Lawmakers on Wednesday sent a measure to Gov. Jerry Brown creating legislative oversight of the California Air Resources Board — a vital piece in the state’s climate agenda.

Assembly Bill 197’s companion legislation, SB32, which expands CARB’s authority to create and implement programs to meet reduced greenhouse gas emission targets, can only become law if the oversight bill is signed into law.

The oversight bill would create a joint legislative committee to oversee CARB and would add two legislators to CARB as non-voting members. 

Most Assembly members who spoke during debate on the final vote agreed the measure didn’t go far enough, but proponents said it was better than nothing.

“Doing nothing keeps us at the same position with our hands tied behind our back and continuing to complain that ARB is out of control,” said Assemblyman Eduardo Garcia, D-Coachella, the bill’s sponsor.

Assembly Speaker Anthony Rendon, D-Paramount, said it’s “obvious that CARB has a credibility problem,” and said the bill was a good “first step.”

Not everyone was convinced. Assemblywoman Cheryl Brown, D-San Bernardino, who is in one of the most competitive re-election races this year, largely due to opposition from environmentalists, said the measure did not provide “adequate oversight of CARB,” and didn’t call for accountability measures like audits.

Republican Catharine Baker of San Ramon, who, like Brown, supported SB32 the day prior and is in a tight election, said she was concerned that AB197 didn’t call specifically for a Republican to be one of the two appointments to CARB.

Garcia tried to alleviate Baker’s, and other’s, concerns over who will be appointed by saying interested legislators should petition leadership. 

The measure passed 44-28. The companion bill, SB32, easily passed the Senate on Wednesday as expected and also waits for the governor’s signature.

According to a Public Policy Institute of California poll released Wednesday, a majority of Californians support government efforts to improve the environment, despite possible rises in energy costs and ongoing debates about the legality and effectiveness of the state’s environmental policies.

The study, which surveyed around 1,700 California residents about various environmental concerns, found that the majority of Californians supported existing plans to combat global warming, and were willing to expand these laws, even if that means paying more for gasoline and electricity.

“We find strong support today for the state’s greenhouse gas emissions targets set 10 years ago,” PPIC president Mark Baldassare said. “The commitment to help reduce global warming includes a surprising willingness on the part of majorities of Californians to pay higher prices.”

Big dreams for a cleaner California

Sixty-nine percent of Californians approved of plans to reduce greenhouse gas emissions to 1990 levels, as laid out in AB32, one of the state’s landmark environmental laws.

But government plans to reduce emissions have been met with mixed results. The cap-and-trade program, created by the Air Resources Board in response to AB32, places carbon emission limits on businesses and allows them to purchase credits for exceeding those limits. But at May’s quarterly auction, businesses purchased only 2 percent of the anticipated revenues.

The program faces legal challenges as well. A lawsuit by the California Chamber of Commerce claims the program is actually an illegal tax on businesses, requiring a two-thirds vote to become law.

Critics have complained about how the cap-and-trade revenue is spent – that the money doesn’t often fund projects that meet the required emission reduction goals. Assemblyman Adam Gray, D-Merced, said he is concerned about how the revenues are spent, calling the program “a feeding frenzy for a multitude of pet projects,” according to The Sacramento Bee.

And though there has been a decrease in greenhouse gas emissions, some say the lower levels may reflect outside factors like business scale-backs during the Great Recession.

“The jury’s really out on whether we’ve seen a lot of reductions caused by cap-and-trade,” James Bushnell, an energy economist at UC Davis, told the Los Angeles Times. 

Despite varied expert opinions, 54 percent of respondents in the PPIC survey approve of the cap-and-trade program – after the surveyors gave a brief explanation to the 55 percent who had never heard of the program before.

Respondents also support a proposed new law that would ramp up AB32’s plans to control emissions, which would exceed AB32’s reduction goals and extend the program to the year 2030.

And 58 percent of those surveyed believe local and state governments should devote more resources to other environmental issues, as well – electric cars, solar power and drought management.

A big paycheck for California residents

Californians know that reducing greenhouse gas emissions could raise energy costs – and they are ready to foot the bill.

The majority of respondents said they would be willing to pay more for gas (63 percent) and solar- or wind-generated electricity (56 percent). The Legislative Analyst’s Office estimates that gas prices would rise 11 cents as a result of the cap-and-trade program.

But this widespread support of energy reforms comes alongside equally widespread opposition by those who prioritize economic concerns over the environment.

How it’s playing in 2016

Alternative energy plans come with a cost – and according to Assemblywoman Cheryl Brown, the Inland Empire may not be able to afford it. In 2015, the San Bernardino Democrat opposed a petroleum-reduction provision of Senate Bill 350, another key piece of California’s environmental policy, citing concerns that potential rising energy costs could harm lower-income families.

However, some voters said Brown’s opposition amounted to a rejection of the entire clean energy campaign and retribution was swift. Protests, rallies and criticisms from other officials have threatened Brown’s re-election, while the campaign has become a proxy war between Big Oil and Big Environment. 

“Do you ever feel that something is not going quite right?” Brown asked the Los Angeles Times in March. “They are after me, and I still don’t know why. I don’t know who ‘they’ are. But I will find out soon.”

Concerns about the impracticality of California energy reforms are reflected in the PPIC survey, as well. The majority of respondents supported clean energy programs like electric cars and charging carports, with 68 percent in favor of tax credits for purchasing electric cars, and 77 percent supportive of infrastructure for charging the vehicles.

But less than half (47 percent) are actually considering purchasing an electric car themselves, suggesting that good intentions may not match up with environmentally conscious decisions.

Photo courtesy of mashable.com

Thanks to California regulators, Volkswagen hasn’t yet found a way out of worldwide trouble. Federal agencies have flexed their muscles in tandem. “U.S. regulators rejected Volkswagen AG’s plan for recalling nearly 500,000 diesel-powered cars,” as the Wall Street Journal noted.

“The Environmental Protection Agency, which is working with California regulators on the VW fraud, had already said it was not satisfied with the recall plan and requested more information from the company,” the New York Times noted. And the Justice Department, “which had opened its own investigation, filed a civil complaint against the company, accusing it of exceeding EPA air quality standards and violating the Clean Air Act.”

The California Air Resources Board, meanwhile, warned that “Volkswagen’s proposals failed to address how the fix would affect the engine’s performance, emissions and vehicle safety,” according to the Journal. “Some experts are concerned that a fix that strengthens the vehicle’s emissions control could reduce fuel economy and overall performance.”

The Board continued its extraordinarily stern treatment of Volkswagen, stemming from a protracted investigation of the company’s secret effort to skirt the rules on emissions tests for diesel vehicles. The Board “said that a recall plan presented in November and December was ‘incomplete, substantially deficient and falls far short of meeting the legal requirements’ to be approved,” as the New York Times reported. And it slammed the company, which was sent reeling this fall and winter by collapsing car sales, for dragging its feet. “The state agency added that VW was taking too long to devise a fix.”

Faulty plans

In its criticisms, the Board singled out problems with the vagueness of the company’s projections based on its own proposed fix. “The Air Resources Board lists a number of reasons why Volkswagen’s proposal was rejected, but it specified that among the most important reasons for the rejection was the fact that ‘the proposed plans do not sufficiently address impacts on the engine, the vehicle’s overall operation, and all related emissions control technologies, including the OBD [On Board Diagnostics] system,'” according to Ars Technica. “In other words, Volkswagen failed to specify whether the fix to reduce nitrogen oxide (NOx) emissions would impact the car’s gas mileage or its projected lifespan.”

That meant the Board felt as if VW had prevented it from doing its job. “As a result, the Board lacked enough information to tell whether the proposed fixes ‘are even technically feasible,’ according to a letter from Annette Hebert, the board’s chief of auto emissions compliance,” the San Francisco Chronicle reported.

Deep trouble

Although the Board’s ruling affects under 76,000 cars, Ars noted, the EPA’s concurrence meant VW continued to face a comprehensive challenge to its business. “VW reiterated that it is working on a solution and is meeting with EPA officials this week in Washington to submit a reworked proposal,” the Washington Post noted. “But the statements from the California board and the EPA demonstrate the lengths VW will have to go to fix its cars and regain the trust of regulators.”

Harm to VW for its malfeasance has been direct and substantial. Sales have fallen 5 percent, as the Post added. “The worldwide scandal has hammered Volkswagen’s sales, prompted hundreds of lawsuits and forced the German automaker’s former CEO to resign, although he insisted he knew nothing about the defeat devices,” according to the Chronicle.

As CalWatchdog reported previously, California’s Air Resources Board was instrumental in blowing the lid off of Volkswagen’s lengthy emissions scam, which quickly drew the attention of national and foreign regulators reaching from Washington, D.C., to Germany. The Board threw down a gauntlet in November, demanding the recall and repair of affected cars and a formal plan from the company as to how it intended to achieve compliance.

But on niche websites devoted to energy production and energy markets, the picture of how California is responding to its mandates is more muddled. A recent free report from SNL, the McGraw-Hill financial publication that typically charges for the proprietary information it provides to shareholders and potential investors, puts California’s progress in a different light:

Carbon laws are choking demand for coal-fired power in California, but the state still imports a large amount of coal-based power and is one of the nation’s top industrial users of coal, providing a needed market for Western producers facing dimming prospects elsewhere.

 

California’s carbon law AB32, which requires the state’s greenhouse gas emissions to return to 1990 levels by 2020, sets in-state plant performance standards that are too stringent for conventional coal units. But California is still importing coal-based power from neighboring states until current power purchase and plant ownership contracts expire.

 

In 2014, less than 5 percent of California’s total energy demand was served by coal and petroleum coke-fired plants, nearly all of it from plants outside the state, according to an Oct. 12 report from the California Energy Commission. By 2026, California will end virtually all its reliance on coal.

 

But at times, as much as 50 percent of Southern California’s electricity still comes from coal-fired plants, Steve Homer, director of project management for the Southern California Public Power Authority, or SCPPA, told SNL Energy.

 

The three main out-of-state coal plants serving California — the Intermountain Power Project in Utah, the San Juan plant in New Mexico and the Navajo plant in Arizona — together received 10.1 million tons of coal in the first seven months of 2015, according to U.S. Energy Information Administration data. …

 

California is also one of the country’s biggest industrial users of coal, although consumption for that sector is relatively small. In 2013, the latest year for state-level EIA data on industrial coal consumption, California was the eighth-biggest industrial coal user, burning 1.4 million tons.

How states game energy reports

The report is another interesting example of how states play games with energy exports and imports to make themselves look greener than they are. In 2010, Orange County lawmaker turned Austin policy wonk Chuck DeVore laid out how California and British Columbia benefit from this maneuvering:

California has become America’s largest electricity importer. With 37 million people producing about 13 percent of the U.S. gross domestic product, California imports about 23 percent of its electricity.  …

Complicating matters are a trio of California energy policy laws passed in 2006: AB32, SB1368 and SB107. AB32 mandates a 30 percent reduction in California’s greenhouse gas emissions by 2020 … . SB1368 outlaws the renewal of coal-fired electricity contracts — imported coal energy powered about 16 percent of California’s grid in 2008. While SB107 accelerated the requirement that California derive 20 percent of its electricity from renewable sources [in 2010], renewable being defined as small hydro, geothermal, wind, solar and biomass (we missed the target, meaning utilities, read ratepayers, get dinged).

Enter government-owned BC Hydro and its Powerex subsidiary. With abundant hydro power potential, British Columbia is seeking to become the Saudi Arabia of “green” energy.  … [But] in fact, BC Hydro has imported more energy than it has exported in 10 out of 11 years.

What’s going on here? British Columbia sells its clean hydropower to neighboring governments which need to meet renewable energy mandates. But then it doesn’t have enough power for its growing economy, so it imports power from coal and gas-fired power plants in Washington state and Alberta.

A California compromise — or a loophole?

A 2014 Los Angeles Times story raised similar questions about the gaming of the intention of the state’s landmark climate change laws. Its key conclusion:

California regulators say they have taken steps to prevent utility company executives from outwitting them and insist state rules will lead to real reductions in carbon dioxide, the main gas scientists blame for global warming. But officials concede their efforts have run up against the limits of California’s ability to control what takes place outside its borders, a point the utilities also emphasize. …

Originally, California’s climate-change policies included a provision that would have demanded utility executives swear under penalty of perjury that the actions they took to reduce emissions would not result in a spike in greenhouse gases someplace else.

 

But federal officials warned Gov. Jerry Brown that too aggressive an effort to control emissions across state lines would risk disrupting the complex interstate electricity system.

 

In the end, the California Air Resources Board — which oversees the state’s 2006 climate-change law — allowed utilities a dozen “safe harbor” conditions under which electricity companies would be permitted to shift emissions to nearby states.

 

Critics called the conditions loopholes. …

 

The exemptions are so broad, the board’s own advisory committee cautioned, that all the reductions in greenhouse gas emissions made by electricity companies could end up existing only on paper.

Manipulating tests

Board chairwoman Mary Nichols, a close longtime ally of Gov. Jerry Brown, revealed that the board was organizing itself for what she called a “major enforcement action,” according to Reuters. “The state is also preparing to oversee a recall of vehicles in California equipped with the device that allowed it to pass laboratory tests measuring their output of the air pollutant NOx, which contributes to smog, Nichols said.”

Initially, VW cars tested in the board’s lab passed inspection. But when the International Council on Clean Transportation discovered huge discrepancies in VW’s emissions during real-world tests, state and federal regulators closed in. “The California watchdog and the U.S. Environment Protection Agency opened an investigation into Volkswagen in May 2014,” Bloomberg reported. “The company said it had identified the reasons for the higher emissions and proposed a fix. That resulted in a recall of nearly 500,000 U.S. vehicles in December to implement a software patch.”

But those changes weren’t enough. The board suggested road tests didn’t vindicate the patch. “Sure enough, nitrogen oxide emissions were still in violation of California and U.S. laws. The agency shared those findings with Volkswagen and the EPA on July 8,” Bloomberg noted.

The board’s assertiveness reflected an intention to make up for its failure to detect the emissions using more frequent road tests. But spokesman Dave Clegern told the Sacramento Bee that the board had been hobbled by the pace of technology, insisting “the agency didn’t have access until three years ago to the portable emissions testing devices needed to road-test diesel cars for emissions.” Now, along with the EPA, the board has moved to put automakers on notice that scrutiny has been heightened. Although there’s no evidence another automaker has evaded standards, Clegern said, “it’s better to be safe.”

Private action

In addition to spreading outrage among environmentalists, VW’s deception raised immediate questions about its direct impact on people’s health. “The engines that VW tweaked to run quickly and efficiently also spewed out a form of pollutant that, over time and in big numbers, can be lethal,” the Orange County Register observed. “Based on academic research about the health effects of nitrogen oxides, numbers of vehicles on the road and the miles driven, the affected cars may have killed dozens of people in California and more than 100 nationally.”

As was to be expected, Volkswagen has been hit with a barrage of lawsuits. Two suits “have been filed in San Diego and Los Angeles over Volkswagen tampering with emissions testing on VW and Audi models to deceive regulators,” reported NBC San Diego. In Sacramento federal court, plaintiffs sought certification for a class action suit “on behalf of ‘tens of thousands’ of Californians who purchased or leased one or more of the diesel VWs secretly equipped by the manufacturer with a device that defeated emissions tests by federal and state regulators,” according to the Sacramento Bee. “Model years 2009 to 2015 are targeted in the complaint.”

Meanwhile, irate VW dealers found themselves “paralyzed” by the crisis, according to the Los Angeles Times. Because they’re not employed by Volkswagen, they have escaped liability for its wrongdoing but wound up unable to sell product or reassure customers. “The Environmental Protection Agency has refused to certify the 2016 line of Volkswagen diesels, and the company has issued a stop-sell order to its dealers, preventing them from selling new diesel cars and certified used ones,” the Times noted.

Inadequate support

The unanticipated struggle threw supporters of the bill, including Gov. Jerry Brown, onto the defensive, with lawmakers scrambling to appease holdouts without gutting their bill. “Senate Bill 32 seeks to ramp up the state’s emission reduction goals by cutting greenhouse gases to 40 percent below 1990 levels by 2030 and 80 percent below the 1990 mark by 2050,” the Sacramento Bee reported. A raft of amendments tightening legislative oversight over the mandate-enforcing Air Resources Board was granted by Sen. Fran Pavley, D-Agoura Hills, but recalcitrant Democrats still balked, either abstaining or voting against the bill “on a 25-33 vote, with 21 members abstaining, that featured no debate. ”

Pavley and company get another bite at the apple, however, teeing up some potentially marathon negotiations. But the bill’s showing augured trouble for SB350, the biggest piece of emissions legislation on offer, according to the San Francisco Chronicle. That bill “would set 2030 as the target for the state to cut petroleum use in half, boost energy efficiency in buildings by 50 percent and require the state to get half of its electricity from renewable sources,” the Chronicle noted.

Redoubled efforts

The divide has driven Brown, often poised between the party’s liberal wing and legislative Republicans, into a different negotiating mode. Along with Assembly Speaker Toni Atkins, D-San Diego, he huddled with Senate leader Kevin de Leon, D-Los Angeles, for over two hours, as the Los Angeles Times reported, declining to answer reporters’ questions on the way out of de Leon’s office.

Aside from the substantial practical effects of the bill, its Democratic supporters were poised to work overtime to secure its passage because of its outsized symbolic and political value. Gov. Brown has emerged as one of the world’s most vociferous advocates for using policy to curb carbon emissions; around the country, policymakers and observers have placed great weight on California’s ability to demonstrate a workable model for taking that kind of aggressive action.

As the Wall Street Journal observed, “California produces about 1.5 percent of the world’s greenhouse-gas emissions. But the state has long been a bellwether on environmental regulations, passing landmark laws that are copied by other states and become templates for federal environmental rules.” Leading Democrats have been well aware of the level of expectation set for the latest round of emission legislation.

“The rest of the world is watching very closely what is happening in California,” de León told the New York Times, “and I think so far they see a success story. Our economy has grown — we are adding jobs, and we are reducing our carbon emissions. Therefore it is absolutely crucial that this measure passes, because it will be a big blow to the rest of the states and the whole world if it doesn’t.”

But as the Times observed, those sentiments were not as broadly shared as he and Gov. Brown had hoped — especially within their own party. “The concerns have come not only from Republicans, but also from moderate Democrats who represent communities in central California,” the paper noted. “Many of these communities are struggling with high unemployment and slow economic growth.”

Ironic progress

Despite his last-minute scrambling, Brown has expressed confidence that California will continue to lead in accordance with his policies regardless of how the legislation fares. But that reflected the ironic way in which changing emissions standards already hardwired into law could give wary Democrats an out in voting against SB32 and SB350.

As Paul Rogers noted in the San Jose Mercury News, California will reach key environmental goals “even if it does nothing. That’s because of federal rules put into place in 2009 by President Barack Obama to double the gas mileage standards for new U.S. vehicles to 54.5 miles per gallon by 2025.”

What’s more, covering other ground within the scope of the new legislation could be achieved “simply by enforcing — and in some cases strengthening — existing laws passed over the last 15 years to boost electric cars, promote mass transit and reduce the amount of carbon in fuels, according to experts who have done the math,” Rogers argued.

By Wayne Lusvardi

California voters may soon ask themselves: “Why vote for an $8.5 billion sales and income tax increase in November 2012 if Cap and Trade is going to raise $50 billion to $100 billion for state discretionary spending? That’s $6.25 billion to $12.5 billion per year from 2012 to 2020.

But will Cap and Trade generate enough revenues, and can those revenues be used to bailout the state general fund deficit? That is the proverbial $16 billion deficit question.

Cap and Trade is a program authorized in 2010 under Assembly Bill 32, the Global Warming Solutions Act of 2006.  AB 32 requires excessive air polluters to buy emission permits in an auction from those industries and utilities that pollute less than their pollution quota. The rules of Cap and Trade apply first to large industries; and by 2015 to utilities, including local municipal water and power departments. Eventually, 360 industries and utilities will be subject to Cap and Trade rules.  Where the proceeds of these auctioned permits are to be spent is still to be determined.

California legislators have already started floating up a flurry of bills to divvy up the estimated $50 to $100 billion windfall from 2012 to 2020 from Cap and Trade auctions. This is addition to Gov. Jerry Brown’s notion to fund the cost of the California High-Speed Rail Project with Cap and Trade funds. The California Legislative Analyst’s Office has recommended against this proposal because the funding is too speculative.

Cap and Trade Fund Distribution Bills

Assembly Bill 1532, sponsored by Assembly Speaker John Perez, D-Los Angeles, would deposit Cap and Trade pollution permit monies into a new Greenhouse Gas Reduction Account to be controlled by the California Air Resources Board.

Senate Bill 535, sponsored by State Sen. Kevin de Leon, D-Los Angeles, would divert some of the Cap and Trade auction funds to disadvantaged communities, affordable housing, hospitals and schools.

Senate Bill 1572, the AB 32 Revenue Investment Plan, sponsored by State Sen. Fran Pavley, D-Los Angeles, devises a strategic investment plant to distribute Cap and Trade proceeds.

AB 2404, the Local Emissions Reduction Fund, sponsored by Assemblyman Felipe Fuentes. D-Arleta, would delegate the award of Cap and Trade monies to the Strategic Growth Council — a six person cabinet level committee under the Governor’s Office.

What is the Strategic Growth Council? 

The Strategic Growth Council was authorized under Senate Bill 732 in 2008, sponsored by State Sen. Darrell Steinberg, D-Sacramento. It creates a cabinet-level committee to serve as a clearinghouse for the distribution of Cap and Trade funds.  According to the Strategic Growth Council website, a laundry list of activities can be funded: “to improve air quality, protect natural resources, increase the availability of affordable housing, promote public health, improve transportation, encourage greater infill and compact development, revitalize community and urban centers, and assist state and local entities in the planning of sustainable communities.”  But this may be a wish list more than what Cap and Trade auction proceeds can be legally spent on.

Who is on the Strategic Growth Council? 

The Strategic Growth Council is composed of six members. Five are the heads of state agencies and a sixth member is from the public.

Current Council members include:

Ken Alex, secretary of the Office of Planning and Research;
John Laird, secretary of California Natural Resources Agency;
Diana Dooley, secretaru of California Health and Human Services;
Brian Kelly, acting secretary of the Business, Transportation and Housing Agency;
Matt Rodriguez, secretary of the Department of Environmental Protection;
Bob Fisher, public member, president of the Mendocino Redwood Corporation and a member of the National Resources Defense Council, an environmentalist group.

The Strategic Plan of the Growth Council for 2012 can be found here.

Cap and Trade Auction Monies Hit Prop. 13 Snag

California’s Proposition 13, passed in 1978, mandates that any tax must be approved by two-thirds of the voters. Proposition 26, passed in 2010, added fees, charges, levies or tax revenue allocations as prohibited without a supermajority vote.

AB 32 authorized the California Air Resources Board to devise a Cap and Trade emission program. But it was only passed by the Legislature. It was never put to an election.  So we don’t know if all the bills for spending Cap and Trade proceeds are legal yet.

A number of liberal non-profit and advocacy organizations have leapt into the void and have issued quasi-legal opinions as to whether California can divert Cap and Trade funds to its operating budget, to fund the proposed bullet train project, and to a number of other programs.

Next10, a liberal non-profit public policy organization, has issued four reports on “Using the Allowance Value from California’s Carbon Trading System: Legal Risk Factors, Impacts to Ratepayers and the Economy.”

The liberal environmental policy think tank Resources for the Future has issued a report, “The Variability of Potential Revenue from a Carbon Tax.”

Both reports tend to concur that Cap and Trade auction revenues cannot be used for unrelated programs or reduced tax rates.  If California used Cap and Trade proceeds for ineligible activities. it would be vulnerable to a legal challenge under Prop. 13 and Prop. 26.

Some Cap and Trade proponents claim that pollution credits or allowances are not taxes, but a fee. But Prop. 26 forbids imposing fees without a supermajority vote.

The University of California Berkeley’s Center for Law, Energy and the Environment, which prepared one of the four reports for Next 10, concluded that channeling Cap and Trade funds to projects that reduce or lessen greenhouse gas emissions is the least legally risky option. The center made four conclusions: 1) re-directing Cap and Trade proceeds back to electricity ratepayers could offset all the costs imposed by Cap and Trade; 2) the way in which Cap and Trade proceeds are re-directed back to ratepayers will affect the efficiency of the program; 3) if electricity bills are reduced by Cap and Trade credits, that may affect the political perception of the program; and 4) electric rate increases will result from other AB 32 policies — namely, the 33 percent renewable power requirement — and these costs may be substantial and occur independently of the Cap and Trade portion of AB 32.

A flaw in this report is to assume that there will be no transaction costs for administrating and monitoring Cap and Trade.  Not all costs will be returned to ratepayers. And if they were, ratepayers might ask: Why implement the program in the first place?

In a 2009 report, David Roland-Holst, a professor of resource economics at the Berkeley center, said Cap and Trade revenues must be returned to utility customers either in the form of rebates or subsidized electricity bills.  Holst said that home energy efficiency projects generate more Gross Domestic Product and employment growth.

There are several problems with this proposal.  Newer homes have been built to Title 24 Building Energy Efficiency Standards and would likely not require any energy efficiency work.  And large numbers of older housing stock have been retrofitted with energy efficiency improvements either as a condition of home remodeling permits, or have been retrofitted with state, federal, and public utility energy efficiency programs that started around the mid-1970’s.  Another problem is that any subsidized home energy efficiency loans would likely end up creating another sub-prime loan and a financial bubble.

Anything that substantially deviates from reducing greenhouse gases will no doubt be tested by a legal challenge under Prop. 13 and Prop. 26.

Cap and Trade Prone to Government Gaming of System

The California Air Resources Boardhas been spending a lot of money on retaining consultants and monitors to prevent the gaming of the Cap and Trade auctions by third-party speculative traders.  But it may not be traders that would be of the most concern if the activities that can be funded under Cap and Trade are expanded beyond reducing pollution.

The California Public Utilities Commission and CARB have estimated that the proceeds from Cap and Trade auctions could total $50 billion from 2012 to 2020.  But Robert Lucas, a consultant with the California Council for Environmental and Economic Balance, is quoted in Forbes.com that if pollution allowances are held in reserve by CARB for any year, the unit price per ton of reduced carbon pollution could spike to $40 or $50 per ton.  Lucas said, “we could be talking about $100 billion between now and 2020.”

This would provide a perverse incentive for CARB to intentionally withhold pollution allowances to generate revenues for greedy bureaucratic agencies seeking to perpetuate themselves with Cap and Trade revenues. California could see a return to skyrocketing electricity prices, as experienced in the 2000-01 Electricity Crisis. And where would the check and balance be for voters and electricity ratepayers if the only referees to appeal to have a stake in the system?

If Cap and Trade were allowed to directly or indirectly plug the state operating fund budget deficit, gaming bureaucrats could hide behind a “veil of the carbon market” to jack up electricity rates and inflate the price of nearly all goods.

Cap and Trade Won’t Cure Budget Deficit

It is highly unlikely that proceeds from Cap and Trade auctions can be used to reduce or cure the state budget deficit.  Politicians may be queuing up with bills full of funding wish lists.  But any effort to liberalize the eligible funding activities under Cap and Trade will be met with lawsuits as well as a possible voter revolt.

A 2010 study by T2 Associates for the AB 32 Implementation Group raised concerns about Cap and Trade taking in eight years more than 120 percent of the single year 2009-10 state budget.

But the gnawing questions remain: Why impose Cap and Trade charges at all if they just have to be re-circulated back to electricity ratepayers?  If electricity ratepayers are given home energy efficiency rebates, isn’t this just another stimulus program? And hasn’t home energy efficiency been accomplished much more cost effectively by Title 24 Building Energy Efficiency Regulations and utility company rebates since the mid-1970’s?

Neither California politicians nor bureaucrats apparently know today what to spend Cap and Trade taxes on.  The transaction costs to implement the Cap and Trade program were estimated at $8 billion by the Congressional Budget Office.  And when you factor in the complexity that Cap and Trade will add to the economy, is a tax the best solution to reducing pollution?

The experience with the California Energy Crisis of 2001 is that things won’t turn out as expected and are often much worse than leaving them alone.