Dan Walters

Opinion: California’s carbon fees generate big money

Gov. Jerry Brown releases his revised budget plan for the fiscal year that begins July 1st on Thursday, May 15, 2015 in Sacramento, Calif.
Gov. Jerry Brown releases his revised budget plan for the fiscal year that begins July 1st on Thursday, May 15, 2015 in Sacramento, Calif. rpench@sacbee.com

While Gov. Jerry Brown is being fairly tight about spending the state’s multibillion-dollar windfall of sales and income taxes, he’s not shy about spending rapidly increasing proceeds from “cap-and-trade” fees on carbon emissions.

The revised 2015-16 budget that he unveiled this month more than doubles, from $992 million to $2.2 billion, projected revenues from selling carbon emission credits, and the Legislature’s budget staff believes even that is too conservative.

Much of the increase stems from adding automobile fuel to the cap-and-trade system. Refiners buy credits and pass on their cost, about a dime a gallon, to motorists.

A big winner is Brown’s pet bullet train project, which is legally entitled to a quarter of the money. The governor bumped the bullet train’s share from $250 million in his January budget to $500 million in the revision.

It’s still not enough to directly finance construction, currently pegged at $68 billion, even with the state bond funds and federal grants in hand. But it may provide the wherewithal to service construction loans, perhaps from the federal government.

The “may” qualifier stems from two uncertainties – whether the bullet train will, as the cap-and-trade law requires, reduce carbon emissions, and whether the fees can withstand legal challenge.

The Legislature’s budget analyst, Mac Taylor, has opined that the project will actually create more climate-changing carbon pollution. Meanwhile, the California High-Speed Rail Authority projects that when completed, circa 2040, the bullet train will reduce automotive travel by scarcely 1 percent of current levels.

With such a weak, or even negative, effect on carbon emissions, giving the bullet train such a large chunk of cap-and-trade funds would seem to invite a legal challenge by project opponents.

The more immediate issue, however, is a lawsuit filed by the California Chamber of Commerce. The suit says the fees are taxes that violate the state Supreme Court’s ruling on what divides a fee from a tax, which requires a two-thirds legislative vote to be imposed.

The case is now pending before the 3rd District Court of Appeal. The Air Resources Board, which created the cap-and-trade program, has filed paperwork postulating that carbon fees are neither taxes nor fees but rather are “incidental” to regulating emissions and not meant to raise revenue.

It’s a novel theory and one that departs from the ARB’s previous position. It also defies common sense since carbon fees are, in fact, raising a lot of money that politicians are eager to spend on their pet projects and causes.

The outcome of the case, which presumably will wind up in the Supreme Court, will affect not only the cap-and-trade program but the legal standing of other regulatory schemes that involve extracting money.