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Pricing Carbon
Cap and Trade Calamity in California

California’s foray into the world of regional carbon markets hasn’t been the grand success it was promised to be. As the Sacramento Bee reports, a recent auction of carbon credits brought in a paltry 2 percent of the revenues it was expected to generate:

Market analysts believe that there are still far more allowances available for sale than buyers want or need, and thus future auctions are likely to fall short as well…major underlying factors are still there – including a glut of allowances and uncertainty over the program’s legality and future.

On the one hand this is a story of the extraordinarily high degree of difficulty associated with deploying a carbon market in a single state or region. Just ask the European Union, whose own Emissions Trading System has a similar problem to California’s, namely an overabundance of credits that have depressed the price of carbon down to levels too low to properly incentivize companies to change behaviors. This glut of allowances stems from a fear of something called carbon leakage, which describes the process by which heavy emitters (read: industry) might pick up and move out of the state or region to a location where it can conduct business as usual. That’s the worst case scenario for designers of carbon trading schemes, because not only does it do nothing to cut greenhouse gas emissions, but it also becomes an economic liability as well.

That’s not the only issue with California’s cap and trade system, though. As the Sacramento Bee reports, the revenues generated by this scheme were meant to go towards programs aimed at reducing the state’s emissions, but predictably have been earmarked for politicians’ pet projects:

Assemblyman Adam Gray, D-Merced, in seeking a state audit of how cap-and-trade money is spent, supported by a coalition of business groups, termed it – accurately – “a feeding frenzy for a multitude of pet projects.”

One of the biggest is the bullet train, which is guaranteed a quarter of carbon auction proceeds, even though the Legislature’s budget analyst, Mac Taylor, warns that it would not, in fact, generate any net emission reduction by 2020.

Pork barrel politics is colliding head on with starry-eyed green policymaking in California, and the result isn’t pretty. The fact that this latest quarterly auction generated such dismal revenues is only the beginning of the state’s cap-and-trade problems.

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  • qet

    Just as the spectacular failures of the ACA to ensure affordable heatlh care for all are proof to the Left only that we have to hand complete control over the entire health care system to the State, so the failure of cap and trade will only confirm the Left in its belief that we have to hand complete control over all economic life to the State or else all life on Earth will perish.

  • SLEcoman

    The closure of five petroleum coke (a coal-like by-product of oil refining) fueled power plants located in the San Francisco Bay area in February 2012 due to California’s GHG emission regulations illustrates the folly of government mandated unilateral GHG emission reductions. Not only did approximately 80 people lose their jobs, but global CO2 emissions have actually increased due to the CO2 emissions of the ships hauling the petroleum coke that would have been burned in California power plants to Asian industrial customers. In addition, CA’s electric production cost went up.

    This is the trifecta of bad government policy: a policy intended to reduce CO2 emissions actually increases CO2 emissions, plus 80 people lose jobs, and electricity costs go.

    Additionally, as special added bonus, global emissions of criteria pollutants probably increased significantly as the emissions control equipment at California power plants was world class and it is highly probable that at least some of facilities in Asia that burned this petroleum coke did not have world class emissions control equipment.

  • Dale Fayda

    Verily, liberalism is a mental disorder.

  • nervous122

    The logical outcome of legislation by good intentions. It doesn’t matter if the promised/anticipated results aren’t achieved. And don’t wait for the majority of the media to ever reexamine passed laws to see if they are achieving their goals.

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