Legislative Analyst weighs-in on Cap-and-Trade

By CMTA Staff

Capitol Update, Feb. 10, 2012 Share this on FacebookTweet thisEmail this to a friend

The independent Legislative Analyst’s Office issued a report today, Feb. 9th, titled "Evaluating the Policy Trade-offs in ARB's Cap-and-Trade Program."  The LAO concludes that California’s Air Resources Board (ARB) has made a "reasonable effort to balance various policy trade-offs, and there is no "right way" to design such a complex program.

Nevertheless, the LAO recommends three modifications to the program: (1) make producers of offset credits liable for offset project failures, (2) eliminate holding limits to improve the way the carbon market functions, and (3) reduce uncertainty about how and if the cap-and-trade program would operate after 2020.

With regard to appropriate use of revenues to be raised in the auctions of allowances, LAO reports that in the opinion of Legislative Counsel, such state auction revenues constitute "mitigation fee" revenues and that revenues must only be used to "mitigate the harms caused by GHG emissions." LAO suggests that appropriate uses could include expenditures on energy and water use efficiency programs, alternative fuels programs, and investments in renewable energy projects.  Uses not satisfying the "mitigation" standard would require new legislation and thus fall under the purview of Proposition 26 passed in 2010. In that case, more stringent requirements would apply to the use of the revenues.

CMTA believes that AB 32 does not authorize CARB to raise revenues through an auction of allowances. Specific fee authority at CARB is limited to raising revenues for administrative purposes only, and the market mechanism allowed by AB 32 provides for the "distribution" of allowances – there is no mention of an auction or sale of allowances. Furthermore, even if auctions are legal and justified, the purpose of AB 32 is to reduce greenhouse gases to 1990 levels by 2020, satisfying important criteria put in place to protect against emissions leakage, including cost-effectiveness and technological feasibility.  The purpose of AB 32 is not to broadly "mitigate the harms caused by GHG emissions" – a standard that arguably includes uses far beyond emission reduction strategies. CMTA believes AB 32 should not be interpreted to allow CARB to raise auction revenues and then to pass revenues to the legislature "laundered" of AB 32 criteria on how the money can be spent. Such an interpretation taken to its logical conclusion would allow CARB and the legislature nearly unlimited authority to raise revenues to fund solutions for any societal problem caused by climate change, the harm that allegedly results from GHG emissions. This broad reading of AB 32 is hard to reconcile with the fact that AB 32, according to the LAO and even CARB, does not give CARB authority to impose a "carbon tax" as a measure to help achieve emission reductions.

To see the full report from LAO: www.lao.ca.gov/reports/2012/rsrc/cap-and-trade/cap-and-trade-020912.pdf

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