Cap-and-trade cost increases on hold

Many large employers in California were scheduled for massive greenhouse gas (GHG) “cap-and-trade” cost increases starting in 2015.  Now state regulators propose to delay any increase until 2018 at the earliest.   This is good news for manufacturers and thousands of California workers with high wage manufacturing jobs.  Food processors, consumer products firms, aerospace, chemical and oil refiners, and others will be able to efficiently operate in the state without being forced to buy millions of dollars worth of greenhouse gas permits at a state-sponsored auction.

There is also good news for the environment. Under AB 32, the Global Warming Solutions Act, California must achieve the target of reducing emissions to 1990 levels by 2020. Last year the California Air Resources Board (ARB) gave a positive report to the legislature, “California is on track to achieve this AB 32 goal.” ARB is also supported by an analysis conducted by the independent Legislative Analyst’s Office that states charging manufacturers for permits at auction “is not necessary” to meet the AB 32 goal.

The reason manufacturers are covered by cap-and-trade is because using energy to run facilities emits carbon dioxide (CO2) into the atmosphere.  CO2 is not like other pollution – it is not a direct health hazard but has been implicated in global climate change. Cap-and-trade encourages manufacturers to use less energy and thereby reduce CO2 emissions. But California manufacturers have installed the most cost-effective energy efficiency measures over many years due to our state’s very high energy costs. Additionally, ARB has established efficiency benchmarks for every industry to ensure all manufacturers use energy wisely.

There are valid reasons that regulators at the ARB recently concluded that the state auction would be too costly for California industry and might lead to emissions and economic “leakage”, or job loss. High costs imposed on California employers that are not also imposed on their out-of-state competitors (including those overseas) would put in-state jobs and manufacturing production at risk.  Because out-of-state production is typically less efficient, experts agree that such leakage would be an economic and environmental failure of the program by causing California job loss and no reduction of global GHG emissions.

The nation and the world are watching to see if California will successfully control greenhouse gas emissions while maintaining a healthy economy. The ultimate success of our program will determine if other states and nations will join the effort and potentially make a difference in reducing greenhouse gas emissions.  We applaud the ARB proposal to forestall new costs on the state’s largest employers while ensuring that the cap-and-trade regulation will achieve the AB 32 reduction goals. This prudent approach to the cap-and-trade regulation should be supported by business and environmentalists alike.

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Ed’s Note: The AB 32 Implementation Group is 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.