, which barely passed in 2006, is unconstitutional depends on whether the cap-and-trade revenues constitute either a tax or a fee. These auction revenues fit the definition of both a tax and fee. They are imposed by a government entity, spent on government activities and are collected in exchange for a transaction — in this case a permit to emit greenhouse gases.”

Officials have countered that argument in court. “The state contends the fees are not taxes, but a consequence of regulations,” as the Times noted. But a judge hearing arguments “recently asked a series of questions that perhaps fueled speculation that he might rule in favor of the suit,” according to the paper. 

The governor’s gambit

Flexing his considerable political skill and discipline to balance competing interests to his ideological left, Gov. Jerry Brown had labored to ensure that cap-and-trade funds could be leveraged to make the train a viable public and private sector investment. That presumed a degree of stability in revenues that now can’t be relied on. “The rail authority had been expecting about $150 million,” the Los Angeles Times observed; now, it will receive just $2.5 million. “Whatever prompted the lack of buyers, the auction is a stark example of the uncertainty and risk of relying on actively-traded carbon credits to build the bullet train, a problem highlighted in recent legislative testimony by the Legislative Analyst’s Office and a peer-review panel for the $64-billion high-speed rail.”

Brown had hedged against just such an eventuality, however. State finance spokesman H.D. Palmer “noted that there is a $500-million reserve set up in anticipation of volatility that could help close the gap,” the Times added. But Brown will have to clear the emergency expenditure in Sacramento, where some liberal lawmakers, hoping to channel more money to environmental policy, could try to nix the scheme by aligning with Republicans long bent on scrapping the train.


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  1. Ronald
    Ronald 26 May, 2016, 10:21

    California’s flagship climate change policy Assembly Bill 32, the Global Warming Initiative was signed into law in 2006 when California was contributing 1% to the worlds green hose gases. And now, 10 years later, by AVOIDING transparency of the results of the California emissions crusade, the state can focus on how to spend the cap and trade funds they receive.

    Now, a decade later, California still contributes a miniscule 1 percent ( 1%) and has had little to no impact on the reduction of global greenhouse gas emissions. With many of the businesses the emit now departed from California, the contributions to the worlds greenhouse gases has actually INCREASED as no other state or country comes close to California which has the most stringent environmental laws and regulations in the world.

    Yet, the state, by avoiding transparency of the results of the California emissions crusade remains on a go-it-alone crusade to micro manage the California emissions that generates billions of dollars for the government at the expense of businesses and the financially challenged. With numerous state government agencies there is a feeding frenzy on getting a piece of the lucrative cap and trade tax revenue, yet there remains no progress in California reducing its contribution to the Worlds Greenhouse gasses.

    The public, especially the homeless and poor, that are paying dearly for the emissions crusade efforts of the AQMD, deserves to know if there is any progress over the last decade in reducing California’s 1% contribution to the world’s greenhouse gases

    Reply this comment
  2. Richard Rider
    Richard Rider 26 May, 2016, 11:54

    “. . . analysts [are] unsure of the system’s long-term viability.” Is ANYONE surprised by this? The one thing that government does well is to overestimate revenues while gulling people on half-baked schemes. But they’ve “raised the bar” with this miscalculation.

    How wonderful that the bogus cap and trade revenue stream is the underpinning of the CA HSR system — which itself is based on systemic “miscalculations.”

    Let’s be blunt. HSR proponents made no “miscalculations.” They blatantly LIED, and they knew it. EVERY projection was a calculated lie. Still is.

    Can I be honest? I’m LOVING this! I doubt that in spendthrift, bonkers CA we can come up with a better example of the folly of government — an example the public can easily understand. And that’s saying something!

    Reply this comment
  3. Dude
    Dude 26 May, 2016, 13:07

    It never had a chance. Cap and Trade was a con just to squeeze money out of industry and the “Train thru nowhere” was just one of Moonbeam’s wet dreams that he wanted us to pay for. Btw, we want our money back since it’s not going to be built.

    Reply this comment
  4. Spurwing Plover
    Spurwing Plover 26 May, 2016, 22:44

    Hollywood wanks and their Go Green message while they live their fancy lifestyles the do as i say not as i do liberal Hollywood wanks

    Reply this comment
  5. ricky65
    ricky65 27 May, 2016, 07:07

    Just wondering how incompetent the ‘economists’ and fiscal ‘experts’ running this program have to be to be off by a factor of 50:1 in their forecast?
    This cap and tax scheme is collapsing even faster than even the harshest critics said it would.
    We have to be vigilant now because a desperate CARB will severely restrict the available credits to drive up the price to fewer participants at auction.
    So I’m thinking watch out gas prices. Instead of the 12-15 cents per gallon now foisted upon the consumer, you can expect 50 cents to a buck increases very soon.
    Always have to laugh when the proponents of cap & tax say this is a ‘market’ approach to reducing pollution. These fools actually believe government controlling the supply of a commodity to drive up prices is true market capitalism works at its best.
    Only in a Bernie/Hilary statist fantasy world can government manage the economy efficiently for the benefit of its citizens. I give you Venezuela, Cuba and North Korea as proof.

    Reply this comment
  6. Ulysses Uhaul
    Ulysses Uhaul 27 May, 2016, 08:13

    Pack and Ship Candidates

    You worry mightingly for nought. There are so so many poor and borderline homeless people that the social safety net may collapse! Taxing and resdtribution may reach diminishing returns faster than anyone expected.

    ….we want your business…so there-

    If….and when…..no politican or chubby doomer will escape accountability.

    Reply this comment
  7. Ted. Mentor to the doomed....Builder of the FUTURE!
    Ted. Mentor to the doomed....Builder of the FUTURE! 28 May, 2016, 08:08

    Cap and Trade—- the darling of the Reagan nursery !!!! LOL

    I love the wild Trumpian hypocrites from the tea bag crowd!

    Reply this comment
  8. Spurwing Plover
    Spurwing Plover 29 May, 2016, 07:20

    Lots of homeless vets sleeping in cardboard boxes but moonbeam wants to build a railroad to nowhere land

    Reply this comment

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