Commentary: Cash from pollution permits sparks feeding frenzy in Capitol

There’s something of a feeding frenzy underway in the Capitol during the final weeks of the 2017 legislative session.

August’s quarterly auction of carbon dioxide emission allowances under the state’s cap-and-trade program was a sellout after more than a year of lackluster results. Not only did it generate more than $600 million for the state, but buoyed hopes that future auctions will have similarly bountiful results and give Capitol politicians many billions of dollars to spend.

It’s generally agreed that the stronger auction results were sparked by legislation that reauthorizes cap-and-trade, which had been due to expire in 2020, for another decade. Moreover, since the legislation was passed by two-thirds legislative votes, it removed a legal cloud on the program and gave Gov. Jerry Brown and legislators much more flexibility to spend auction proceeds, without the previous – and semi-ignored – requirement that they be spent only on carbon reduction programs.

The potential flow of what politicians regard as free money – i.e., funds that don’t come from direct taxes on their constituents – was a big factor in the high-intensity political struggle over cap-and-trade reauthorization, even though it accounts for only about a fifth of the state’s carbon reduction efforts. And, of course, the roughly $2.5 billion a year that business will be spending on emission allowances will impact consumers. Already, cap-and-trade is an indirect tax on motorists, adding about 11 cents per gallon to fuel prices.

That said, there will be much more money to spend and fewer restrictions on how it can be spent, and that means a deluge of proposals to spend it – several times the estimated $1.5 billion projected to be available this year without strings once the mandatory spending is covered.

That mandatory spending takes about 60 percent of the total revenues off the top, with the two largest chunks being the state’s financially shaky bullet train project (25 percent) and “affordable housing” (20 percent), neither of which has much to do with reducing carbon emissions. And the mandatory spending list was expanded in the political horse trading that preceded the cap-and-trade extension to include elimination of a controversial property tax for wildfire suppression and expansion of a business tax credit.

A note about the bullet train: Although it gets a quarter of cap-and-trade revenues and boosters hope that’s enough to keep the controversial, financially strapped project alive, its construction would have, at most, a minuscule effect on reducing the state’s carbon footprint. Legislative Analyst Mac Taylor points out that during construction, carbon emissions will actually increase, and by the High-Speed Rail Authority’s own projections, it would, even if fully constructed, reduce automotive travel by scarcely 1 percent.

The bullet train is emblematic of cap-and-trade spending – that it’s more about political pork than about reducing carbon emissions, as a perusal of the proposed spending underscores.

Extension of cap-and-trade to 2030 is supposed to help reduce California’s carbon emissions by an additional 40 percent from 2020 levels. However, even if the state achieves that reduction, it will still be a long ways from dropping emissions to the level authorities believe is needed to halt man-caused climate change.

That goal is 3 metric tons per person per year. Currently, California’s per capita emissions are nearly four times that level, which indicates that whatever happens over the next 13 years, even more restrictions – and more costs – are on the horizon.