Allan Zaremberg, president and CEO of the California Chamber of Commerce, is responding to the April 29 Viewpoints article, “Cap and trade has lessons for California.” That commentary argued that a cap-and-trade system for utilities in the Northeast “has boosted the economy of every state that has participated.”
Reducing carbon emissions in California will cost consumers and businesses money, but that can be mitigated by a well-designed market mechanism, also called cap-and-trade. But the recent commentary by Paul Hibbard ignores the fundamental flaw in California’s cap-and-trade auction: It imposes billions of dollars in unnecessary taxes on the California economy without reducing a single molecule of greenhouse gases.
Using markets to reduce pollution is enlightened regulation, especially compared with the typical command-and-control schemes favored by state regulators. Cap-and-trade sets a limit on carbon while the private sector determines how much it will pay for the privilege of emitting greenhouse gases, in the form of emission allowances.
But the California auction turns this concept inside-out. Over the life of the program, the state will sell half of the emission allowances. Selling allowances has nothing to do with the cap, but this new tax will raise billions of dollars for pet projects – new spending by the same Legislature that has presided over enormous budget deficits.
The auction stands in stark contrast to the most successful market-based regulation in history – the acid rain program that radically reduced sulfur dioxide emissions in the Midwest and East. This cap-and-trade system auctioned less than 3 percent of the allowances, used only for administration of the program.
The regional greenhouse gas initiative touted by Hibbard is hardly in the same league as the California experiment.
It is far smaller, less aggressive, limited only to power plants and involves only a fraction of the investment targeted in California.
The California auction will add $20 billion to $40 billion in new taxes on electricity and gasoline over the next eight years, with no benefit to the environment.
The biggest winners will be politicians who can target money to favored constituencies. The losers will be California consumers and job seekers.