Don't Sell the Right to Pollute

Sunday, September 11, 2011


Originally published at

California has long been at the forefront of the fight for clean air and a healthy environment.

Population and development pressures and how we handled them recently, have brought about changes here on a scale seen earlier and more intensely than elsewhere. Automobile-oriented urban sprawl and the smog alerts between the 1950s and the 1980s were chronic symptoms of an unsustainable, cancerous lifestyle in our transportation, consumption and development choices.

The state has responded with some bold steps – from regulating automobile emissions earlier and more stringently than elsewhere and creating alternatively fueled vehicle mandates, to creating regional air quality management districts like the South Coast and the Bay Area Air Quality Management Districts, with broad powers to adopt and enforce air pollution regulations and requiring the revolutionary use of catalytic converters, which greatly reduced hydrocarbon (HC) and nitrogen oxide (NOx) emissions, the two pollutants most responsible for ozone smog.

Then in 2006, the California Legislature approved AB 32, The California Global Warming Solutions Act, aiming to establish a comprehensive program of regulatory and market mechanisms to achieve real, quantifiable, cost-effective reductions in greenhouse gases (GHG).

Of course the devil is in the details and one of the more controversial aspects is the ‘cap and trade’ program advocated by the California Air Resources Board (ARB), the agency designated in AB 32 to enact the implementing policies and programs.

Cap-and-trade systems are systems of buying and selling ‘pollution credits’, i.e. the right to pollute. Under cap-and-trade, overall air quality goals are set for an area and specific sources of air pollution (such as power plants, industrial plants, waste incineration facilities) are given a certain number of allowances, which represent the amount of various pollutants that the facility is allowed to emit.

Facilities that come under that limit can then sell their leftover allowances on the open market, which then allows others that buy up these allowances (pollution credits) the ability to pollute more. The theory is that the overall amount of pollution allowed under cap-and-trade – the ‘emissions cap,’ will be decreased over time. But even so – even if cap-and-trade worked as advertised, which it rarely does – the danger still exists for pollution hot spots where the existing most polluting facilities buy their way to continue to pollute – and the communities around them disproportionately suffer.

In December 2010 the ARB approved a cap-and-trade plan for California, but it was stopped in February by a lawsuit joined by organizations like Communities for a Better Environment and others representing environmental justice issues and communities in California. They argued that the ARB’s plan would maintain, and in some cases exacerbate, air pollution hot spots in California, and that these hot spots were predominantly in communities of color. The suit argued that cap-and-trade doesn’t work as promised and there are more effective alternatives that were not sufficiently studied by the ARB.

Experience with Europe’s cap-and-trade program since 2005 is that its not working as planned in reducing GHGs, owing to insufficiently ambitious goals, fraudulent transactions, over allocation, free allocations, problems with carbon offsets and other defects. Yet the ARB has been adamant about pursuing this approach, when numerous positive alternatives exist.

In fact the ARB’s own plan gave free allowances through 2020 to numerous industries, rendering the plan relatively ineffective. During the Schwarzenegger administration, the excuse was that the pro-business, free marketer governor would only sign such a cap-and-trade approach. But that excuse is gone now.

In terms of carbon pricing, under a True Cost Pricing approach to economics, the price of goods and services embody or internalize their true environmental costs. Sending environmentally accurate price signals to consumers helps them make environmentally-friendly choices, while rewarding companies that act more environmentally sound.

Carbon taxes – which are a tax upon the carbon content of fuels – are a form of true cost pricing and are a superior alternative to cap-and-trade schemes, because carbon taxes provide the most direct path to internalizing carbon costs and also provide more predictability in cost. They are simpler and faster to implement, and are less open to manipulation through the political, legislative and/or regulatory process.

Carbon taxes also don’t reward the highly polluting companies that create pollution hot spots. Combined with targeted emission control regulations and pollution surcharges for such extreme areas, they are part of an environmental justice approach to confronting climate change.

They are also part of a green economic development strategy, because as you raise the tax on pollution and scarce natural resource use, you can lower the income tax and the payroll taxes that finance Social Security, Medicare and unemployment benefits by the same amount, thereby putting more money into workers pockets, which helps with the demand side of the economy. Further, making it easier to employ workers by reducing employer’s cost, which helps with unemployment and under employment, and minimizes incentives to outsource jobs to foreign workers or relocating manufacturing facilities overseas. This ‘Green Tax Shift’ approach has succeeded in Germany, after it was instituted by a federal coalition government between the Social Democratic Party and the Green Party during the years 1998 and 2005.

While the state and nation is preoccupied with jobs and the economy, the climate crisis is not even on the political radar, but the need to act is now – especially since the United Nations climate change negotiations failed miserably in Copenhagen in 2009 and Cancun in 2010, with no commitment to any meaningful goals or pathways. Given the size of California’s economy as the eighth largest in the world, we have the opportunity to demonstrate that nations, not just states, can prosper in a green way. Can California provide leadership by showing that an economic model that honestly and fully internalizes the environmental costs of burning carbon, can work for consumers and producers, and for people and planet?