Cap and trade gets a new name and a new mission

from Dan WaltersCalMatters

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Nineteen years ago, during the governorship of actor Arnold Schwarzenegger, he and the legislature created a program that, in theory, would reduce California’s emissions of carbon dioxide and other gases believed to affect the planet’s climate.

The plan, called cap-and-trade, authorizes the California Air Resources Board to hold quarterly auctions of emissions allowances that refineries, power generators and other industrial facilities buy to offset their emissions. This is an alternative to actually reducing emissions or financing other projects to reduce them.

Once purchased, allowances can be sold and traded back and forth. As auction prices increase over time, issuers would in theory be motivated to make reductions.

Revenue from auctions continues to increase today manage about $5 billion a yearthat the state spends on climate-related projects, officials boast.

“Revenues from the program have funded nearly $33 billion in statewide investments and reduced carbon pollution equivalent to taking 1.3 million gas-powered cars off the road,” said Governor Gavin Newsom declared Proposed Budget 2025-26.

The program is set to expire in 2030, and Newsom wants the Legislature to extend it until 2045, the date California must achieve carbon neutrality. Lawmakers balked at a simple extension and instead pushed for some changes that tightened the number of emission allowances and gave lawmakers more power in spending the revenue.

The program took on a new name, cap, and investment, suggesting that as auction revenues have reached multibillion-dollar levels, policymakers’ primary focus on how the money is spent has shifted away from emissions reductions.

As a a new report on revisions from the Office of the Legislative Analyst states that cap and invest funds “may continue to be treated as similar to tax revenues and be legally available for expenditure for any purpose.” In other words, while the program is advertised as funding emissions reduction programs, its billions in revenue can be spent on whatever the governor or lawmakers want to fund.

To the state woebegone bullet train project gets a quarter of auction revenue, roughly $1 billion a year. But in the new version, it would be guaranteed a flat $1 billion a year to keep it afloat—barely—while government officials try to scare off the many billions of dollars more needed to make the bullet train a reality.

While supporters hail the bullet train as something that would have a big impact on emissions by reducing car traffic, the High Speed ​​Rail Authority’s own estimates show that if fully completed it would reduce car emissions by just 1%. Meanwhile, construction actually increases emissions.

At Newsom’s behest, the revised program would also direct $1.25 billion to support wildfire suppression, easing pressure on the state’s deficit-ridden budget.

Lawmakers, in turn, have set aside another $1 billion as “discretionary” spending — meaning it can be spent on whatever legislative leaders want.

These three things will absorb most of the money while having minimal impact on greenhouse gas emissions.

When the Legislative Analyst’s Office described auction proceeds as “tax-like,” it was putting on paper something that has been obvious for years — that cap-and-trade is a backdoor tax on consumers because industrial buyers fold auction payments into the prices of what they produce.

An obvious example is gasoline. California gas prices, the highest in the nation, are widely believed to include approx 30 cents per gallon in cap and trade costs borne by the refineries. Also, that $4 billion annual hit to drivers isn’t being spent on road improvements, but on a bunch of other things politicians like.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.