The high costs of Cap-and-Trade

By CMTA Staff

Capitol Update, July 12, 2013 Share this on FacebookTweet thisEmail this to a friend

As a follow-up to the California Air Resources Board’s (CARB’s) recent workshop on the Cap-and-Trade program’s market related reporting and cost containment, CMTA and others are asking CARB to simplify, streamline, and preserve options for mid-course corrections against the potentially disastrous market and economic consequences of AB 32 regulations.

Allowance prices reflect the demand and supply for allowances. But CARB has yet to recognize that the biggest cost containment threat factor will be a growing economy. California companies will be eager to take advantage of market opportunities after a half decade of dwindling production, declining profits, and job losses due to retreating markets. A failure by CARB to acknowledge the impacts of high allowance prices, insufficient reserves, or an inadequate response by CARB to allowance price fluctuations will lead to a cap-and-trade crisis. Such a crisis will stifle the California economy and result in significant emissions leakage undermining the environmental integrity of the program.

At a minimum, CARB must immediately address cost containment issues including industry assistance levels, holding and purchase limits, and the availability and expanded use of offsets for compliance. These adjustments must be made in order to assure businesses and industries of the stability of the cap-and-trade market as well as help to ameliorate the threat posed by prices exceeding the "Allowance Price Containment Reserve."

  • Steps that can and should be taken include:
  • Providing 100 percent "Assistance Factor" to all trade exposed industries;
  • Expediting the availability of offsets and removing the limitations on the use of offsets for compliance;
  • Providing an up-to-date "Emissions Inventory;" and
  • Conducting a thorough economic analysis on the existing programs marginal costs in achieving GHG emission reductions and modifying programs accordingly.

CMTA continues to advocate for climate change policies that will reduce global warming while minimizing compliance costs and allowing for continued economic growth.

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