There is one thing that is not up for discussion as Gov. Jerry Brown battles to win support for the extension of California’s cap-and-trade program: the flow of cap-and-trade funds to the bullet train.
“If that’s a killer for you, then you have a dead body,” Brown told this newspaper’s editorial board.
The governor is urgently pressing the Legislature to pass Assembly Bills 398 and 617, two bills that are the product of months of private negotiations to reauthorize the cap-and-trade program for an additional 10 years. It’s currently set to expire in 2020.
What’s the rush? Brown says the world is hurtling toward catastrophic climate change that will lead to 47 percent of the planet having temperatures of 130 or even 140 degrees, with suffering and migration that will destabilize the world. “It’s damn real,” he said.
For the sake of argument, let’s agree that climate change is happening, catastrophic and entirely our fault.
California accounts for only 1 percent of global greenhouse gas emissions. We could shut down the entire state, turn off all the generators and shoot all the cows, and it would have absolutely no effect whatsoever on the global climate.
But the governor says California’s cap-and-trade program serves as a model for the world, inspiring other governments to adopt similar policies to reduce greenhouse gases.
The idea of cap and trade is that regulators place a statewide cap on greenhouse gas emissions and require permits for each ton of emissions that a facility produces. Some permits are given out at no charge, and the state holds back a large share of them to sell at quarterly auctions in order to raise revenue.
The revenue goes into the Greenhouse Gas Reduction Fund, and the legislature spends the money on politically favored projects connected to the climate. The connection is sometimes thin.
As of January, according to the governor’s budget summary, $3.37 billion had been spent this way. Those billions of dollars were pulled from the pockets of people who were paying higher prices for everything manufactured or transported in California.
In 2016, the nonpartisan Legislative Analyst’s Office said cap and trade had added 11 cents to the price of a gallon of gasoline, 13 cents to the price of diesel. Earlier this year, the LAO estimated that if the cap-and-trade program is extended for 10 years, it will add 63 cents to the cost of a gallon of gas in 2021, rising to 73 cents in 2031.
With its higher cost of living, California’s poverty rate is 20.6 percent, the highest in the nation, and economic distress is evident. In May, state finance officials said sales-tax revenue came in far below expectations, likely because wages were lower. The governor’s January budget proposal said that over the past four years, “the percentage of wage and salary growth from high-wage sectors dropped from 50 percent to 36 percent of total growth.” Cap and trade began in 2012.
Is the cap-and-trade program contributing to the loss of high-paying industrial jobs in California?
There’s no time to think about it, because the vote to extend the program will probably happen on Monday, just one week after the bills were made public.
It’s about money, not climate. The governor’s budget summary says extending the program to 2030 will lessen volatility in the quarterly auctions and boost revenues. And then there’s the bullet train.
As of January, $800 million of cap-and-trade funds had been spent on high-speed rail. And in the rail authority’s 2016 business plan, there’s a letter to legislative leaders from the California High-Speed Rail Peer Review Group about the financing for the initial operating segment from San Jose to Wasco.
“Most important,” they write, is “the Authority’s ability to securitize cap-and-trade funding when needed in the future.”
Securitizing is the process of borrowing future revenues by selling bonds to investors. The longer the time period of guaranteed revenue, the more that can be borrowed.
“Extending the C&T program beyond 2020 and defining the Authority’s share of the proceeds is one potential way to achieve at least part of the funding objective,” the experts wrote.
The business plan says the first segment of the bullet train will need $5.3 billion in committed cap-and-trade funds, plus another $5.2 billion borrowed against future cap-and-trade revenues to be collected between 2025 and 2050.
But the cap-and-trade program expires in 2020.
Is it starting to make sense? The voters approved a bullet train that would be built without a tax increase and operated without a public subsidy. Cap-and-trade funds are not tax revenues, so they can be spent building high-speed rail forever.
A vote to extend the cap-and-trade program is a vote to fund the bullet train with ever-higher prices for food, gasoline, electricity and everything that’s made or moved in California.
That’s the real path to catastrophe.
UPDATE: It passed.