California’s cap-and-trade auction: Are we ready?

That could be a $3 billion dollar question for the first year of the cap-and-trade auction. The answer is a resounding “NO”. If the California Air Resources Board (CARB) starts the cap-and-trade auction scheme without fixing a critical flaw in the regulation, there will be serious damage to California’s economy and we will lose our leadership role on climate change. 

The AB 32 Implementation Group (AB 32 IG) represents the interests of companies who will be subject to cap-and-trade regulation. The greenhouse gas (GHG) emission reductions necessary to meet AB 32 targets can be accomplished at much lower cost than proposed by CARB. Instead of being roadblocks to AB 32 implementation as suggested by CARB Chair Mary Nichols, we want to prevent the job loss and economic fallout that could result if the cap-and-trade auction proceeds in its current form.       

The cap-and-trade component of AB 32 achieves about 20 percent of the GHG reductions we need under AB 32.   While not a majority of the overall GHG reductions, CARB’s design to include the sale of allowances by auction will make the program extremely costly for regulated industries.  Dollars diverted from job creation, expansion, modernization will slow the recovery from the recession and raise costs on other businesses and consumers across the state. Despite repeated pleas for more free allowances to prevent these problems, CARB remains committed to a very harmful course of action. The independent Legislative Analyst’s Office agrees that additional free allowances could be provided under the program without risking achievement of AB 32 goals.

CARB could have adjusted the program at the September Board meeting. They chose not to. Now we are appealing to Governor Brown to stop CARB’s unnecessary auction scheduled for November 14th.   As CARB’s expert, Stanford Professor Larry Goulder, stated at last week’s hearing, “Business has reason to worry.”  Unfortunately, CARB Chair Mary Nichols is more concerned about sending mixed signals to the “the many business who have moved here and invested here in reliance on the opportunity they saw in AB 32.”  Who is that?  Did they move to California because they were relying on the billions of dollars that will be paid by businesses now operating in California?  Is that what we want? The auction is an energy tax.  Removing it from the cap-and-trade program will not jeopardize our ability to reduce emissions. For that reason, California’s businesses with real obligations under the program are all urging Governor Brown to shelve the unnecessary auction.

CARB should finish economic impact studies now getting underway for various industry sectors to ensure that the regulation would maximize cost-effectiveness and minimize “leakage” as required by AB 32.

An emissions cap on California is meaningless if manufacturing and other energy intensive businesses experience high costs and shift production to lower cost regions, or if high costs make California products uncompetitive in global markets. That’s why the AB 32 IG supports climate change policies that maximize cost-effectiveness and technological feasibility and that minimize leakage as provided by AB 32. 

The Legislature did not intend AB 32 to impose excessive new taxes on California industry. It is time for our elected officials to provide oversight and exert control over the program. We should show the nation that we can achieve our AB 32 goals at reasonable costs while protecting jobs and the economy.  That is leadership worth following. 

Ed’s Note: Shelly Sullivan is the executive director of the AB 32 Implementation Group, a coalition of employers and taxpayer groups advocating for policies to achieve greenhouse gas emission reductions in a manner that will protect jobs and the economy.

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