Little Unity Over California's Cap-And-Trade Program


Businesses and environmentalists remain deeply divided over California's landmark carbon cap-and-trade program, with industry calling it a job-killing nightmare and clean energy proponents saying it has positioned the state as a global leader in tackling climate change.

The strong feelings over the policy were on display at a conference last week in Sacramento, where business groups and environmentalists repeatedly clashed over the market-based program, a key component of the state's effort to roll back its output of heat-trapping gases to 1990 levels by 2020.

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While environmentalists say the effort is already attracting clean energy businesses to the state, industry argue it could drive them away.

"My manufacturers are now living their worst fears," said Dorothy Rothrock, vice president of government relations at the California Manufacturers & Technology Association, which represents 600 businesses in the state.

Without immediate fixes to the program, like giving away all of the program's carbon permits to businesses for free, some of her members may eventually need to raise prices, lay off workers, or flee the state, she said.

"My companies are saying, ‘What are we supposed to not pay for in order to pay this new cost?'" she said.

The success or failure of the 2-month-old program will have broad ramification for the concept of cap and trade, a policy where the government sets a limit on the amount of greenhouse gas emissions that businesses can produce. It then either sells or hands out for free a dwindling number of carbon permits, also known as "allowances."

The allowances can be used for compliance with the regulation or, if the company can reduce its emissions on its own, can be sold to businesses that need them.

The program is also a new source of revenue for the cash-strapped state, having brought $138 million into state coffers from two permit auctions, and millions more to power companies who will use it to offset higher electricity rates. Debate is now underway over how the state will spend the revenue with a draft plan expected to be released by Governor Jerry Brown's administration in April.

At the conference, environmentalist pushed back against the idea of giving all the permits away for free saying it would not only deprive the state of money it needs to fund clean energy programs, but could also enrich the very companies the program seeks to regulate if they cash in on the value of the permits while passing the new costs on to consumers.

Alex Jackson, an attorney with the Natural Resources Defense Council, said the program is off to a good start and said it would be a mistake to make major changes to it now.

He added that the 2006 law that led to the cap-and-trade program, AB 32, has already attracted clean energy businesses to the state.

Jackson cited the relocations of biofuels provider Propel Fuels, solar company Sungevity and electric car manufacturer Electric Vehicles International to California after passage of AB 32 as proof that California's landmark law is attracting clean energy businesses to the state.

But California's food processors joined the manufacturers in expressing their concerns about the program, but unlike the state's cement plants or steel mills, they said moving is not an option for them.

"You can't move a tomato processor. They need to stay in the area, so we're trapped," said John Larrea, director of government affairs for the California League of Food Processors.

Both Larrea and Rothrock said that while the program is a drag on business now, it will get even worse in 2015 when it expands to cover many more businesses and the number of permits given for free to their members is reduced.

Both Larrea and Rothrock said they would prefer the state simply tell them how much each facility can emit over the cap-and-trade policy as it is currently designed - ironic since cap-and-trade has long been touted as a business-friendly alternative to direct government regulations.

All sides of the issue are now looking ahead to coming battles over the program, including an updating of the state's "scoping plan," which outlines the suite of policies used to meet the state's long-term emissions goals. A draft of the new plan is expected by the end of the year.

California's largest business group, the California Chamber of Commerce, last year filed a suit against the program, claiming the quarterly auctions are illegal. A hearing on the case is scheduled for May 31 at Sacramento Superior Court.