California's New 'Cap And Trade' System: California Manufacturers & Technology Association. "It's Going To Have A Horribly Negative Effect On Jobs And Manufacturing Investment"

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To some business leaders, California's new cap-and-trade system for curbing greenhouse gases represents nothing less than the road to economic ruin.

"This is kind of 'Recession: The Sequel,' " said Dorothy Rothrock, vice president of the California Manufacturers & Technology Association. "It's going to have a horribly negative effect on jobs and manufacturing investment."

To environmentalists and some of their green-tech allies, cap and trade is a way to spur innovation and fight global warming in one stroke. A similar system, they note, has been used for decades to control the sulfur dioxide pollution that causes acid rain, at a far lower cost than corporate lobbyists predicted.

"This is going to work," said Ralph Cavanagh, head of the energy program at the Natural Resources Defense Council. "The same apocalyptic claims about cap and trade for carbon dioxide were made about cap and trade for sulfur dioxide back in the 1990s. And pretty much everyone acknowledges now that was a success."

The system will set a cap on the amount of greenhouse gas emissions that the state's factories, oil refineries and power plants can release, lowering the cap 1 to 3 percent each year. Owners of those facilities will buy and sell permits to release greenhouse gases into the atmosphere. The first auction of the permits - called allowances - takes place Wednesday.
The allowances will have a minimum price of $10, set by the state. The quarterly auctions are expected to raise between $660 million and $3 billion through 2013, according to the state's Legislative Analyst's Office.

Reason to leave

That money will come from companies already facing a tough regulatory environment in the state, some business leaders say. Companies outside California won't face the same burden, since no other state has agreed to implement a similar system.

Manufacturers will have another reason to go elsewhere.
"These people are making investment decisions on whether to stay in the state, and they're looking out 10 years and saying, 'Are you kidding me?' " said Catherine Reheis-Boyd, president of the Western States Petroleum Association.

The California Air Resources Board, which designed California's cap-and-trade system, has tried to address that problem, at first giving manufacturers 90 percent of the allowances they need each year for free to keep them from fleeing.

But Rothrock, Reheis-Boyd and others want all of the allowances to be free. The system would still reduce greenhouse gas releases, they say, because the emissions cap would still drop each year. Businesses would trade allowances among themselves, with companies that are able to slash their emissions selling allowances to others that are having a hard time making cuts.

"We're not saying, 'Don't do it' - we're saying, 'Do it right,' " Reheis-Boyd said. "We're committed to making the reductions, but we don't want to give you $3 billion."

Try to delay auction

Several business groups, including the Petroleum Association, have launched a last-ditch advertising campaign urging Gov. Brown to postpone the auction and change the market's structure. So far, he has rebuffed their requests.
Studies of the cap-and-trade system's potential impact tend to reflect the views of those who commissioned them. A report released in June by the Manufacturers & Technology Association examined cap and trade along with other policies California has adopted to implement its 2006 global warming law, AB32. The law calls for cutting the state's emissions back to 1990 levels by 2020.

Together, the AB32 measures, including cap and trade, would cut California's gross state product 5.6 percent by 2020, according to the association's report. They would also wipe out 262,000 jobs and cost families an extra $2,500 per year for gasoline and electricity.

In contrast, the Air Resources Board's study, released in 2010, found that AB32 would have virtually no net impact on the state's economy. By 2020, California's gross state product would rise by an annual average of 2.4 percent, with or without the global warming law. Although the report conceded that energy prices would rise - with gasoline climbing 5 percent at best, 32 percent at worst - it forecast that energy consumption among Californians would drop, as cars, electronic products and homes became more efficient. The state's per capita income would rise 1.2 percent on average each year, the same as it would without AB32, according to the study.
'Inspire innovation'

To supporters of cap and trade, reports predicting economic calamity are merely scare tactics that generally assume that California companies won't find any cost-effective ways to cut emissions or energy use. Industry has often taken the same approach when fighting environmental regulations, they say.

"None of those studies has taken into account the benefits that are achieved by these programs," said Timothy O'Connor, director of the California Climate and Energy Initiative at the Environmental Defense Fund. "Time and again, these regulations inspire innovation."

David R. Baker is a San Francisco Chronicle staff writer. E-mail: dbaker@sfchronicle.com

Source: San Francisco Chronicle



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