December 27, 2010

CARB's Carbon Capers

By S. Fred Singer

In a nearly unanimous vote, the California Air Resources Board (CARB) just approved a statewide cap-and-trade scheme to limit emissions of CO₂ from six hundred major industrial plants, starting in 2012. Proposition 23 on the California ballot, defeated in November, was an attempt to at least delay the state's Cap-and-Trade law, AB-32, until California's record unemployment eased. However, the slanted description appearing on both the official Voter Guide and the ballot, written by then-State Attorney General Jerry Brown and his office, the well-funded "No-on-23" campaign, and some very heavy media bias, had Californians believing that Prop. 23 would thwart efforts to curb air pollution -- i.e., smog. So Prop 23 went down in flames, threatening hundreds of thousands of jobs, and perhaps a million.

The "Cooler Heads" blog relates that the adopted regulation is more than three thousand pages long, but most of the details have yet to be worked out. CARB rushed to meet a December 31 deadline set by the 2006 legislation that authorizes CARB to reduce the state's greenhouse gas emissions to 1990 levels by 2020. In order to protect California businesses from out-of-state competition, CARB will (initially) allocate emissions credits (aka energy-rationing coupons) for free. The European Union Emissions Trading Scheme (ETS) is the only precedent for free allocation of carbon credits; it resulted in windfall profits for politically connected industries and higher electricity prices for consumers.

Not surprisingly, the New York Times approves of the scheme: "[AB32] will put the state far ahead of the rest of the country in energy reform."

The regulations, if they go into effect, will create the largest market for carbon trading in the country. (Ten states including New York, New Jersey, Delaware, Maryland, and the New England states are participating in a less extensive system known as the Regional Greenhouse Gas Initiative, which covers only electric utilities.)

By the time the CARB program takes effect in 2012, California regulators plan to have created a framework for carbon trading with New Mexico, British Columbia, Ontario, and Quebec -- some of its partners in the Western Climate Initiative. But as long as Congress and the Obama administration shun cap and trade, California, instead of being the forerunner of a national movement, will remain part of a far-flung archipelago of states and provinces participating in a small carbon market.

Mary D. Nichols, CARB's chairwoman, said, "We are well aware that we in California are on a different path from many other states in our willingness to be at the front" of the cap-and-trade movement. An idea of her mindset comes from a speech at the University of Rhode Island in November 2008, where she mentioned California's efforts on climate change:

We know that the economic crisis we will face from unmitigated climate change could dwarf [sic] anything we have ever seen. That alone is a compelling enough reason to take swift action. But there's another reason also, which is that developing a new clean energy economy that drives and rewards investment and innovation, creates jobs and serves as the engine for sustainable economic growth is exactly what we need at a time like this.

Transportation and utility industry representatives see Nichols' push on climate-change regulation in California as evidence of an ingrained pro-regulatory bias.

I recollect Nichols as a former assistant EPA administrator in the Clinton years, under Carol Browner. In testimony to Congress in 2000, on phasing out the chemical fumigant methyl bromide (of great economic importance to agriculture but suspected of causing damage to the ozone layer), she claimed benefits of 32 trillion dollars! And no one questioned how she arrived at this wild number. A more reasonable value, I argued in my opposing testimony, would be zero benefits: There was no evidence of MeBr, with an atmospheric lifetime of only a few months, reaching the stratosphere; no evidence of a bromine-caused ozone depletion; and no evidence from ground-level monitoring stations of any increase in cancer-causing solar UV.

Among the industries immediately affected by the CARB rules will be producers of cement, which requires an industrial process in which the release of carbon dioxide is an integral part. Steve Regis, vice president of CalPortland, said in an interview, "We feel like we're really exposed because 60 percent of our direct emissions are from the process -- nothing we can do about them." The re-engineering of that process, Regis said, would entail major costs, if it is even possible. He added that some California plants had recently shut down and moved their production out of state.

The midterm elections turned into a sweeping repudiation of the Democrats' failed status quo -- except, that is, in California, says Investor's Business Daily. With the exception of the governor's office, California has been a virtual one-party state since the 1960s. Now, thanks to decades of anti-business policies promulgated by a series of left-leaning legislatures, its economy and finances are a mess, and it is hemorrhaging jobs, businesses, and productive entrepreneurs to other states.

How bad has it gotten in the erstwhile Golden State? Consider:

Some 2.3 million Californians are without jobs, making for a 12.4-percent unemployment rate -- one of the highest in the country.
From 2001 to 2010, factory jobs plummeted from 1.87 million to 1.23 million -- a loss of 34 percent of the state's industrial base.
With just 12 percent of the U.S. population, California has almost a third of the nation's welfare recipients; meanwhile, 15.3 percent of all Californians live in poverty.
The state budget gap for 2009-2010 was $45.5 billion, or 53 percent of total state spending -- the largest in any state's history.
Unfunded pension liabilities for California's state and public employees may be as much as $500 billion -- roughly 17 percent of the nation's total $3 trillion at the state and local level.

This disaster has been building for decades. In the end, only the voters of California could have changed things. But on Tuesday, November 2, they opted for more of the same governance. Empowering CARB regulation will only make conditions worse.

garphic by Richard Terrell

S. Fred Singer is professor emeritus of Environmental Sciences at the University of Virginia and former director of the U.S. Weather Satellite Service. A fellow of the Independent Institute and the Heartland Institute, he has authored books and monographs on energy policy and climate change -- most recently, Unstoppable Global Warming-Every 1500 Years (with Dennis T. Avery).