California Expects $1 Billion From Carbon Trading

And that’s just for starters — but how that money will be spent is still up in the air

Craig Miller

California's cap and trade program will kick into gear when the state holds its first emissions allowance auction, in August.

There might be more money in the first year of California’s cap-and-trade program than expected. Governor Brown’s 2012-2013 budget includes $1 billion in revenue from the state’s cap-and-trade program, ramping up this year as part of California’s 2006 climate legislation, known as AB 32.

That might seem surprising since 90% of initial permits to emit greenhouse gases will be given away to industry. But number-crunchers at the Legislative Analyst’s Office (LAO) say that selling just ten percent of allowances at auction could generate that much cash. The price for an emission allowance has not been set, but projections range from $10-$40 per credit, which means that the state might garner even more than $1 billion in the bargain.

While more money couldn’t hurt a cash-strapped state like California, there are still some concerns about how this new revenue will be spent. Tiffany Roberts, Senior Fiscal and Policy Analyst for Energy and Climate Change at the LAO, explained to me that there are legal restrictions on how revenues from cap and trade can be used. “These revenues can’t go to fund general tax purposes,” Roberts said. “They have to be used either to mitigate greenhouse gas emissions or to mitigate the adverse effects of greenhouse gas emissions.”

“These revenues can’t go to fund general tax purposes.” — LAO

That means this revenue won’t help much with underfunded needs like schools and people with disabilities. However, the Brown budget indicates that $500 million of the total cap-and-trade revenue would supplant existing general fund outlays for programs that meet the requirements of AB32. That could potentially free up some general fund money for other programs, but the Governor’s budget provides none of those details.

The Governor’s budget indicates that he’s looking to spend in four broad categories:

  • Clean and Efficient Energy
  • Low-Carbon Transportation
  • Natural Resource Protection
  • Sustainable Infrastructure and Development

If the Brown administration can make the case that all the new and existing programs they want to fund fall within the purview of the law, they could be in the clear. If not, the money tussle could end up in court.

Roberts expressed concern over the lack of a timely, detailed plan laying out how the revenues would be spent. “It’s very important that such a plan be submitted to the legislature during the budget process with adequate time for the legislature and the public to scrutinize it,” said Roberts. But the budget says that no detailed expenditure plan will be released until after the California Air Resources Board (CARB) holds its first auction of credits in mid-August. At that point ARB will know how much money it brought in and can plan how to spend it. But August is well past the deadline to sign a budget, which means that the “uncategorized” revenues from cap-and-trade will be part of that budget without any legislative, or public, review of where they will go.

It’s a question that best be settled. Even if a billion dollars seems like small potatoes, economists have projected that once fully implemented several years from now, carbon trading could represent a $15 billion annual haul for the state.

 

  • http://twitter.com/BillNPeters Bill Peters

    The number of allowances being auctioned is actually a little bit trickier than just 10 percent. While industrial facilities and refiners get about 90 percent of their allowances for free, ARB is also auctioning 10 percent of the allowances from California’s 2015 cap. So they’ll mainly be auctioning (and getting money) from the 39.5 million 2015 allowances auctioned this year, because they’re splitting up the less than 10 percent of 2013 allowances the state gets revenues from over the six auctions they’ll be holding with Quebec starting in August.