Climate Change Conundrum

Timothy L. Coyle
Consultant specializing in housing issues

When California enacted AB 32, the Global Warming Solutions Act (“the Act”), prominently featured was the Act’s “cap and trade” program.  Cap-and-trade was a sop to the business community which had reluctantly joined the legislation’s negotiations to help hammer out a “compromise”.  Cap-and-trade was advertised as the “market based” justification for bill.  The business community – with some nudging by Governor Arnold Schwarzenegger – bought it.

In fact, cap-and-trade is a sham – designed not to reduce carbon emissions but to generate money for the state, instead.  The program offers credits to well-heeled polluters in exchange for cash – meaning those gross offenders are limited to all the emissions that (their) money can buy.  The “market” ostensibly determines the value of the credits.

The proceeds of the sales go, of course, to the state.  The state is barely limited to what it can spend the money on.  Not surprisingly, a massive number of well-meaning special interests have lined up in recent years for pay-outs – from labor unions to affordable housing developers to providers of high-speed rail. 

But, a provision in the authorizing legislation gives participating companies the ability to “bank” the credits – presumably for future use – which led to a recent story reporting too much in available credits was being stashed away.  An analysis of the environmental think tank Energy Innovation worried there was an oversupply of credits – being consumed by these companies – and, consequently, there was a high probability that they would evade future emission goals by using the credits at a later date.

“Left unaddressed, oversupply and the resulting banked allowances (credits) threaten California’s 2030 emissions reduction success,” said the think tank.  “It could well be that we have emissions that are much higher than that, because of over-allocation, because of banking, because it makes sense to save up allowances early when it’s cheap to do that.”

Sounds like something was amiss in the calculations of the cap-and-trade architects – and that includes the “market basis” as the Energy Innovation analysis of the program tells us.  When is government going to learn?  It isn’t a “market basis” that’s provided by handing out goodies to private companies.  It’s more like prostituting a public purpose to achieve some political expedient.  And, unlike the second-oldest profession on Earth, that arrangement won’t last.

If government wants a market basis to go along with its new carbon-emission goals – which this author thinks together with the whole global warming premise are bogus – start with the fine-based regime in place now and go from there.  There is certainly more of a market basis to that than giving goodies away.

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