Monday, May 25, 2015

What if cap-and-trade is decapitated?

California has been a proponent of reducing greenhouse gas emissions since the mid-2000s. Gov. Schwarzenegger was heralded - even with a speech at the UN - for its program. Part of that program is a "cap-and-trade" system which sets limits on emissions. Emitters must obtain permits which impose an overall ceiling on how much greenhouse gas can be put into the atmosphere. Auctioning these permits is a source of revenue for the state. Gov. Brown has become more and more enthusiastic about the program as its revenue potential has grown. His May Revise budget includes spending totaling $2.2 billion in 2015-16 in cap-and-trade monies, ostensibly for purposes that produce energy efficiency and reduced emissions. The biggest chunk goes to his high-speed rail project, but there are planned expenditures for other programs including $60 million going to UC for various green initiatives. You can find a table below showing the spending plan. (Click to enlarge the image.)

Columnist Dan Walters points out today that there is a legal challenge to the cap-and-trade system which conceivably could upend the system:

...The Legislature’s budget analyst, Mac Taylor, has opined that the (high-speed rail) project will actually create more climate-changing carbon pollution. Meanwhile, the California High-Speed Rail Authority projects that when completed, circa 2040, the bullet train will reduce automotive travel by scarcely 1 percent of current levels. With such a weak, or even negative, effect on carbon emissions, giving the bullet train such a large chunk of cap-and-trade funds would seem to invite a legal challenge by project opponents. The more immediate issue, however, is a lawsuit filed by the California Chamber of Commerce. The suit says the fees are taxes that violate the state Supreme Court’s ruling on what divides a fee from a tax, which requires a two-thirds legislative vote to be imposed. The case is now pending before the 3rd District Court of Appeal. The Air Resources Board, which created the cap-and-trade program, has filed paperwork postulating that carbon fees are neither taxes nor fees but rather are “incidental” to regulating emissions and not meant to raise revenue. It’s a novel theory and one that departs from the ARB’s previous position... 

Full column at

Were the cap-and-trade system to be voided through a legal challenge, there would be an impact on UC that would go beyond the $60 million it is slated to receive directly. The rest of the $2.2 billion (or whatever the total might turn out to be in the future) would also evaporate. There would be a scramble to find alternative funding for the programs now being financed by cap-and-trade. UC's general fund budget, beyond what it gets directly from cap-and-trade, would be at risk in such a scramble. It's not clear that the Committee of Two plan, for example, would survive in such a situation.

Sorry to mess up your Memorial Day weekend with such thoughts.


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