Saving the planet isn’t easy — or cheap — especially in California. The state’s anti-global-warming cap-and-trade program is the latest gimmick to leave it with yet another big hole to fill in its budget.
The Golden State’s new carbon-trading program is the world’s second largest, after the European Union’s. The stated goal is to cut greenhouse-gas emissions to 1990 levels by 2020 and another 80 percent by 2050.
But California held its very first “carbon credit” auction last month — and it was a big disappointment.
Under cap-and-trade, regulators set a limit on how much carbon dioxide a business or utility may release into the atmosphere. (Yes, the government now considers CO2, the same gas you and I release every time we exhale, a pollutant it can regulate.)
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Brown: California gov falls billion or so short on revenue anticipated from “carbon credit” sales.
Businesses buy credits from the state, which allows them to “pollute.” Those who don’t exceed their licensed limit on CO2 emissions may sell surplus credits to other businesses that do.
On Nov. 17, California’s Air Resources Board announced the first auction’s results: the full allotment of 23.1 million credits had sold out.
Environmentalists and bureaucrats hailed it as a big success. But the accountants at the state’s nonpartisan Legislative Analyst’s Office killed the buzz quickly.
Turns out, state budgeteers had assumed the fisc would balloon with $1 billion in new cap-and-trade revenue in the program’s first year alone. Half of the money would go toward various state initiatives to cut greenhouse gases, and the rest would help balance the state’s perpetually off-kilter budget.
Lawmakers had such high hopes for that cash. So high, in fact, that the money’s already spent.
Now we learn California will likely take in just $191 million, the legislative analyst says. The state already faced a deficit in June, but the disappointing carbon-credit sales mean it will be much larger — $1.9 billion and counting.
That’s tough news, just a month after voters passed a $6 billion tax hike to help fill last year’s $16 billion deficit.
How could regulators and budget forecasters be so far off? The evidence suggests that was the intention.
California’s budget hasn’t really balanced in at least a decade. Year in, year out, state leaders rely on a complex series of accounting gimmicks and far-fetched assumptions to reach “balance.” For example, the state Department of Finance said Facebook’s stock offering would generate a cool $1.5 billion; it was off by at least $625 million.
Supply and demand also helps explain the disparity. The opening bid for California’s carbon credits was $10 per metric ton of CO2. The final bid: just $10.09 per metric ton. Nine cents higher.
Even though the credits sold out, the demand just wasn’t as great as regulators hoped. Right now, businesses — especially manufacturers — aren’t interested in paying a premium for the privilege of “polluting” when they aren’t planning to grow or are looking to abandon California entirely, thanks to the state’s foul business climate.
Comcast just closed its call centers in California, laying off 1,000 workers; Campbell’s Soup this summer announced it would shut down a plant outside of Sacramento, shedding 700 jobs.
But Golden State politics played an even bigger role in the cap-and-trade bust. Despite a sluggish economic recovery and persistently high unemployment, California’s political class holds fast to the idea that the state’s future is green and that a top-down cap-and-trade scheme is the key to it all.
Earlier this year, Gov. Jerry Brown claimed cap-and-trade would pay for his beloved $68 billion bullet train, which is behind schedule and about $60 billion short of funds.
“We do have other sources of money” for high-speed rail, the governor assured an interviewer in January. “For example, cap-and-trade . . . will be a source of funding going forward for the high-speed rail.” Oops.
Nor was that the only goof. As the legislative analyst pointed out, building a high-speed rail system would put a lot of carbon in the air, from all those diesel-burning bulldozers and trucks.
California’s green fantasy appears to have met cold reality. Perhaps, instead of putting faith in policy gimmicks, Brown and his fellow Democrats can try fiscal discipline sometime.
Southern Californian Ben Boychuk is an associate editor of the Manhattan Institute’s City Journal and a contributor to PublicSectorInc.org.
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