California’s Cap-and-Trade Problem
California Governor Jerry Brown plans to host a global climate summit next year, and there’s no better exhibit of the tension between the left’s environmental and social justice goals. Witness the Democratic rupture over reauthorizing cap and trade.
Democrats control a supermajority in both legislative chambers that lets them increase taxes without GOP support. Because the state raises revenues by auctioning emissions permits, a two-thirds vote is needed to extend cap and trade through 2030 (from 2020) and insulate the program from legal challenges.
The Governor says cap and trade is essential to meet the state’s statutory requirement to reduce greenhouse gas emissions to 40% below 1990 levels—the same goal that Europe committed to in Paris. His problem is that Democrats from low-income areas are reluctant to extend cap and trade after voting this spring to raise gas taxes and impose a new vehicle registration fee.
Manufacturers, oil refiners and food processors—major employers in low-income areas—will have to buy permits or expensive new equipment to comply with the state’s emissions cap. Cap and trade has raised the cost of gas by about 12 cents a gallon and this surcharge will increase as emissions controls tighten. Californians already pay about 65 cents more per gallon than the national average.
To win support from business and balky Democrats, Mr. Brown has offered to extend a partial sales tax exemption (3.94%) for manufacturing equipment that renewable companies could also exploit. So businesses will get a small discount on the millions of dollars they will have to spend to comply with the emissions restrictions while the renewables lobby gets another fillip. What a deal. Mr. Brown has also agreed to suspend a fee on rural residents for fire prevention—which may be struck down in court anyway—through 2031 and prohibit local air quality management districts from imposing more stringent emissions standards than those of the California Air Resources Board.
The California Chamber of Commerce and Business Roundtable suffer from Sacramento syndrome and have endorsed Mr. Brown’s green bargain. They fear a more liberal Governor like Gavin Newsom or Tom Steyer would impose more costly regulations. But there’s nothing to stop Democrats with a simple majority from doing the same as they have repeatedly ratcheted up the state’s renewable mandate.
This year the state Senate passed legislation doubling the renewable mandate to 100% by 2045—and, by the way, California is producing so much solar power on some days that it has to pay other states to unload it. Senate Democrats have also proposed jacking up the price of emissions permits and imposing a border carbon fee to tax out-of-state imports.
Yet groups like the Sierra Club say the Governor’s deal gives businesses too much flexibility. Facing opposition from his party’s progressive and moderate factions, Mr. Brown wants Republicans to provide the votes he needs to extend cap and trade. GOP support would let Democrats in competitive districts off the hook and make it harder to break their supermajority in 2018. If Republicans go along, they can look forward to being a permanent superminority.
Appeared in the July 14, 2017, print edition.