Cap-and-trade Billions a Honey Pot for California Politicians

AP Photo
The Associated Press
Newport Beach, CA

California’s cap-and-trade tax is creating a luscious honey-pot of cash to sooth state politicians’ spending fantasies. As the Sacramento Bee reports, in expectation of the cash available from the “May Revised Budget” to be released this week, lawmakers and their interest-group fellow travelers are outlining ambitious proposals that include funding port improvements, paying for heavy-duty trucks and ferries, nurturing urban rivers, sponging up carbon in soil and increasing subsidies for bus riders.

The surge in what is commonly referred to in Sacramento as “Cap-and-Tax” seems destined to vacuum up rivers of cash from electric utility bills and retail gas purchases that are expected to increase in the years ahead.

According to Assemblyman Henry Perea (Fresno-D), “It’s the next big fight.” He added, “It’s going to continue to be a fight as more revenue comes in.”

In 2006, supposedly to counteract global warming, California lawmakers passed the first-in-the-nation carbon auction program that requires businesses to purchase the equivalent of “Papal Indulgences” to waive the sin of releasing CO2 into the skies.

California mandated exceptionally tough air quality standards in an effort to lower carbon emissions, and has implemented a “cap-and-trade” system to raise the costs of businesses that emit so-called “pollutants.” The program has generated hundreds of millions of dollars that helped cover shortfalls in last year’s budget, including an annual outlay to support the high-speed rail project.

This year, oil and gas producers were required to buy permits for the first time. Cleverly disguised as a fee, cap-and-trade creates a tax multiplier effect. Gas retailers pay for the cap-and-trade fees when they buy wholesale gasoline from oil companies. The state then figures the fuel sales tax on the full pump price, which leverages the cap-and-trade “fee” by hitting it with a percentage tax. The result is about a 10-cent increase in the price of a gallon of a gasoline that is expected to generate another multibillion-dollar slush fund for Sacramento politicians.

Governor Jerry Brown’s January proposal underestimated the amount available in the coming fiscal year by between $1.3 to $3.9 billion, according to the Legislative Analyst’s Office. The updated numbers will come out this week in Brown’s May Revised Budget.

The money spent out of the cap-and-trade fund supposedly must verifiably help curtail the greenhouses gases that supposedly fuel climate change. But Sacramento politicians have shown great flexibility in deciding what that “help” actually is. Last year, 25 percent of all “cap-and-tax” cash was mandated to flow to disadvantaged communities that just happened to be dominated by Democrat members of the Legislature.

In accordance with the formula established in last year’s budget agreement, 60 percent of the auction dollars will flow to areas such as high-speed rail, urban transit and housing. But the remaining 40 percent will now be a jump-ball for the state legislature.

Lawmakers have introduced a slew of initiatives to mandate permanently that the rivers of cash be reserved for disadvantaged communities or large-scale transit projects.

But other groups want the cash to pay for energy-efficiency programs at the state’s heavily unionized public ports, which are required to address the environmental issues associated with using machines and trucks to move goods in and out of the port.

Playing on the mandate to address climate change in disadvantaged neighborhoods, a solar industry lobbying group is angling to install rooftop panels on housing projects.

“The Legislature and the administration are hearing a lot of different plans for how to spend the money,” Coalition for Clean Air policy director Bill Magavern told the Sacramento Bee. “There’s really a broad spectrum of interests involved in this debate, and of course it’s because there’s money available.”