California Cap-and-Trade: Making Ourselves Poorer and 'Dirtier' (Part 2)

By Tom Tanton -- April 5, 2012

[Editor’s Note: This post concludes a two-part series on counter-productive regulation passed in the name of addressing man-made climate change.]

In Part One yesterday, I summarized the recent research by U.C. Berkeley researcher Margaret Taylor, which found that cap-and-trade programs (CTP) impede technological innovation. Not only do they stifle future technological improvements, CTP often erase past improvements.

California’s Global Warming Solutions Act (AB32) and the Air Resources Board’s implementation of that law to date provide a sobering example of the Taylor Thesis.

California Improvements before Cap-and-Trade

California is the only state insisting on implementing economy wide cap-and-trade. The climate impact, if the programs (unrealistic) goals are achieved, are miniscule. Nonetheless, the program is to start later this year, according to the California Air Resources Board (CARB). Not acknowledged by these uber-bureaucrats, California has the third BEST carbon intensity in the U.S., according to the Congressional Research Service.

The carbon intensity of the U.S. is only a quarter of China’s and is well below the average of the world. Every ton of cement California imports from Arizona, every basket of fruit the U.S. imports from Chile, and every techno-gadget we import from Asia, in other words, result in a net increase of emissions, compared to our producing those things here at home.

California’s CTP will discourage in-state production, and a national program will discourage national production, both of which will act to increase global emissions by shifting manufacturing abroad. State or federal, CTP will impede technological innovation already in the pipeline, according to Taylor.

Regulation Increasing Emissions?

Beyond cap-and-trade, other programs that are being implemented to reduce greenhouse gas emissions actually increase emissions. One such program in the Renewable Portfolio Standard (RPS) in California, which has analogues (often-termed Renewable Energy Standard) in 29 other states.

These requirements force utility customers to pay more for certain renewable energy as a mandated portion of overall electricity mix. However, most of the required amount is made up of wind and solar, intermittent technology that forces inefficient operation of the grid. This increases net emissions as balancing plants are forced into inefficient operation.

This is demonstrated in a few locales, as I point out in American Tradition Institute’s constitutional lawsuit in Federal Court in Colorado, but no comprehensive study has ever been done in California, or in many other areas, to determine just how much intermittent technology can be integrated before emission levels increase. But the evidence from other countries suggests it is nowhere near the levels of most RPS. Oh well, just another government intrusion that is counterproductive.

Poor California–Burdens Ahead

Never mind that California is broke. California’s economy once the world’s 5th largest, has slipped to 9th place. California’s real estate market tanked half a decade ago with the value of those homes plummeting by 20% to 50%. The state’s unemployment rate sits at about 12%. However, some blue collar labor unions – particularly construction workers – report the jobless rate at an estimated 40%. However, the annual state budget deficit is so massive, not even the state’s bookkeepers can, with any certainty, estimate its actual size.

Some say the annual budget, about $100–110 billion, is $16 BILLION in the red, while others estimate the deficit is really higher (in the low $20s). The state simply has a habit of bleeding red ink.

Like our Federal government, California has been deficit spending for years–but with a big difference. They are unable to print money. They view the tax revenue from cap-and-trade to be the alternative to printing money. Governor Brown has proposed taking one billion dollars from the ‘proceeds’ from cap-and-trade permits to help balance the books. Never mind that the ‘permits’ are just printed up by the State via the California Air Resources Board.

According to the Fresno [CA] Bee and other news outlets, NOW Governor Brown wants to divert $1 Billion from the Cap and Trade Auction to help pay for underfunded and way-too-expensive high speed rail. Whether the fast-train-to-Chowchilla costs the original $90 Billion or the politically expedient new estimate of $60 Billion, the proceeds from cap and trade will make nary a dent in what is sure to be a money losing proposition.

Hyper-inflated ridership estimates won’t bring in wished for revenue and citizens are staring to demand another chance to vote whether California needs, wants, or can afford a high speed rail. Of course left only whispered by the Administration is the fact that Cap and Trade will increase a significant chunk of the train’s operating cost—electricity to run the trains—by anywhere from 30-70 percent.

If cap-and-trade impedes technological innovation, as found in Taylor’s study, can it possibly be a salvation for California’s budget? Hardly. Ironically, the State that touts its technological prowess is the one most likely to kill that particular golden goose and, through implementing cap-and-trade, reduce the very innovation necessary for technological prowess.

California will serve as the laboratory to confirm Dr. Taylor’s findings (see post yesterday), although somewhat unwittingly. It would be too conspiracy-theory to suggest that emissions are actually intended to increase, in order to more heavily tax emissions.

According to Loren Kaye, president of the California Foundation for Commerce and Education, this New State Energy Tax is Illegal and Unwise. Indeed, these new taxes are utterly unnecessary to achieve the GHG reduction goals set forth by the Legislature in the first place. Doubly crazy when you consider that these new billions of dollars in taxes would be collected as gasoline prices are climbing to new record highs and as electricity prices are ticking ever upward.

The auction is probably illegal on its face. The legislation in question, Assembly Bill 32, passed in 2006, authorized “market-based compliance mechanisms” to reduce greenhouse gas emissions. As such, the Board adopted a conventional cap-and-trade program (like the successful Clean Air Act Acid Rain Program) that distributes allowances to greenhouse gas emitters and permits the allowances to be traded in a securities market to efficiently allocate the required greenhouse gas reductions.

But in a surprise twist, the Board held back one-in-ten of these allowances, and decided to instead auction them into the market – in effect charging a ten percent tax on the distribution of GHG allowances.

Just-in-Case Politics

In late breaking news, CARB chair Mary Nichols has announced a politically-opportune delay in the cap-and-trade auction. At a State Senate hearing March 27 regarding implementation of AB32, Nichols announced that the ‘first’ auction will be delayed until November, just after the elections.

The political machinations are aptly described by Katy Grimes, writing in Cal WatchDog.

Hedging their bets, it’s clearly a political, “just-in-case,” strategic move:

– Just-in-case anyone in the media decides to report on what cap-and-trade will actually cost California businesses;

– Just-in-case utility rate payers start screaming about increasing utility bills;

– Just-in-case the carbon trading scams become public;

– Just-in-case California energy companies aren’t able to force energy suppliers to get 33 percent of their electricity from renewable resources, particularly after taking California’s hydroelectric producing Klamath Dam offline;

– Just-in-case more California solar companies file bankruptcy, even after receiving hundreds of millions of dollars in subsidies from the government;

– Just-in-case voters notice they are being lied to about the long-term effects of climate change.

Conclusion

The fact that technology improvement occurs without cap-and- trade, without costly renewable standards, and, frankly, without many proposed government interventions, has already been demonstrated in the 17% improvement over the past 10 years. Why resort to regulations that promise unintended, albeit not unanticipated, consequences that just make the alleged problem worse?