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California’s Carbon Spending Rush

Cap and Trade supported by Jerry Brown

Sacramento proves that cap and trade is about income redistribution.

Cap and Trade supported by Jerry Brown

California Governor Jerry Brown

Wall St. Journal – April 22, 2014

California seems to be the place where bad ideas go to live—and reproduce. Behold Senate president Darrell Steinberg’s brainstorm to spend cap-and-trade revenues on income redistribution and the state’s bullet train, among other boondoggles.

The Senate leader last week proposed a “long-term investment strategy” to divvy up the revenues from California’s cap-and-trade program, which requires businesses that emit more than 25,000 carbon metric tons annually to purchase permits for the privilege. The state is now giving away about 90% of permits for free and auctioning off the rest.

So far the auctions have generated $1.5 billion, but cash will start to pour in next year when the cap is applied to fuel suppliers, which account for nearly 40% of the state’s greenhouse gas emissions. Revenues will balloon as the California Air Resources Board reduces both the cap and the free allowances. The state legislative analyst predicts that cap and trade will raise between $12 billion and $45 billion in toto by 2020.

While state law requires that these cap-and-trade “fees” fund programs that reduce greenhouse gas emissions, Governor Jerry Brown last year seized, er, “borrowed” nearly all of the auction proceeds for general-fund expenses. Mr. Steinberg now plans to raise Mr. Brown by spending future cashflows on his personal favorites: 40% for “sustainable communities” (i.e., affordable housing in urban areas); 30% for mass transit; 20% for high-speed rail; and 10% for roads and bike paths.

To appease green groups and Tesla CEO Elon Musk, he also wants an additional $200 million each year for “natural resource, waste, and water” (e.g., wetland development, recycling and “clean vehicles”), and $200 million for “electric vehicle deployment.” Another $10 million in “green bank funding” would go toward bolstering the $200 million the state spends annually subsidizing electric cars and “alternative fuel” dreams. In case these investments don’t pan out, the Senate leader suggests a $200 million “climate dividend for transportation consumers.”

This rebate would come on top of the $750 million “climate credit” that the California Air Resources Board has required utilities to pay electricity consumers annually to compensate for the soaring cost of renewables. Mr. Steinberg’s “climate dividend,” as he calls it, is likewise intended to offset rising gas prices caused by the state’s green policies.

California gas prices are the nation’s second highest after Hawaii and about 55 cents more than the national average. Lo, the Western States Petroleum Association estimates that cap and trade will cost consumers 12 cents more per gallon next year, and Mr. Steinberg has warned that gas prices could spike by 40 cents per gallon.

Neither estimate accounts for the impact of the state’s low-carbon fuel standard, which kicks into high gear next year. The Boston Consulting Group in 2012 figured that the one-two punch will slap an extra $0.49 to $1.83 per gallon onto the price of gas by 2020.

The kicker is that Mr. Steinberg’s spending plans would all be subject to annual legislative appropriations except for high-speed rail, whose revenue stream would be guaranteed. The Senate leader suggests that the cap-and-trade revenues could be securitized to finance the $68 billion bullet train.

Just one problem: The cap-and-trade revenues must be used to reduce carbon emissions, and as the state legislative analyst has noted, the train’s construction will increase emissions. The state Air Resources Board has endorsed the high-speed rail authority’s plan to circumvent this annoying legal requirement by recycling concrete and steel from demolition, planting thousands of trees as well as purchasing “farmland conservation easements” and low-polluting school buses—which merely demonstrates the board’s farcical carbon-accounting rules.

We’ve written for years that cap and trade’s real purpose was to create another revenue stream for politicians, and California businesses are suing the board for illegally imposing a tax disguised as a regulatory fee. Mr. Steinberg’s “investment strategy” proves their case.

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