Climate Change, and California's Failed Solution
AB 32, California's signature anti-climate change legislation, was praised by environmentalists across the world when it passed in 2006. But as it has been implemented, its hue has gone from green to grey. And so too has its future dimmed.
Not Much Bang For the Buck: To assess AB 32's primary goal of reducing California's emissions, we need to assess the Golden State's emission reduction relative to the other 49 states, which have been slow to implement anti-climate change actions. Over the course of the last decade, California hasn't done much better at reducing emissions, but this data only incorporates two years of AB 32 being truly in action. But even looking at just 2012 and 2013, California still isn't performing much better than the rest of the country. In absolute terms, CO2 emissions increased in California by an average of 1.2% while they dropped by an average of 0.8% per year in the rest of the nation. On a per capita basis, we see a similar picture - increasing (0.2% on average per year) in California, but falling (1.3% on average per year) in the other 49 states. Only in terms of emissions per real GDP do we see California reduce its emissions in 2012 and 2013, but again, the rest of the nation still outperforms the Golden State (1.2% on average versus 2.0% on average). Meanwhile, California's all sector average electricity price is almost 1.5 times higher than the national average and regular gas prices are almost 1.3 times higher. AB 32 is definitely increasing energy prices, but isn't significantly reducing emissions.
Illegally Taxing the People of California: The 2006 law instructed the California Air Resources Board (ARB) to implement a market platform to reduce emissions to 1990-levels by 2020. The law doesn't mandate the use of cap-and-trade, nor does it mandate that the capping permits be sold at an auction. Both of these decisions were based on ARB investigations of the best approach to take under AB 32's guidance. The decisions the ARB has made, followed by appropriation actions by both the Governor and State Legislature, however, have put AB 32 into dangerous legal territory. Under California law, a tax or a fee can only be implemented with a two-thirds vote. AB 32 passed by a bare majority. But yet, the auction revenues - currently amounting to $7 billion - eerily reflect the definitions of both a tax and a fee. The auction permits are imposed by a government entity and the revenues are spent on government activities, i.e. the definition of tax; and the permit revenues are collected in exchange for a transaction, i.e. the definition of a fee. As I've laid out, it would appear that as currently implemented, AB 32 is violating the state's constitution.
More Slush than Green: Finally, one of the most glaring issues with AB 32 is how the auction revenues are being spent. The Legislative Analyst's Office (LAO) estimates that auction revenues could total as much as $45 billion by 2020. And the Governor and legislators are all too eager to spend it. Already 60% of the funds are appropriated, on a recurring basis, to the High Speed Rail, to affordable housing, and to intercity rail projects with the other 40% available for annual appropriation at the discretion of the State Legislature. But according to state law, these funds must reduce California's emission footprint; the problem, though, is that 1) the Governor and State Legislature have applied this stipulation very loosely and 2) there are no metrics in place to assess a program or project's effectiveness in reducing emissions. Take the High Speed Rail, for example. For one, as the project is being constructed it will increase emissions in the state. Two, the project isn't even slated to be completed until at least 2025, five years after AB 32's 2020 deadline. And third, it isn't even certain the project will reduce emissions once it's completed - if it's actually completed. More broadly, the LAO has determined that "there is significant uncertainty regarding the degree to which each investment proposed for funding with achieve [greenhouse gas] reduction."
Given its recent struggles, the fact that no other state has followed California's example, the legal uncertainty surrounding its implementation, whether its authority extends passed 2020, and what will be a growing cost to consumers, there is significant uncertainty whether AB 32 will live to see its deadline, let alone continue beyond 2020. Alternatives to AB 32 exist, but its remains to be seen if all the stakeholders can come together and settle on a more effective and efficient approach.