California’s Cap-and-Trade Revolt

  • Date: 28/06/14
  • Editorial, The Wall Street Journal

Some US Democrats worry that carbon limits will hurt the poor

President Obama has mocked Republicans who oppose his climate agenda as flat-earthers. Perhaps he’ll be more charitable to Democrats who are protesting California’s cap-and-trade program as an undue burden on the poor.

Last week 16 Democratic Assembly Members—about 30% of their caucus—signed a letter urging California Air Resources Board chairwoman Mary Nichols to delay or redesign the state’s cap-and-trade program. “We are concerned about the impact of the AB 32 cap-and-trade program on our constituents,” they write, adding that “many of the areas we represent are still struggling with double digit unemployment.”

Large manufacturers and power plants must now either purchase permits or cut their emissions to comply with a state-mandated cap, which over time will be ratcheted down. Starting next year, transportation fuel suppliers will also have to pony up for permits.

Assembly Democrats fear that applying cap and trade to fuels “will cause an immediate jump in prices at the pump.” While estimates vary, “an increase of about fifteen cents per gallon is likely and a much larger jump is possible.” Senate President Darrell Steinberg has warned that gas prices could shoot up by 40 cents per gallon..

California’s gas prices, which typically run 40 to 50 cents above the national average, are already the highest in the continental U.S. due to the state’s fuel blending requirements and taxes—which also top the other 49 states. The Boston Consulting Group predicted in 2012 that cap and trade and the state’s carbon fuel standard would drive up gas prices between $0.49 and $1.83 per gallon by 2020. These green regulations are intended to raise the cost of gas to encourage people to drive less or buy electric cars.

But as the Assembly Democrats point out, cap and trade is “hurting the most vulnerable members of our communities.” Most of the letter’s 16 signatories represent heavily minority and low-income regions in Los Angeles, the Central Valley and Inland Empire. Nine are black or Latino.

As they explain, cap and trade’s carbon permitting “was not intended to be a funding mechanism for massive, new State efforts at GHG [greenhouse gas] reductions.” They don’t identify any programs by name, but this year’s budget appropriates $250 million of the proceeds from carbon permit auctions, and 25% of all future revenues, for high-speed rail. The state budget analyst predicts the auctions will raise between $12 billion and $45 billion in revenue by 2020.

These Democrats are now echoing an argument that the California Chamber of Commerce makes in its lawsuit against the state’s Air Resources Board. To wit, cap-and-trade revenues constitute an illegal tax.

It’s nice to see some California liberals place the interest of their poor constituents over the party’s rich, Tesla-driving friends. If only Governor Jerry Brown and President Obama would do the same.

The Wall Street Journal, 27 June 2014