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Cap versus Fee: CA Cap should be supported

June 2013

Thanks to experts for quotes, etc.

Many advocates prefer carbon fee to cap and trade, so why was California's Cap adopted and should a carbon fee be pursued instead?

1) any carbon price is a major accomplishment - either cap or fee can be effective. should back Cap and Trade in CA as well as any federal legislation (Boxer $20/ton fee or a new Waxman bill - Waxman's federal Cap legislation failed in 2009).

2) "a carbon fee likely would not have survived politically even in CA. A large number of groups working on climate change would prefer a carbon fee but the politics prevent that at this time."

"You will find very few environmental, social justice, or community groups that see cap-and-trade as the best option but it has been the best viable option. Energy companies are already preparing to sue to kill cap-and-trade and if it goes down our chance for any type of carbon cap is gone for an indefinite period and along with it any chance of meeting our AB 32 targets much less the 2050 targets decreed by Executive Order."

3) CA's Cap starts out weak and gradually gets stronger: A) the cap is lowered by 2 or 3% per year, B) In the beginning, most affected businesses get 90% of their emissions allowances for free and this gradually goes down. There are no obvious flaws that preclude the Cap from ensuring that 2020, 2035, and 2050 GHG reduction targets are met. However, to be politically viable, CA's cap had to start out in a semi-weakened state.

4. "We should move away from the use of the phrase CARBON TAX in our private meetings or public communications as it will immediately put the conversation on the wrong foot and put us on the defensive. I know it's semantics but it's important to have a better starting point for our discussions." IE a carbon fee with some sort of pay back of the collected revenue.

5. "Regarding Hansen's fee and dividend approach: CA's cap-and-trade is a variation on this concept albeit the revenues do not go back to taxpayers directly. Instead they must be reinvested in projects that have GHG and community benefits. We know that industry will pass on some of the costs of cap-and-trade to consumers through higher energy prices and investing the cap-and-trade auction revenues in projects - energy efficiency, clean transportation, public transit, biking and walking, renewable energy, and others - will reduce overall energy demand and costs." The CA budget process has an attempt to re-direct this revenue.

General commentary on Cap versus Tax:

David Suzuki: "There is much discussion about whether a carbon tax or a cap-and-trade system is the best way to put a price on greenhouse gas pollution. The simple answer is that it depends on how each system is designed. The design will determine the environmental and economic effectiveness. For example, how strong is the economic incentive (i.e., the carbon price) to reduce emissions and switch to cleaner energy? To which emission sectors does the system apply? And how are the revenues used? Are they invested in green infrastructure or corresponding tax breaks? If both approaches are well-designed, the two options are quite similar and could even be used in tandem."

League of Women Voters: Each approach has advantages and disadvantages, and a well-designed system of either type will be more effective than a poorly designed system of the other type.

James Hansen advocates "Fee and Dividend." This is the variation on carbon tax where collected revenues are given back to voters. As far as political viability, this approach should be popular with voters as the average voter will come out economically ahead.

The "Association of Irritated Residents" filed a lawsuit against CARB's AB32 implementation. One of their many arguments was that a carbon tax was not given sufficient analysis compared to Cap and Trade. "There are legitimate fears that cap-and-trade may result in negative impacts in already disadvantaged communities and the groups behind the Irritated Residents lawsuit were really suing over this concept in the big picture. At the same time they have hedged their bets by working to pass SB 535 which requires that at least 25% of all cap-and-trade revenues be spent on projects and programs that benefit disadvantaged communities and 10% be spent directly in disadvantaged communities. CA has established a tool for identifying this communities called the enviro screen tool that works off a variety of environmental and socio-economic variables."

FYI: Concise legal reference for CA Cap: