Billions of Dollars from Carbon Trading Up for Grabs

Launching the state's greenhouse gas reduction law will likely create a financial bonanza if the California Air Resources Board develops a carbon cap-and-trade program as expected. Who will benefit remains the multibillion-dollar question. The crux of the matter is whether the carbon market is one that turns buying and selling carbon credits into a private property right benefiting a few or a public right that benefits the state and its citizens. The air board's first official meeting January 22 on strategies to carry out the state's greenhouse gas reduction plan delved into a multitude of issues - from financial to legal. But one thing was clear: the financial stakes of AB 32 have created a burgeoning greenhouse gas industry. AB 32 is the state's new greenhouse gas reduction law. An overflowing crowd of business representatives, consultants, lawyers, and environmental and consumer advocates, along with energy agency staff and the greenhouse gas reduction law's prime author, former Assemblymember Fran Pavley, attended the daylong event. If a ton of carbon were priced at $20, it would result in $2.5 billion in annual transactions, according to Redefining Progress. The group works with grassroots organizations, policy makers, labor unions, and businesses to promote environmentally and socially responsible economic development. However, the annual value of trading could be much higher if the price of carbon rises, which some expect to occur as the greenhouse gas cap ratchets down each year until 2020 to reach the law's 25 percent emissions reduction target. The state generates about 500 million metric tons of CO2 a year. Reaching the law's reduction goal will require 174 million metric tons to be eliminated, according to the air board and the state Climate Action Team. Intertwined with the question of who may reap monetary rewards from the global warming law is who will pay for the program's development and enforcement. The air board has the authority to impose program fees, including a carbon tax and other levies, such as mandatory greenhouse gas emissions reporting fees. However, it has paid scant attention to the matter. Neither the air board nor the governor is considering a carbon fee to fund the program. Instead, they plan to use special funds to pay for the program's development. In mid-January, the governor proposed spending $36 million of special funds to implement the law in the upcoming budget year. Of that, $24.4 million from the air board's Air Pollution Control and Motor Vehicle accounts would be used to fund agency rule development in fiscal 2007-08 (Circuit, Jan. 12, 2006). Chuck Schulock, CARB program manager for greenhouse gas reduction, explained that there are no plans to impose fees on program participants. In addition, the source of program funding needs to be included in the governor's budget, he said. Expectations are that officials will continue to divert special funds from other areas to cover the program's costs in the near term. AB 32 gives the air board the discretion to impose a carbon fee after holding a public workshop on the matter. The board has not scheduled a public meeting and is currently interpreting its fee authority narrowly. "Implementation of a carbon fee is the single most important step you can take to reduce carbon emissions," Lenny Goldberg, lobbyist for California Tax Reform, told the board this week. He urged the air board to publicly debate the pros and cons of imposing a carbon tax or fee or creating an emissions market where the state auctions carbon credits. Under an auction, the proceeds would go to the air board, in effect making the right to emit carbon emissions a public good. On the other hand, if the air board simply allots credits to companies that they can trade freely among themselves under a declining baseline, carbon emissions rights will attain the status of private property under the new law, according to some climate change experts. If the state creates an auction of carbon credits along the lines of what New York and Massachusetts are proposing, according to climate change activists, it could reap billions of dollars a year in the next decade. California as a whole - not a segment of a particular industry - would reap benefits. As an alternative, revenue from a more limited carbon tax could be used to cover agencies' implementation costs, instead of using general fund or ratepayer money. There could also be a requirement that the tax revenue be used to pay back special funds diverted in the early years of the program. Some stakeholders said auctioning credits would give the state needed money and keep power plants and other CO2 emitters from focusing too much energy on trying to get salable credits for emissions reduction measures. During the workshop, representatives from many businesses, from oil companies to public utilities, sought assurances that measures they are taking and plan to take to slash emissions would benefit their bottom lines. A representative from Dupont noted that greenhouse gas emissions can be perceived as a liability but more noteworthily as an asset. - Elizabeth McCarthy

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Billions of Dollars from Carbon Trading Up for Grabs

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