Dan Walters

Dan Walters: California has unspent billions from carbon auctions

Illustration of global seesaw with large and small industrial polluters on either end balancing it out with transfers of cash for carbon credits.
Illustration of global seesaw with large and small industrial polluters on either end balancing it out with transfers of cash for carbon credits. MCT

One of the chores the Legislature left undone when it adjourned was spending billions of dollars from auctioning carbon dioxide emission credits.

There’s no shortage of suggestions on how to spend the “cap-and-trade” money, but state law says it’s supposed to be spent on reducing carbon emissions and thus combating climate change.

Gov. Jerry Brown already has a big chunk of the money – $250 million a year and growing – to spend on his pet bullet train project on the assertion that it will make a big dent in tailpipe carbon emissions.

However, the Legislature’s budget adviser, Mac Taylor, has opined that the bullet train will have negligible impact on emissions by a 2020 deadline, and its construction may actually increase them.

The High-Speed Rail Authority’s own projections, meanwhile, tell us that even when fully operational circa 2040 – if it’s ever built, of course – its impact on auto traffic would be infinitesimal.

Spending on the bullet train typifies proposed uses that have only, at best, a theoretical nexus to carbon reduction. Brown himself has proposed shifting $500 million to highway projects that would make driving more convenient, and other proposals include such things as more low-cost housing.

The money is piling up largely because the Air Resources Board applied cap-and-trade to auto fuel this year, raising prices by an estimated 10 cents per gallon, which translates into more than $100 million a month in additional revenue.

In January, Brown estimated revenues at $650 million for 2014-15 and $1 billion for 2015-16. Four months later he doubled the projection to $3.4 billion for the two-year period.

No one knows what the auctions will produce in the future, with estimates ranging from $12 billion to $45 billion by 2020.

Roughly half the money is committed – with the bullet train getting the largest share – but much of what politicians see as free money remains on the table, with much disagreement on what to do with it.

We don’t even know what to call it. We in the media generally refer to it as a “fee,” but business groups, in a lawsuit, labeled it an illegal tax because it was not passed by the Legislature.

Superior Court Judge Timothy Frawley rejected the challenge by the California Chamber of Commerce and other groups in 2013, saying cap-and-trade proceeds were more akin to “traditional regulatory fees than taxes.”

The case is now on appeal. The Air Resources Board, in its filings, contends that the money is neither a tax nor a fee, but rather an “incidental … byproduct” of a regulatory system “designed to reduce (greenhouse gas) emissions, not to raise money.”

However, as the billions pile up and politicians devise creative ways to spend it, the “byproduct” assertion weakens. And spending it becomes more like what an ARB advisory panel suggested, “a substitute for discretionary taxes such as income and sales taxes.”

Were the courts to reach that conclusion as well, those billions could vanish.

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