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No need for carbon auction says California's most independent voice

Posted by Gino DiCaro, VP, Communications on Aug. 24, 2012

This week the most independent voice in California policy analysis said the following in a letter: a cap-and-trade "allowance auction is not necessary to meet the AB 32 goal of reducing GHG emissions statewide to 1990 levels by 2020."

The impartial Legislative Analyst (LAO) responded in a decisive letter to Sen. Henry Perea who had asked three formal, basic and highly appropriate questions:

  • Is a cap and trade allowance auction necessary?  
  • What are the advantages and disadvantages? 
  • What are the steps the California Legislature would have to take to stop the November auction?

The LAO's four-page response outlined that the advantages of 100 percent free allocation (up to the cap) far outweigh the disadvantages and that "it would significantly offset more of the marginal cost increase."  

In a state where a manufacturer's operating costs are already more than 20 percent higher than the rest of the country, including 50 percent higher electricity rates, that's a very big deal.

The LAO concluded that, should the legislature choose to go this route, they simply need to direct the California Air Resources Board in statute to freely allocate allowances before its planned auction this November.

Dear Legislature. Please HELP!

Time is running out.  Billions of dollars are at stake over the next eight years.  Will California turn AB 32 implementation into a government money-grab without regard for our economy or the plausibility of the country following us on greenhouse gas reductions?  Or will the state see that everyone's goals are in fact achieved with a free allocation of credits?

Manufacturers are growing outside of California.  If the state sticks with its plan to charge for a majority of the carbon allowances and make California an even less competitive place to manufacture, the original bold and economy-cautious AB 32 greenhouse gas plan from 2006 will have morphed into a cash cow for government and an insurmountable burden for many of our leading employers.


You can read the LAO letter here

You can read Sen. Henry Perea's release here.

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Theory meets reality on California's carbon cap-and-trade program

Posted by Gino DiCaro, VP, Communications on Aug. 16, 2012

Theory met reality on Tuesday at a Senate informational hearing on California's carbon cap-and-trade program that is set to start with an auction in November 2012. Craig Anderson from Solar Turbines, an industrial gas turbine manufacturer with 4,000 employees in San Diego, testified that the soon-to-be-fully-implemented cap-and-trade program is the most significant threat to his company's growth.

"I can say without hesitation that AB 32 is viewed by our company leaders as not only the most significant environmental regulation we have faced in California, but also the greatest threat to the growth of our business in California," said Anderson.

You can view Anderson's full testimony here (5:45 min).

Following are more real world impacts from employer testimony on Tuesday. These are companies that, as you'll see in their video remarks, are already some of the cleanest and most efficient in the world.

Mona Schuman with Pacific Coast Producers

"Our costs over the life of this program will be at a minimum $1.5 million to $2 million dollars."

"If cost of allowances go to high for us, our option is to reduce production. Reducing production means reducing jobs, reducing our growers crops and all the suppliers and vendors that supply our growers. "

View testimony here (5:49)

Ryan Modlin with Owens-Illinois

"It costs us 30 percent more already for us to do business in California than anywhere else in the United States. Under this program, it will add a couple million dollars at $20 per ton."

View testimony here (8:49)

Rob Joyce with Guardian Industries

"Compliance costs associated with cap-and-trade regulation will likely erode the competitiveness of flat glass manufacturers in California without providing a meaningful incentive to reduce greenhouse gas emissions."

View testimony here (7:49)

Key questioning and testimony also came from Sen. Rod Wright (Committee chairman), Sen. Michael Rubio, Sen. Bob Dutton, LAO's Tiffany Roberts, CMTA's Dorothy Rothrock, Insulation Manufacturers' Angus Crane, WSPA's Cathy Reheis-Boyd, NFIB's John Kabateck, CLFP's John Larrea, and a Gallo glass worker and representative. (click names for video).

Collectively the hearing's appeal to the California Air Resources Board was to freely allocate emission allowances up to the cap, for all industries, for all eight years of the program. There is no reason to do otherwise. California will still reach its goals and companies will still be forced to reduce to their capped benchmark. (Here is a chart to show how the current auction will charge the food processing industry beyond the cap over the next eight years).

The cap-and-trade concerns reached far beyond employers and workers this month too. The Federal Energy Regulatory Commissioner Philip Moeller wrote a letter last week to Gov. Jerry Brown asking him to

“suspend enforcement of the prohibition of resource shuffling until such a time that ARB clarifies rules surrounding compliance with, and enforcement of, the provisions. Suggested guidance documents are not sufficient, as these do not provide the certainty needed by market participants."

“I am now, however, extremely concerned about the potential disruption to California's electricity market that may arise from the California Air Resources Board's (ARB) implementation of California's greenhouse gas trading plan...."

View the complete letter here.

It's now CARB's turn, before it is too late, to get realistic about making this program work for California's economy and environment.

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Wall Street Journal editorializes about the 'price' of California's AB 32

Posted by Gino DiCaro, VP, Communications on July 12, 2012

Would a family be willing to pay the equivalent of two additional mortgage payments per year for California's greenhouse gas (ghg) reduction program?

That's a question many will have to answer as California's AB 32 regulatory scheme slowly becomes complete and families face $2,500 in additional annual costs from higher energy bills and more expensive consumer products.

This week the Wall Street Journal editorialized on the cost and economic impacts from the California-only greenhouse gas regulations and argued that the state should stop pretending that it won't have to pay dearly to reach it's ambitious global warming goals.

To ring the alarm, the WSJ used a recent CMTA-commissioned report, conducted by Andrew Chang and Company, on the economic impacts of the complete regulatory scheme.  The editorial also focused on a seperate report by the Boston Consulting Group on the costs of the state's low carbon fuel standard -- one of the many policies being used to reach our 1990 ghg levels.

Below is the article, in case you missed it.

Following the WSJ article are charts on the eye popping costs of the program.

In 2006, the Legislature promised that AB 32 would help clean the environment and protect the economy, not raise utility and gasoline bills on hard hit families and employers.  The numbers coming to light five years after AB 32’s passage, and only months before full regulatory implementation, are likely not what the voters had in mind.  


Wall Street Journal

Review & Outlook: The Price of Green Virtue

July 7, 2012

When California’s economy was booming in 2006—remember that?—Governor Arnold Schwarzenegger and many Californians wanted to show their environmental virtue by becoming the first state to pass a comprehensive climate change law. And so they did, for which the bill is starting to come due.

Lawmakers and environmentalists predicted that the new law, called AB 32, would become a model for the rest of the nation. It never did. They also said the Golden State’s head start in developing green technologies would create thousands of new jobs. In 2008 the California Air Resources Board even estimated that the new rules and cap-and-trade tax would increase state GDP. In short, AB 32 was sold to the voters who declined to overturn it in a 2010 referendum as a green free lunch.

 Now fast forward to 2012. California’s economy is still struggling, the jobless rate is 10.8%, and AB 32’s taxes and regulations are starting to bite. Two new studies by private consulting firms add up the real- world cost to California families and businesses.

The first study—sponsored by the California Manufacturers and Technology Association, whose members employ 1.2 million residents—estimates the price tag for three major new regulations associated with the law: cap-and-trade taxes on carbon emissions, a “low carbon fuel standard,” and a stringent 33% renewable mandate for electricity production. Together these policies raise energy costs and are expected to reduce state GDP by between 3.5% and 8.9% by 2020.

Even under the “optimistic” scenario, that’s a loss of up to $447 billion in California output over eight years and represents a bigger loss in income than the 2008-09 recession. The cost per California family is estimated at $2,500 a year due to higher costs. Repeat after Milton Friedman: There is no such thing as a free lunch. 

One alarming conclusion is that “emissions reductions due to economic harm account for 26% of total reductions, more than any ARB mandated program” except cap and trade. This means that a major way Californians will reduce their greenhouse emissions is by slower growth, chasing industry out of the state, and putting more people out of work. If Californians produce less, their carbon footprint is smaller. The Sierra Club must be loving this weak recovery.

The second study by the Boston Consulting Group for the Western States Petroleum Association examined AB 32’s low carbon fuel standard. This regulation requires a 10% reduction in the carbon intensity of California transportation fuels by 2020, which can only be achieved with biofuels (but not corn ethanol because it is too carbon intensive).

This idea was devised in 2006 when the Bush Administration fantasized that cellulosic ethanol would soon become plentiful and cheap. The White House and Congress thought that by 2011 the U.S. would be producing about 240 million gallons a year. Even with lavish federal subsidies, it produced about seven million. (See “The Cellulosic Ethanol Debacle,” December 14, 2011.)

So the California government is forcing oil and gas companies to sell a fuel that barely exists. The only viable short-term compliance option is for California to import sugar-cane ethanol from Brazil. One result is that gasoline prices could rise by anywhere between 50 cents and $2.70 a gallon at the pump after 2015, says BCG. Californians could pay $6 a gallon. Maybe this is how Sacramento politicians think they can get left coasters to ride their high-speed train.

Environmentalists dismiss these studies as biased, but they echo the government’s own recent studies. The only real argument is over the extent of the economic damage. Californians may believe this price is worth it, but they shouldn’t pretend they aren’t paying it.

Article link 







Download CMTA's full slide presentation

View YouTube video on AB 32 cost impacts report

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When manufacturers leave, you won't hear a howl

Posted by Gino DiCaro, VP, Communications on May 16, 2012

The California Business Alliance for a Greener Economy recently retorted in Fox and Hounds that the California manufacturers "continue to cry wolf", after we wrote a piece on the needless employer costs being built in to the California Air Resources Board's carbon cap-and-trade auction. The group's response did not substantiate any miscalculations in our $3 billion cost estimates on refineries and food processors, they are just annoyed with our positions on AB 32.

Below is their piece with our responses in bold.

Title: CMTA Continues to Cry Wolf

The California Manufacturers & Technology Association is pulling tactics from the tobacco industry playbook, grasping at straws to spread misinformation about the state’s landmark clean energy law (AB 32) in “California’s Cap-and-Trade Auction Creates Billions in Needless Costs.”


CMTA response: We are looking forward to learning where our numbers are wrong or misinformed.

Let’s take a look back: CMTA hated AB 32 when it was first developed. They formed the so-called AB 32 Implementation Group to pushback progress each step of the way. They supported Proposition 23 to avoid the standards and kill competition. And they’re still at it, dreaming up worse case scenarios to keep California addicted to the old, dirty, dying fuels of the past.


CMTA response: You must not have been around California for very long. By 2006 California manufacturers were already the most energy efficient in the country and paid electricity rates 50 percent higher than the rest of the country. Added costs from AB 32 will cause production and emissions to “leak” to less regulated states and countries, hurting the environment. To minimize leakage, we advocate that AB 32 be implemented in a cost effective and technologically feasible manner, and any true environmentalist would agree. Still waiting for information that proves us wrong that there are billions in needless costs.


But poll [after] poll shows broad public support for AB 32 for a reason: it’s an economic engine for California, attracting $3.5 billion in private clean-tech investments. Since AB 32 was passed more than five years ago, it has propelled clean energy into the spotlight and ensured its place as a bright spot in our economy.


CMTA response: Actually, clean-tech investment was high even before AB 32 passed. Too bad clean-tech investments in California are not translating into manufacturing jobs for the middle class, and green jobs are not any higher here than Texas. Our polling shows that the public generally supports AB 32 but are not willing to pay higher energy or gasoline costs. Hoping to see something soon about where we are wrong on the billions of dollars!


Let’s face it, big business groups have a long history of claiming that any given regulation will drive them out of business and/or create an economic slowdown. These predictions of gloom are seldom realized.


CMTA response: It’s actually pretty gloomy in the manufacturing sector. Lost over 630,000 jobs in the last 10 years, more than the national average. California is among the worst in the last five years for new manufacturing facilities and expansions per capita. Starting to think there isn’t going to be any credible argument that we are wrong about the billions of dollars.


And by putting a price on carbon, AB 32 invests polluter fees into the transition to cleaner and less expensive energy sources.


CMTA response: Now we are getting somewhere! But you are confused – the “polluter fees” are not necessary to “put a price on carbon” - that is accomplished by freely distributing permits under a declining cap and allowing trading of permits. The sale of permits simply imposes a huge new tax. You seem reluctant to put a dollar figure on the “polluter fees”. Billions of dollars perhaps?


I represent thousands of California businesses and they understand that market-based solutions – like a cap and trade program – are the most effective ways to send clear signals to companies and investors. Those signals create a financial incentive for reducing pollution, and a profit motive for developing clean technologies.


CMTA response: Right! A cap and trade program will accomplish AB 32 goals. We don’t need “polluter fees” to raise extra revenue that comes from imposing a multi-billion new tax on manufacturers. We might be getting somewhere here!


But don’t take my (or California’s) word for it. Look at cap and trade in the northeast. The Regional Greenhouse Gas Initiative generated $1.6 billion in net economic benefits to the region with the average industrial consumer saving $2,500 per year.


CMTA response: Apples and oranges. RGGI is electric generation only, it doesn’t directly regulate manufacturing, natural gas and gasoline as we are doing in California. California has been doing energy efficiency in the electric sector for decades. We have lost track of the billions of dollars, could we get back to that?


AB 32 is not just one policy, and it’s about more than the proceeds of one auction. It’s a portfolio of strategies to transition California to a clean energy economy.


CMTA response: Sorry, ignoring the multi-billion dollar tax from multiple auctions and surrounding it with other policies won’t make it go away.


Yet, after being proven wrong time and again, CMTA continues to cry wolf. But I’ve never heard a howl.


CMTA response: You won’t hear a howl. Manufacturers will leave the state silently, without a word, 630,000 jobs and counting.

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California's cap-and-trade auction creates billions in needless costs

Posted by Gino DiCaro, VP, Communications on April 25, 2012

The California Air Resources Board's (CARB) cap-and-trade auction will create needless costs for employers at a time when our state must compete, scrap, wrangle, advocate and fight for every high-wage job we can get.

These costs will seriously hamstring our ability to grow.  What most people don't know is that CARB is asking employers to pay for far more emission credits than are needed to reach our goals.  California will reach it's 1990-level greenhouse gas emissions without the economy-debilitating cap-and-trade auction, but CARB continues to move forward.

In the charts below, the red zone represents the amount that two particularly critical sectors -- refiners and food processors -- will have to pay to purchase emission credits in CARB's auction over the next eight years. Those credits will be purchased even though the particular sector will already be on track for 1990 levels, with annual 2 percent reductions.

This punitive energy tax equals $2.96 billion in California-only costs on the refining industry and $163 million on the food processing sector. Remember too, while this auction raises a windfall of money, the 2006 AB 32 legislation prohibited revenue collection beyond the administration of the program.

(click images for larger pdf)

Food processors


The high price of the proposed cap-and-trade system was also highlighted in the following Sacramento Bee piece authored by CMTA President Jack M. Stewart:

ARB twisted cap-and-trade into a job killer
by Jack Stewart, placed in Sacramento Bee April 15, 2012
The line is now forming for those who want a say in how to spend billions of dollars from the Assembly Bill 32 cap-and-trade program. But first, how is this revenue "created"? For the answer, look in the mirror. Every consumer, public agency, manufacturer and small business will be paying higher prices for electricity, natural gas, gasoline and other products to fill the coffers of cap-and-trade as designed by the California Air Resources Board ... READ ON

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