Wrangling for the AB-32 Cap and Trade Slush Fund

Russ Steele

As I have been reporting, AB-32 Cap and Trade was all about creating a tax payer supported slush fund, now our political leaders are trying to figure out how to take control of the AB-32 pig trough.

Details at KQEDz’ Climate Watch: The New Cap & Trade Battlefront: How to Spend the Revenues

AB 32 requires California’s largest emitters to meet carbon reduction targets. If a firm’s emissions are below state-mandated targets, it may auction off its remaining “allowances” to firms that exceeded their emissions targets.

Since the enactment of AB 32 in 2006, California’s greenhouse gas emissions reduction law, analysts have speculated about how to spend the money generated from the law’s cap-and-trade carbon allowance auctions, the first of which is set for this November.

On Tuesday, the State Assembly passed new legislation, AB 1532, that narrowed the options. The bill, which the California Chamber of Commerce has described as a “job killer” and an “illegal tax,” passed 47-26 and awaits action in the Senate. If ratified, it would establish a “Greenhouse Gas Reduction Account” within the state Air Pollution Control Fund and authorize spending auction proceeds on clean energy technology, low-carbon transportation, conservation and green energy research and development.

On Friday, the California Air Resources Board held a public hearing to discuss where auction funds might be spent, as a panel of speakers from across the state and country — representing a broad array of industries and interests — sounded off on where this sizable stream of new funding might be best directed.

Jim Earp, executive director of the California Alliance for Jobs, said that the funds should be spent on improvement of transit networks and infrastructure. Ellen Hanak, a fellow at the Public Policy Institute of California, suggested that a best fit is renewable energy and efficiency projects. Lester Snow, director of the California Water Foundation (and former head of Water Resources for the state), pointed to habitat restoration on the Delta and making California’s vast, energy-intensive water delivery systems more efficient.

The governor’s 2012-13 budget [PDF] also lays out a general framework for where cap-and-trade auction funds might be allocated.

    • Clean and efficient energy
    • Low carbon transportation
    • Natural resources protection
    • Sustainable infrastructure development

“These are obviously broad categories,” said air board chair Mary Nichols of the governor’s proposals in her remarks. “No one has yet suggested any precise breakdown or amounts of money to go to specific programs.”

Decisions are being made piecemeal. For instance, revenues from utilities will be returned to electricity customers, though exactly how is still being worked out.

Perhaps it’s no surprise that no one yet knows how California’s auction funds will be spent. There is still debate over whether the funds should be considered a fee or a tax — a legal determination that, under Proposition 26, could potentially limit where money is directed.

And as Climate Watch senior editor Craig Miller reported earlier this month, no one can predict with any certainty at what price carbon will trade in the California market. Most estimates put the figure at between $15 and $30 per metric ton, which means that when the market is fully up to speed in 2015 it could pull in as much as $6 billion a year. (The governor’s budget stated the program could generate as much as $1 billion in its first year.)

As for how cap-and-trade might state boost the state’s economy, Nichols pointed to a recent analysis of the Regional Greenhouse Gas Initiative cap-and-trade system, which includes ten  states in the Northeast. That program has reportedly injected $1.6 billion into the regional economy through such measures as consumer bill reductions and sales of energy efficient equipment.

The period for public comment on carbon auction funds spending (click for online comment form) is open until June 22.

Let them know how you think they should spend the Cap  and Trade Slush Fund


About Russ Steele
Freelance writer and climate change blogger. Russ spent twenty years in the Air Force as a navigator specializing in electronics warfare and digital systems. After his service he was employed for sixteen years as concept developer for TRW, an aerospace and automotive company, and then was CEO of a non-profit Internet provider for 18 months. Russ's articles have appeared in Comstock's Business, Capitol Journal, Trailer Life, Monitoring Times, and Idaho Magazine.

10 Responses to Wrangling for the AB-32 Cap and Trade Slush Fund

  1. gjrebane says:

    How about some extra funding to reward the state’s NGOs, those hands down champions of AB32 who told everyone within earshot about how all those new regulations would surely kick start a dynamic and growing green industry in the state that would produce jobs galore, and be the engine that will wipe away our tears while restarting revenues rolling into Sacramento. Happy times are here again, just ask them.

  2. Sean says:

    I’m in Maryland, one of the RGGI states. Our electric bills are a little higher because of our participation in the RGGI and at least some of the money has gone toward the general fund when budgets are tight. Bear in mind that the price of carbon in the RGGI is near $2 a metric ton, which is the floor price. Only a politician can envision how charging everyone a bit more for electricity and returning that money to the economy through politically favored industries is “injecting money into the regional economy”. It sort of sounds like the governments equivalent to blood doping used in endurance sports like cycling.

    • Russ says:

      How can CARB charge $30 a ton when it is $2.00 a ton at the RGGI?

      • stevefrisch says:

        CARB does not ‘charge’ anything….it is a market, you know like stocks…the buyers and sellers determine the prices through trades.

      • Russ says:

        Steven, your are right it is a market value, however CARB was expecting at least starting the auction bidding at $30.00 a metric ton. Here is an analysis from Carbon Point:

        Price of carbon forecast to be $36/ton on average 2013 – 2020

        Washington (19 October 2011)

        California’s Air Resources Board (CARB) will, on Thursday, October 20, adopt its final rules for California’s carbon market. The adoption of the cap-and-trade regulation will mark the official stamp of approval before the state’s self-imposed deadline of October 28, and will result in California’s program entering into force next year, binding emitters to carbon caps as of 2013. The move ushers in the creation of a second cap-and-trade program in North America, after the Regional Greenhouse Gas Initiative (RGGI), and of a new market a fifth the size of the EU’s Emissions Trading Scheme (EU ETS).

        According to Lisa Zelljadt, Thomson Reuters’ Regional Editor for North America, “this new program will represent a big milestone in the development of carbon markets. Already significant in its anticipated size; almost 400 million tons (Mt) in 2015, the program has the potential to expand by a further 50% if it grows to include the Canadian provinces of Ontario, Quebec, British Columbia and Manitoba under the Western Climate Initiative (WCI)”.

        Although carbon caps would not be introduced before 2013, several program elements would already begin in 2012, as CARB would begin auctioning California Carbon Allowances (CCAs) on August 15 to ensure these units are in circulation well before firms need them for compliance. The appointment of providers of essential trading infrastructure – an operator of allowance auctions and reserve sales, a provider of financial services for those sales and an independent market monitor – will be made in the next few weeks and bodes well for the market’s timely entry into force. “CCAs are already trading on a forward basis, with prices reaching almost $20/ton, higher than the price of carbon in Europe.

        That said how can they expect to get more than what it is selling on regional and global markets. Who is going to be dumb enough to buy it at $30 when is selling for less than $5 bucks else where? When the CCE close it was selling for less than 5 cents a ton.

      • So SteveF, CARB does not charge anyting eh? Who is the reason and who is the enforcement agaendy at the inception then? If the free market was in play there would be no need for a “cap and trade” but the “law” has created it. You libs just have no idea how the market works or even a small business. No wonder the place is a mess.

      • Greg Goodknight says:

        “CARB does not ‘charge’ anything….it is a market, you know like stocks…the buyers and sellers determine the prices through trades.”

        Except they aren’t trading anything of intrinsic value; the only value that exists in carbon credits is forced by the government mandating the reduction, or, more accurately, less of an increase. And the great climate scare, the scaring of little children and politicians with talk of “tipping points” and an uninhabitable world, is coming to an end.

        The people of California bought the lie that AB32 would result in affordable, renewable energy, not understanding that meant living with LED lighting and no air conditioning if they wanted to keep their energy costs from going through the roof, with fewer jobs because employers can’t pay more and still successfully compete with companies in states and countries that aren’t following California into the green energy abyss.

  3. MikeL says:

    Since lefty man and the silly democrats that run the State thinks the stock market like nature for crap and trade is so great than they shouldn’t mind placing all of the CA public employee pensions in carbon credits.

  4. Greg Goodknight says:

    “That program has reportedly injected $1.6 billion into the regional economy through such measures as consumer bill reductions and sales of energy efficient equipment.”

    Injecting money that has been removed is not a net gain, and politically directed spending and investment historically is not as intelligent as individuals and individual companies making their own decisions.

    Politicians have never believed in the “invisible hand” that guides millions to coordinate their activity despite a lack of central planning. Free peoples participating in free markets always do better in the long run.

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