The Legislative Analyst’s letter to Assemblyman Tom Lackey revealing that the cap-and-trade program’s effect on gasoline amounts to $2 billion a year or 11-cents a gallon is no surprise to readers of this page. Numerous writers over the last number of years pointed to the cost that would make its way to consumers at the pump under cap-and-trade.
More to the point is the issue of whether cap-and-trade revenue results from a tax? While that question is being decided by courts of law thanks to suits brought by the California Chamber of Commerce and others, I think the LAO’s analysis will convince the people of California that they are paying a tax.
The California Air Resources Board argues that businesses partake in the cap-and-trade auction voluntarily, nullifying the argument that the revenues are a result of a tax. But, the consumers are stuck with the bill when it comes to gasoline. There is nothing voluntary about the added 11-cents a gallon. Applying the old duck test, if it walks and quacks like a duck its a tax.
The question is: to what purpose?
A number of legislators commenting on the LAO’s letter to Assemblyman Lackey suggested that the $2 billion that is raised by placing cap and trade on gasoline production should be dedicated to the roads. Senator Pat Bates said, “Let’s use the $2 billion dollars that drivers are already paying to improve our transportation infrastructure instead of asking them for another tax increase.”
Governor Jerry Brown has called on the legislature to raise taxes for roads and transportation infrastructure.
Cap-and-trade revenue has found its way to a wide range of projects, all supposedly fashioned to deal with greenhouse gases, as the cap-and-trade law requires. The problem is that many of these projects only deal with greenhouse gases in a roundabout way. File these programs under: The law is satisfied in the eye of the beholder. In important instances, that eye belongs to the governor.
Cap-and-trade money is buttressing his high-speed-rail legacy project. Think of those train trestles that cross a gorge with the rickety timber creaking and swaying as the train passes by. The cap-and-trade money is the center beam holding the unstable finance scheme together for the moment.
While the LAO’s figure on the price increase per gallon was on the low end of predictions, the figure quoted was in the range that many experts expected. Car drivers pumping those extra dollars into the state coffers don’t see a direct benefit. (A few might, according to the LAO letter, such as those drivers who receive rebates for electric vehicle purchases.)
Yet, most of the programs don’t show a nexus between the money collected and where the money is spent. That is an important distinction because a fee must have a measurable link. If cap-and-trade revenue is judged to come from a tax, the legislation creating cap-and-trade would have required a two-thirds vote, which it did not get.
Still, the first judge who heard the case sided with the state. If the public becomes aware of the costs associated with cap-and-trade at the pump, I suspect the people will agree with the Chamber’s interpretation. Higher courts may, too.