More Questions About Cap and Trade

While we largely shrugged yesterday at news that California's cap-and-trade program was being put on hold for a year, Wayne Lusvardi is taking a more careful look at the implications over at Cal Watchdog. As usual, Wayne raises some interesting points.

Right now, the one-year delay is being blamed on the spring lawsuit by environmental groups concerned that cap and trade wasn't sufficiently draconian. In the words of one of the California Air Resources Board's legal advisors, "The delay in initial compliance lets the program get on its feet without the angst of everybody asking the question, 'Are they ready?' Pressure is building on the program. This lets some of that go." While the lawsuit certainly slowed down the efforts of CARB, which is tasked with implementing the Global Warming Solutions Act (also known as AB 32), Lusvardi raises the obvious objection that CARB has had five years to get the program going. But what is this "pressure" that the advisor refers to? Lusvardi's answer is to point to the rumblings of parties that are starting to realize how mortally screwed they'll be under cap and trade.

About a month ago, the California Senate approved SB 535, which would divert at least 10% of any revenues derived from AB 32's cap and trade program to low-income communities, to be used for "greenhouse gas emission reduction projects, mitigation of health impact of climate change, and support for green collar jobs." In other words, cap and trade will act as an excise tax that will be paid by smoggy industrial cities like Fresno, Visalia, and Bakersfield, but whose benefits will go to poor coastal communities like Oakland, Richmond, and Oxnard, all of whom enjoy clean air. At the same time, numerous lawsuits have been filed by poverty lawyers in the hopes of exempting poor communities from AB 32's requirements. If the lawsuits and/or SB 535 are successful, the effect will be to transfer the entire burden of cap and trade onto the state's middle class. If that happens, of course, you can probably forget about voters approving any tax increase plans at the ballot; in Lusvardi's view, it could even trigger a middle-class tax revolt on par with Prop 13.

In other words, the one-year delay may be a sign that cap-and-trade is facing a serious crisis of political legitimacy. If its burden falls heavily on low-income communities, the Democratic Party in the state might split apart as its enviro-Nazi wing becomes alienated from everyone else. But the alternative of alienating California's middle class isn't much better.