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Serious Bumps Down the Road for Cap & Trade Program

Dan Morain in a recent editorial entitled “Lining up for the cap and trade gusher,”  does a good job depicting the varied interest groups jockeying for a piece of the AB 32 (Global Warming Solutions Act) pie.  He also rightly expresses concern over a serious potential problem for supporters of cap and trade when transportation sector comes under the program in 2015- it’s regressive impact on low or middle income families. In his words:

If moving gasoline into cap and trade raises pump prices – how could it not? – poor and middle class people, Democrats’ constituents, will be hit the hardest.”

He is short, however, on offering solutions to these problems. There is a way to ameliorate both of these issues- offering a climate dividend or credit to all Californians.

In 2009 and state assembled a panel of experts to make recommendations on the use of revenue from the cap and trade program called the Economic Allocations Advisory Committee. Their report concluded that “roughly 75% of this value should be returned to households either through lump-sum payments…” and “roughly 25% of this value should be devoted to financing investments and other public expenditure…” (pg. 68). The committee estimated that even returning only 60% of allowance value in dividends would allow 54% of households to avoid cost impacts of higher fuel and electricity costs resulting from the implementation of AB32 (pg. 57). 

This would address Morain’s concerns in two ways. First, it would decrease the amount of money for special interest to fight over and decrease the chance of the state wasting this money through costly mistakes. Second, it would help prevent a political backlash against California’s cap and trade laws when energy prices begin to rise sharply, particularly at the pumps.

California has already enacted a small dividend or climate credit in the utility sector. But it is too small to keep up with the overall rise in energy prices once transportation comes under the cap and the cap begins to descend putting upward pressure on prices.

The stakes are high. The nation is watching California’s cap and trade program. We need to get it right, which means prudent and fair road to the clean energy economy- not a regressive tax on the people who can least afford it.

For more on Climate Credit see Mike Sandler’s Huffington Post Blog>