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California AB32 Cap and Trade Status

May 2013

On Thu, May 9, 2013 at 11:25 AM, David Kerrigon <> wrote:

Thanks for quotes and input from two experts.

CA Cap and Trade is especially important because other states and countries will follow CA's lead.

"As of 2013, Cap and Trade accounts for about 18% of reductions from AB32, and acts as a backstop in case any of the complementary emissions reductions programs fall short. In 2015, the Cap & Trade program will be expanded to include the combustion of transportation fuel and natural gas - meaning it covers 85% of the economy. Auctions are held 4 times a year, with the last Feb 2013 CA Cap and Trade auction price clearing at $13.62 per tonne of CO2."

Entities trying to weaken CA Cap and Trade (many of which also backed CA Proposition 23 to overturn AB32 in 2010): California Chamber of Commerce, the Howard Jarvis Taxpayers Association, some major power companies, the fossil fuel industry, and California Manufacturers and Technology Association (CMTA). CMTA membership includes 750 businesses, including Exxon, Chevron, Koch, and Valero. In their histories, Cal Chamber and CMTA have never taken a stance that Exxon opposed. Some entities like Californians Against Higher Taxes, the California Trucking Association, the Western States Petroleum Association and other industry front groups warn about $6-a-gallon gasoline stemming from cap and trade. It is evident that these groups have begun a well-financed fight over the 2015 extension of Cap and Trade to encompass combustion of transportation fuel. It can be expected that some of the same industry-generated Prop 23 arguments ("protecting the climate will kill jobs, CA jobs will leak to other states," etc) will be rehashed.

ADVOCACY NEEDS: "After the dust settles from the 2013 CA budget process, the real defending of cap-and-trade and the LCFS (low carbon fuel standard) will begin since we know that the Prop 23 groups will be hunting for one of two things: (1) kill cap-and-trade outright or (2) receive all the permits for free." This may necessitate a letter writing campaign. "I think the most important opportunity may be to contact individual legislators directly - particularly in district."

CRONY CAPITALISM: Robert Reich's book Supercapitalism provides an unemotional, matter-of-fact explanation that our political/economic system is designed so that corporate interests maximize short-term profit over long-term societal benefit. Reich's point is that crony capitalism is evil, whereas Exxon's CEO is just doing what our system encourages him to do. If Exxon's CEO quits, many others will pursue the CEO job and all will continue policies against society's interests. Reich characterizes Chamber, CMTA, Pacific Legal Foundation, and certain think tanks as direct extensions of Exxon.

Environmental non-profits with full-time Sacramento lobbyists that fight for Cap and Trade include EDF (Environmental Defense), Transform and NRDC (Natural Resources Defense Council). EDF appears to have sufficient resources to review "studies" prepared by anti-climate interests.

As far as climate, Californian voters want the "hot fudge sundae diet," where you can eat four hot fudge sundaes per day and still lose weight. IE Californians have a strong superficial wish for the climate to be protected, but do not necessarily want to make personal or financial sacrifices to reduce the projected 300M climate-caused, premature human deaths by 2100 (from the book Overheated).

In 2009, a poll of Californians found 75% opposed to a $0.25 to $0.50 per gallon gas tax increase, with 60% strongly opposed. [CA Transportation Funding Poll, Aug 21-29, 2009, JMM Research, 600 interviews.] $0.25 per gallon translates into $27 per tonne CO2 price. $0.50 per gallon translates into $54 per tonne.

A Lutheran church group or Humanist Community meeting can undertake a lengthy, thoughtful discussion about Cap & Trade, and can be expected to develop a voting supermajority in favor of making short term sacrifices to bring about long-term human/biosphere benefit. Mainstream California/US political and media communication does not lend itself to lengthy, thoughtful discussion, so it is difficult to achieve mainstream contemplation of tradeoffs between short-term personal objectives and long-term societal objectives.

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EDF has provided a critique of CMTA's industry-generated "study" against climate protection (see below). Some further points:
1) It is impossible for CMTA to undertake unbiased research that draws policy conclusions that Exxon opposes. CMTA will never subject their "research" to independent peer-review.
2) In public debates, CMTA claims to share a desire to protect the climate, but it is obvious that, given a choice, CMTA choses short-term Exxon profits over climate protection. CMTA argues for seemingly reasonable Cap & Trade implementation changes based on CMTA "study" data that falsely claims enormous industry implementation costs.
3) If CMTA truly wanted to protect the climate while minimizing corporate implementation burden, they would argue to combine a) burden-reducing implementation changes with b) built-in policy triggers to strengthen regulation if annual target GHG reductions are not met.
4) Business historically cries wolf about the cost of regulation, making exaggerated claims about the impacts of regulation before regulation is implemented. There are numerous examples of effective government regulation that benefitted society that business fought hard with false arguments. When past regulation for cleaner air was actually implemented, costs were much lower than business claimed. Free market response to regulation usually brings about cost-reducing innovation.

Here is Transform's CA Cap & Trade Overview PDF: link
Transform leaves this behind as a primer for new CA legislators.

Some blogs that track CA Cap & Trade:

There is a tactical difference between McKibben/350's in-your-face-against-Exxon approach versus the more upbeat Transform approach. "Transform takes pains to point out that the Cap system was conceived to be more than fair to the sectors covered. CO2 is a federally regulated pollutant and covered sectors receive most of the permits for free providing them ample choice to buy permits to pollute or invest in efficiency that would allow them to reduce their emissions and not buy any permits whatsoever. Also, Transform takes pains to focus on the benefits of moving towards a low-carbon economy. This includes not only air quality and overall health benefits but also cost-savings from investing cap-and-trade auction revenues in affordable transportation options such as public transit, biking and walking, energy efficiency, housing near transit, and open space and urban forestry. This type of messaging is what saved AB 32 from Prop 23, especially around health."

[Some math to translate CO2 price per tonne into gas prices. Assume 20 actual mpg for our current mix of cars, trucks, and SUVs (this is from 2007 Bureau of Transportation Statistics, so mpg is understated, but only slightly). Assume 20 pounds of CO2 emitted for each gallon of gas consumed. There are 2,204 pounds per tonne. So 110 gallons of gas consumed produces 1 ton of CO2. $27 per tonne divided by 110 gallons yields $0.25 per gallon gas price increase, assuming the carbon price is passed through to consumers. This further (incorrectly) assumes that there are no offsets.]

What carbon price is needed to meet 2035 and 2050 Kyoto GHG reductions? I don't know, but higher is clearly more effective at reducing GHG. As the cost of driving increases, the amount of driving decreases. In Europe and Asia, gas costs about $8 per gallon and folks drive 1/3 less than the US. Paul Krugman suggested an eventual $200 per ton price (a $1.81 gas price increase). The Moving Cooler report suggested that a gradual increase in the gas tax for an eventual $5/gallon increase will yield a 28% US driving/GHG decrease.

EDF's critique of CMTA's industry-generated "study" against climate protection: link

CA Cap & Trade PPT by Environmental Defense Fund's Timothy O'Connor: link