Dan Morain

Dan Morain: Lining up for the cap and trade gusher

Count ’em, 45 smart lobbyists and consultants sashayed to the microphone in a Capitol committee room last week, each of them seeking millions of dollars for very important programs that would cut greenhouse gas emissions.

No matter that few people inside or outside the Capitol fully understand the source of the money, California’s cap-and-trade program. Its regulations run 389 pages, plus attachments.

What’s not complicated is this: Insiders know how to find money. They’re betting the cap-and-trade program will gush green for years to come, though that could change if court challenges succeed, or if there’s political backlash next year when gasoline prices could spike.

Assembly Bill 32, the 2006 legislation requiring the state to reduce greenhouse gas emissions, authorized the California Air Resources Board to create a cap-and-trade system.

Until now, the air board has focused on getting sources such as factories and food processors to reduce, or cap, emissions. If big polluters can’t or don’t want to cap emissions, they can trade, or purchase offsets. Shell Energy proposed last year to pay to protect 200,000 acres of forest land in Michigan to offset gunk from its Martinez refinery.

Cap and trade will generate about $850 million in the new fiscal year. If all goes as planned, every Californian with a car likely will start to feel the impact next year, when gasoline falls under the cap-and-trade program.

The air board estimates the expansion could reap $2 billion. Others believe it could be twice that amount. Oil companies will bear the brunt of that cost but will pass it onto consumers by raising prices at the pump. Maybe a few pennies per gallon, maybe a dime, maybe more. We’ll see.

Gov. Jerry Brown wants to earmark $250 million of the $850 million in the coming year for the high-speed rail project and more in years to come. Lobbyists have their own ideas.

“Believe me, I’m hearing from them,” Assemblyman Richard Bloom said as he opened the hearing last week.

About halfway through the 21/2-hour hearing, after Assembly members contemplated how they’d like to allocate the money, Bloom asked the audience for a show of hands of the people who wanted to be heard.

“Ugh,” one of the legislators uttered as lobbyist clamored to speak. “We’ll ask everyone to be as concise as possible,” said Bloom, a Santa Monica Democrat.

For the next hour, they listed their wishes, all of them wonderful, I’m sure. Representatives of transit systems, counties and regional governments promise to cut greenhouse gas emissions by persuading people to get out of their cars, for which they’d need more money.

Recyclers, composters, dairies, green building builders and a guy representing sewer system operators, to which we all contribute, suggested bio-digesters and other ideas for reducing greenhouse gases, for which they’d need more money.

Asphalt-makers say they could smooth roads, which would raise gas mileage and reduce greenhouse gases, for which they’d need more money.

Silicon Valley representatives urged creation of a “green bank” in which the state would seed green startups. More money.

A lobbyist representing CALSTART, a corporate- and venture capitalist-backed trade group focused on “clean transporation,” argued for zero and near-zero emission engines. CALSTART, too, wants money.

If the dairies, asphalt producers, transit operators and venture capitalists were all to get their way, the $850 million will have been spent many times over.

Dorothy Rothrock of the California Manufacturers and Technology Association was the last to speak. Trying to dampen the euphoria, Rothrock said using cap and trade to generate revenue is “legally suspect.” She’s no fun.

Nor are the California Chamber of Commerce and Pacific Legal Foundation. They’ve sued, claiming AB 32 did not authorize the state to collect hundreds of millions or billions of dollars from the effort to curb greenhouse gases. The chamber and foundation lost in Sacramento Superior Court but are appealing.

Senate President Pro Tem Darrell Steinberg is a cap-and-trade skeptic, too, but for different reasons. He believes combating climate change is imperative, but isn’t sure cap and trade is the way to go about it.

His idea, detailed in a speech to the Sacramento Press Club last month, is to be direct. Impose a tax directly on gasoline, and give poorer people a tax break to offset the impact of higher prices.

A few days before the speech, a senior Senate staffer sent a memo to Steinberg saying that including gasoline in the cap-and-trade program is “tantamount to a poorly designed carbon tax.”

Using the cap-and-trade program to raise the price of gasoline could create “a great deal of price volatility, unlike a carbon tax or other directly imposed tax,” the memo said.

“The price signals resulting from placing fuels under the cap,” the memo said, “would depend upon supply and demand in ARB’s allowance auction market and the unregulated derivatives markets for secondary trades, options, swaps, futures contracts and other structured products, to the extent entities chose to hedge regulator risk rather than tie down capital.” Derivatives and futures and swaps, oh, my.

“Financial firms and energy traders will try to find a way to make money in California’s carbon market; that is their job. But if anti-competitive behavior results in energy price spikes and shortages, an economic and political problem surely would arise,” the memo said.

Steinberg’s notion has fallen flat. Legislators don’t want to mess with Californians’ cars by imposing a new gasoline tax, especially not in an election year. They much prefer the indirect method, cap and trade.

Politicians like making bold pronouncements about energy efficiency. They told us we will be getting a third of our electricity from renewable sources and will fit a million rooftops with solar power. Many of us feel good, and few of us notice the costs.

That will change when, not long after Election Day, the focus turns to gasoline. If moving gasoline into cap and trade raises pump prices – how could it not? – poor and middle class people, Democrats’ constituents, will be hit the hardest.

There is no doubt that we need to combat climate change. We must reduce greenhouse gas emissions, which includes cutting gasoline use. Whether cap and trade is the best way to accomplish the goal is another question. The answer may be simple. Legislators and lobbyists know where the money is.