Passage of Cap-And-Trade No Mystery, All Big Oil Mastery

Jerry Brown called his legislative victory on cap-and-trade one made of mystery, miracles, and prayers. Actually, the deal had nothing to do with divine intervention and everything to do with Big Oil's mastery.

A combination of Big Oil scare tactics on spiking the cost of gasoline, and millions of dollars in donations to the campaigns of Brown, state legislators, and the California Democratic Party, ensured passage of a toothless system of regulating greenhouse gas emissions.

Brown could have plowed forward with a cap-and-trade program that had real bite and was founded on solid economic principles, or with a system that stopped commoditizing pollution in favor of directly controlling greenhouse gas emissions (using the same basic strategy of tax breaks to cushion any price spikes to consumers, and through the imposition of carbon taxes on imports).

Neither was appetizing to Big Oil, the industry that Brown has fought to protect. So this is the deal that we got.

Even Pope Francis knows enough to call cap-and-trade nothing more than "a new form of speculation" that will "not help reduce the emission of polluting gases worldwide."

Still, media accolades are pouring in for Brown, Speaker Anthony Rendon and Senate President Pro Tem Kevin de Leon over the extension of this trading mechanism that experts agree has done little to curb climate emissions.

As the Legislative Analyst’s Office pointed out, the Air Resources Board estimates that direct "command-and-control" regulations, not cap-and-trade, was responsible for up to 80 percent of emissions cuts so far. The system that was just extended cancels state and local regulators' authority to continue directly regulating refineries and power plants.

The extension of cap-and-trade, as structured by the law, guarantees that we will not reach California’s stringent carbon-cutting goals for 2030.

The Sacramento Bee says that no state has done more than California to curtail greenhouse gas emissions. Those cheering the cap-and-trade extension should keep in mind that greenhouse gas emissions fell in California due to a crippling recession, improvements in energy and fuel efficiency, falling renewable energy costs, severely curtailed dirty power imports, and decreased electricity and gas demand.

But very little of the reduction, experts agree, was due to California’s poorly structured system of cap-and-trade. 

Now that cap-and-trade passed, the question is whether regulators will be able to make work a system that only permits cap-and-trade as the mechanism to slash greenhouse gas emissions. The better the system can be made to work, the more money it will generate in revenue for the state.

The revenue raised so far has largely been earmarked for Brown's high-speed bullet train, improved transit, and new housing in low-income communities. The new law on cap-and-trade directs that the rest of the money not spoken for be used to "backfill" big new tax breaks to Big Oil, fossil fuel power plants, and industrial agriculture.

Should a 2018 constitutional amendment, brokered as part of the deal, be passed by voters, the revenue will no longer be allocated a priori. That makes it even more likely that legislators will redirect the revenues the cap-and-trade system generates to their own pet projects.

What the oil and gas industry won was a system swimming in free pollution allowances to refineries and power plants that will keep the price of carbon cheap and thus provide no incentive to install pollution-control equipment to control emissions. Refineries will be able to meet their obligations for free, but still use cap-and-trade as an excuse to jack the price of gasoline. 

Lawmakers are aware, of course, that this program doesn’t go far enough, fast enough, or apply with real bite, judging by the absence of any celebratory atmosphere in Sacramento over cap-and-trade's passage.

California could instead have generated real revenue to plow into consumer rebates and the sort of technological innovation that got us to the Moon to give fossil fuels a proper run for the money. Strong-armed by the Governor, legislators crowned him with cap-and-trade. But the Emperor is still wearing no clothes.

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