As Californians grapple with further draconian cuts to education and social
services as the deficit soars – again – to $16 billion, a budgetary bright spot
has appeared on the horizon: the billions of dollars in revenues that will be
generated once a state carbon market launches later this year.
Beginning in November, California’s biggest emitters of greenhouse gases must
begin to purchase pollution allowances at an auction under the state’s
cap-and-trade market if they do not meet emission limits. The mandate is to
reduce greenhouse gas emissions in California to 1990 levels by 2020.
The carbon market is expected to produce as much as $1.8 billion for state coffers in its first year and by 2015 will start to generate an estimated $5.8 billion annually, according to Next 10, a San Francisco non-profit group that on Thursday released four reports it commissioned from researchers to study the economic and legal impact of the state’s carbon market as well as potential uses for the windfall.
But a word of warning to legislators salivating at the prospect of tapping this environmental bonanza to restore funding to social programs or cut taxes: Not so fast.
“Directing revenue to the general fund for new, unrelated programs or to reduce marginal tax rates appears to be precluded,” Dallas Burtraw and Sarah Jo Szambelan of Resources for the Future, a Washington, D.C. think tank, concluded in their report on the uses of carbon market revenue.
Otherwise the carbon market authorized by the California Global Warming Solutions Act, popularly known as AB 32, could be vulnerable to legal challenge under Proposition 13, the state’s anti-tax law. Prop 13 requires any new tax to be approved by two-thirds of the legislature or voters and AB 32 passed by a simple majority before being signed into law by former Governor Arnold Schwarzenegger in 2006.
AB 32 backers argue that charging for pollution allowances is a fee, not a tax. But California courts have held that revenues from fees can only be used for programs that support the authorizing law’s intentions.
“The least risky spending proposals are those that would advance AB 32’s goals, and in particular, AB 32’s primary goal: the reduction and mitigation of greenhouse gas (GHG) emissions,” wrote Deborah Lambe and Daniel Farber of the University of California, Berkeley’s Center for Law, Energy & the Environment. “Somewhat more risky (but still relatively low risk) are costly spending proposals for projects that advance the goals of AB 32, but also advance other, unrelated goals.”
No surprise that backers of California’s controversial high-speed rail project – which would run from San Francisco to Los Angeles – would view multibillion-dollar initiative as falling into the latter category.
Researchers found the biggest bang for the buck economically and environmentally would be to funnel carbon market revenues into residential energy efficiency and renewable energy programs.
“Subsidizing efficiency and renewables for households generates more GDP and employment growth, directly and indirectly, than doing so in the public or private enterprise sectors,” wrote David Roland-Holst, a professor of agricultural and resource economics at Cal, in his report analyzing the economic benefits of carbon market revenue.
“When households save money on energy, their spending on alternative goods and services is about 16 times more job intensive than the energy fuel supply chain and also more so than enterprise or average public sector spending,” he added.
Revenues from allowances bought and sold by the state’s utilities – electricity generation is the second largest source of greenhouse gas emissions in California after transportation – must be returned to customers in the form of rebates or subsidized electricity bills to compensate for any rate increases due to the cap-and-trade program.
“This study finds that policies promoting environmental quality and energy conservation save money and increase employment overall because their indirect and incentive effects propagate efficiency benefits across the economy,” concluded Roland-Holst.
The carbon market is expected to produce as much as $1.8 billion for state coffers in its first year and by 2015 will start to generate an estimated $5.8 billion annually, according to Next 10, a San Francisco non-profit group that on Thursday released four reports it commissioned from researchers to study the economic and legal impact of the state’s carbon market as well as potential uses for the windfall.
But a word of warning to legislators salivating at the prospect of tapping this environmental bonanza to restore funding to social programs or cut taxes: Not so fast.
“Directing revenue to the general fund for new, unrelated programs or to reduce marginal tax rates appears to be precluded,” Dallas Burtraw and Sarah Jo Szambelan of Resources for the Future, a Washington, D.C. think tank, concluded in their report on the uses of carbon market revenue.
Otherwise the carbon market authorized by the California Global Warming Solutions Act, popularly known as AB 32, could be vulnerable to legal challenge under Proposition 13, the state’s anti-tax law. Prop 13 requires any new tax to be approved by two-thirds of the legislature or voters and AB 32 passed by a simple majority before being signed into law by former Governor Arnold Schwarzenegger in 2006.
AB 32 backers argue that charging for pollution allowances is a fee, not a tax. But California courts have held that revenues from fees can only be used for programs that support the authorizing law’s intentions.
“The least risky spending proposals are those that would advance AB 32’s goals, and in particular, AB 32’s primary goal: the reduction and mitigation of greenhouse gas (GHG) emissions,” wrote Deborah Lambe and Daniel Farber of the University of California, Berkeley’s Center for Law, Energy & the Environment. “Somewhat more risky (but still relatively low risk) are costly spending proposals for projects that advance the goals of AB 32, but also advance other, unrelated goals.”
No surprise that backers of California’s controversial high-speed rail project – which would run from San Francisco to Los Angeles – would view multibillion-dollar initiative as falling into the latter category.
Researchers found the biggest bang for the buck economically and environmentally would be to funnel carbon market revenues into residential energy efficiency and renewable energy programs.
“Subsidizing efficiency and renewables for households generates more GDP and employment growth, directly and indirectly, than doing so in the public or private enterprise sectors,” wrote David Roland-Holst, a professor of agricultural and resource economics at Cal, in his report analyzing the economic benefits of carbon market revenue.
“When households save money on energy, their spending on alternative goods and services is about 16 times more job intensive than the energy fuel supply chain and also more so than enterprise or average public sector spending,” he added.
Revenues from allowances bought and sold by the state’s utilities – electricity generation is the second largest source of greenhouse gas emissions in California after transportation – must be returned to customers in the form of rebates or subsidized electricity bills to compensate for any rate increases due to the cap-and-trade program.
“This study finds that policies promoting environmental quality and energy conservation save money and increase employment overall because their indirect and incentive effects propagate efficiency benefits across the economy,” concluded Roland-Holst.
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