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Will you end up paying more for gas under California’s cap-and-trade extension?

Jerry Brown says climate change deal resulted from mystery, miracle and prayer

Gov. Jerry Brown celebrated the passage of a bill Monday night to extend California's cap-and-trade program through 2030.
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Gov. Jerry Brown celebrated the passage of a bill Monday night to extend California's cap-and-trade program through 2030.

An effort to extend California’s signature program for reducing greenhouse gas emissions to combat climate change cleared the California Legislature on Monday, sending the deal to Gov. Jerry Brown’s desk. How will it affect consumers?

Q: Will extending the cap-and-trade program raise my gas prices?

A: It’s likely, just as the existing cap-and-trade program has already. Yet no one knows how much gas will cost in the future, let alone what share could be attributed to extending cap-and-trade.

California’s market-based approach to reducing heat-trapping greenhouse gas emissions arose from the 2006 law that seeks to limit greenhouse gases to 1990 levels by 2020. The extension bill would continue the program through 2030 and make changes to how it works.

Transportation fuel suppliers have been covered by cap-and-trade since 2015, with the cost of allowances generally passed on to consumers in the form of higher prices. The nonpartisan Legislative Analyst’s Office estimated last year that the change had raised the retail price of gas by about 11 cents a gallon and the price of diesel by about 13 cents a gallon.

Supporters and opponents of Assembly Bill 398 are far apart in their claims about what extending the program means for motorists’ wallets.

Backers of the legislation say California gas prices reflect a range of variables, including global demand, making it hard to predict what gas will cost years from now.

On Monday, Steven Cliff of the California Air Resources Board told the Senate Appropriations Committee that the agency estimated that cap-and-trade will save the average household about $200 a year by 2030 compared to direct government regulation of greenhouse gases. The agency doesn’t have a estimate for gas prices alone, he said.

“We do not predict gasoline prices,” he told senators. “We look at cost per household.” Those costs include electricity expenses, for example, which could decline, according to a board report. Democratic lawmakers and other supporters of the bill note that the extension bill also includes a price ceiling and other measures meant to limit price increases faced by consumers.

Critics scoff at those efforts. The extension bill, they contend, would significantly raise the cost of gas and other consumer goods, dwarfing the 12-cent-a-gallon increase in the state gas tax scheduled to take effect Nov. 1 as part of the road-improvement package approved by lawmakers in April.

“Make no mistake about it – cap and tax is a gas tax that is more than five times worse than the one that was just passed,” Republican activist Jon Fleischman wrote in a post Monday.

Critics have pointed to a March letter from the analyst’s office to Assemblyman Vince Fong, R-Bakersfield, the top Republican on the Assembly Transportation Committee.

Under one cap-and-trade allowance scenario, gas prices could increase by 73 cents per gallon by 2031, the analyst’s office said. Under another allowance price scenario, the analyst’s office said, gas prices would increase by roughly one-third that amount.

Higher gas costs would range from $150 to $550 by 2026 under those two scenarios, the analyst’s office said.

Experts say motorists should remember that fluctuations in crude-oil prices could have greater impact than carbon allowances in the years to come.

“Just since this debate (on cap-and-trade) has been going on, the price of oil dropped $10 a barrel, which has reduced gas prices by about 25 cents,” said economist Severin Borenstein of the UC Energy Institute.

For every $10-a-ton increase in the price of carbon emission allowances, gasoline will increase about 8 cents a gallon at the pump, Borenstein said. A price of $40 a ton for emissions allowances by 2030 is possible, or about $26 a ton higher than current prices. That would raise pump prices by about 20 cents.

But Borenstein and others said forecasting the price of carbon allowances with any precision is almost impossible.

Much will depend on how the state air board establishes the rules of the carbon market, including the maximum and minimum pricing on emissions allowances, said Jon Costantino of Tradesman Advisors Inc., which consults with companies on California’s cap-and-trade program. A higher ceiling on carbon prices will likely mean higher prices in the market, even if the prices remain well below the ceiling.

Another big factor will be the economy; a recession will depress demand for fossil fuels and keep carbon allowance prices in check, while a new spurt will raise prices.

“The growth in economic activity is a major driver,” Borenstein said..

Chris Busch of Energy Innovation, a carbon market consulting firm, added that increasing popularity, and affordability, of zero-emission vehicles will drive fossil fuel demand lower. That, too, will moderate carbon prices and keep gas prices in check.

Whatever the actual increase in the price of gasoline, the air board projects that motorists will be buying much less of it.

The agency projects gasoline consumption will decline from 15 million gallons in 2015 to 9 million gallons in 2031 because of better vehicle mileage, alternative fuels and other reasons.

Sen. Tom Berryhill, R-Modesto, was the only Republican in the California Senate to vote for a bill to extend the cap-and-trade program through 2030. He said he voted for the bill because he won key protections for the agricultural industry.

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