I’ve lived in California since 2019 and have noticed that many people in the Golden State are inured to the high energy costs we pay, shrugging off the elevated expenses as “the sunshine tax” or simply shaking their heads and saying, “Hey, it’s California, what do you expect?” Predictably, it is the laptop class—and in particular, the large subset of it that has chosen not to form families—that tends to express those sentiments.
For Californians who work in the world of atoms and/or who have families, the prices we pay are more noticed and less welcome. Even when acknowledged, however, the high costs can be mystifying. Often, the clouding of the energy cost conversation is intentional, meant to deflect valid criticisms of California energy policy.
In this month’s recap, I’ll highlight three stories that shed light on California’s cap-and-trade carbon pricing program.
Wall Street Journal — March 28, 2022
In 2012, a gallon of gasoline in California cost about 30 cents more than nationwide. This could be entirely explained by its higher taxes and specialized reformulated blend. The latter adds an estimated 10 to 15 cents per gallon. Democrats in 2013 instituted a cap-and-trade program, which required refiners and other industrial businesses to reduce their CO2 emissions or buy credits. Over time the statewide cap on CO2 emissions has declined, thereby increasing the price of credits. According to the Western States Petroleum Association, the program now adds [another] 24 cents to the cost of of each gallon.
California’s warren of regulatory bodies and rules boggles the mind, but this succinct presentation by the WSJ makes the bottom line clear: California policies tack at least 35 cents per gallon onto the price Californians pay at the pump. The result is a statewide average of nearly $6, a painful figure for a state that has built its transportation system around the personal automobile.
Los Angeles Times — March 22, 2022
Since about the time Flores began experiencing breathing problems, the state of California has relied on a complicated market system of pollution credits to help reduce climate-warming greenhouse gas emissions. The program, called cap and trade, was the first of its kind in the U.S. when launched in 2013 and set the ambitious goal of slashing turn-of-the-century emission levels by 40% by the year 2030.
But despite its goal of reducing the gases that contribute to rising sea levels, extreme heat and record-shattering wildfires, the program was quickly faulted by environmental justice advocates for failing to improve the lives of low-income people of color living alongside major polluting facilities.
Now, after years of such criticism, government officials are reevaluating the program. In addition to environmental justice concerns, analysts have warned that the cap on how much companies can pollute ‘is likely not having much, if any, effect on overall emissions in the first several years of the program.’
This reportage by the LA Times’ Jonah Valdez exhibits typical energy and emissions obfuscation. Valdez tells the story of a family living near a Phillips 66 refinery in Los Angeles County in a way that will evoke empathy from any compassionate reader. Valdez argues, through the rhetorical device of the family’s story, that California’s cap-and-trade program is not effective at reducing industrial emissions within the state.
The first major problem—one that crops up every day in our energy policy world—is that Valdez uses the effects of local air pollution to criticize a program that is intended to target greenhouse gas emissions. As we at IER have harped on for years, local air quality and climate are not interchangeable concepts. One expert that Valdez interviews, University of Southern California Professor Manuel Pastor, hints at this analytical failure, explaining that the location of greenhouse gas emissions is irrelevant to the climate, while the emissions point of local air pollutants is certainly relevant to the people in its proximity.
Because of this distinction, I argue that different mechanisms ought to be used to adjudicate these very distinct issues. For local air pollution—tangible, measurable, and harmful—claimants must have access to the courts to seek redress when the actions of corporate entities affect them. In the case of the LA County refinery at the center of this story, a ruling against the potential defendant would be unlikely. Valdez implies that such a ruling would be unlikely because the refinery generates a lot of profit, failing to mention that the refinery has been in operation at the site for 100 years and thus would probably have a valid coming-to-the-nuisance defense. (Note: I do not have all the details available to me at this time, so consider this mere conjecture.)
In plenty of cases, local air pollution claims absolutely should be ruled in favor of the plaintiffs. To the extent that such an approach limits greenhouse gas emissions, climate activists can consider such decisions victories. But Valdez’s expectation of an emissions silver bullet is unrealistic and unhelpful.
The second major problem in Valdez’s presentation is that it suggests the cap-and-trade program is inconsequential. The program most definitely inflicts costs onto Californians by driving up the cost of industry here in the state. Valdez presents readers with a picture in which corporations continue in a business-as-usual fashion using the modest reduction in emissions as evidence. This fails to account for the obvious possibility that in the absence of such a program emissions (both of greenhouse gases and local air pollutants) would be considerably higher than they are now and would be considerably higher in the near future than they would otherwise. This is the essence of carbon pricing and the great irony is that writers like Valdez, arguing in their minds from a pro-environmental point of view, have as much influence against carbon pricing as any climate sceptics do.
CBS8 San Diego — March 24, 2022:
San Diego Gas & Electric announced Thursday that residential customers will receive credits on their upcoming bills due to a state program aimed at combating climate change. The utility said customers will get up to $171.40 in bill credits in the coming months due to the California Climate Credit program, which distributes gas and electric credits twice per year.
The program, administered by the California Public Utilities Commission, requires industries that emit greenhouse gases to buy carbon pollution permits. Credits on customers’ bills represent the customers’ share of the payments from the state’s program.
The California Climate Credit program is as exasperating as it is deceitful. According to the California Public Utilities Commission, “Every spring and fall, millions of California residents receive credits on their electric and natural gas bills identified as the ‘California Climate Credit.’ The California Climate Credit is part of California’s efforts to fight climate change.”
In truth, the pay-outs are pay-back for the higher costs Californians pay on account of the cap-and-trade program.
To their credit, CBS8 did quote a dissenter, Mark Toney, Executive Director for The Utility Reform Network, who said, “It’s not SDG&E out of the goodness of their heart who decided they are going to give customers credit, these are credits because customers pay higher consumer prices for other products…The things we buy have higher costs because they paid for the climate credits; the idea is that the credits made on our bills are supposed to offset those higher costs.”
California electricity prices are the highest in the region due to public policies like the cap-and-trade program that funds these pay-outs.
Put another way, California is using the tax-and-rebate approach that IER has dissected and dismantled here, here, and here. The lump-sum rebate revenue-recycling strategy is an attempt to pacify a public that has had energy affordability undermined. The framing by the CPUC intentionally obscures that reality.
The latest gambit from Sacramento is Governor Gavin Newsom’s idea to send car-owning Californians a debit card to cover elevated prices at the pump. As with the climate credit scheme, this Band-Aid would do nothing to address the underlying energy affordability barriers erected by the state itself.