Legislators Duel Over Impending Gas Tax Hike

Democratic legislators in the state Senate have brought Californians closer to new hikes on the cost of driving their cars. But the committee vote represented little more than a first step in a complex, intense negotiation between Republicans, Democrats and the man trying to stay influential but above the fray — Gov. Jerry Brown.

Republicans have resisted Democrats’ preferred approach, but California’s business lobby has pressed both parties to embrace new taxes and fees. “Last week, business organizations such as the California Chamber of Commerce and the Silicon Valley Leadership Group said any deal should seek to raise at least $6 billion annually by raising gas and diesel taxes and increasing vehicle registration and license fees,” the San Jose Mercury News reported.

Part of the rationale for increasing fees, instead of simply dialing up gas taxes, has centered around the growing popularity of hybrid and electric vehicles in California — and the state’s interest in squeezing revenue out of every car on the road. “We have these Teslas that are being sold and they don’t pay any gas tax,” complained state Sen. Jim Beall, D-San Jose, as CBS Sacramento noted.

Gas in California has remained higher on average than out-of-state, thanks to cap-and-trade fees and the state’s unique environmental rules about the blends of gasoline that must be sold. Current state taxes include an excise tax of 39 cents, between 30 and 42 cents in sales tax, and 10 cents for the cap-and-trade levy, as Watchdog Arena observed.

Brown stays secretive

At a recent news conference that left some observers hungry for detail scratching their heads, Brown refused to hint at a revenue source for the improvements. “I’m not going to say where the revenue’s going to come from, how we’re going to get it,” he said. “We’ll get it done, but I’m not going to put all my cards on the table this morning,” Brown said, according to ABC 7 News.

Brown was joined at the appearance by Assembly Speaker Toni Atkins, D-San Diego, who signaled separately that negotiations would be tough. “It will be a bumpy road, but our constituents expect us to work together and figure something out,” she toldthe San Francisco Chronicle.

To date, the governor has not let slip whether he would support or oppose a tax hike to make up the difference.

Dueling proposals

That raised the possibility that Republicans might get their way, scrounging up revenue from savings and budgetary jujitsu instead of tax increases. But GOP legislators have been keen on siphoning revenue away from California’s cap-and-trade program, which Brown had availed himself of previously in order to fund construction spending on the state’s much-debated high-speed rail project. That has drawn strenuous objections from Sacramento Democrats.

The current proposal advanced by Assembly Republicans “would raise more than $6 billion a year by eliminating thousands of state employees and unfilled positions and reallocating existing state money, both from the budget and from other projects,” the Chronicle noted, while the plan pushed by Beall would raise billions with a suite of increased gas taxes and fees, including an “annual road access charge of $35 a vehicle,” according to the paper.

It was Beall’s bill that cleared its first committee test in the Senate this week, with Democrats besting Republicans in a party line vote.

For now, just a few broad outlines of an agreement have come into focus. According to the Chronicle, both sides reject the option of a “one-time fix, such as a bond measure that would pile more debt on the state. Any money raised must be earmarked only for road and infrastructure repair, and protected against being siphoned into other parts of the state budget.” Plus, legislators agreed that expenditures should be clearly identified and made public, with some kind of oversight and monitoring built into the arrangement.

Via: California Political Review

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Four Big Problems with the Obama Administration’s Climate Change Regulations

A few years ago, cap-and-trade legislation to reduce greenhouse gas emissions failed to reach President Barack Obama’s desk because constituents gave their Members an earful that cap and trade would amount to a massive energy tax. When the bill died in Congress, President Obama said that there was more than “one way of skinning a cat,” and here it is.[1]

The Obama Administration has finalized its climate regulations known as the Clean Power Plan. There are plenty of details to uncover in the 1,560-page regulation,[2] the 755-page federal implementation plan,[3] and the 343-page regulatory impact analysis.[4] To summarize, unelected bureaucrats at the Environmental Protection Agency (EPA) are poised to do what America’s elected representatives refused: impose higher energy costs on American families and businesses for meaningless climate benefits.

The following are four early observations that should cause Members of Congress, state politicians, and the general public concern.

1. Higher Energy Prices, Lost Jobs, Weaker Economy

When running for office in 2008, President Obama famously remarked, “Under my plan of a cap-and-trade system, electricity rates would necessarily skyrocket.”[5] Although that plan ultimately failed to become law, the White House tasked the EPA with creating the regulatory equivalent, placing strict greenhouse gas emissions limits on new power plants and drastic cuts on existing plants. The plan includes greenhouse gas emission reduction targets for each state except for Vermont, Alaska, and Hawaii in hopes of reducing overall power plant emissions to 32 percent below 2005 levels by 2030.

The regulations will drastically shift the energy economy away from coal, which provides approximately 40 percent of America’s electricity.[6] Restricting the use of that affordable, reliable energy supply will raise electricity rates, and those higher prices will reverberate through the economy. Businesses will pass higher costs onto consumers, but if a company must absorb the higher costs, it will invest less and expand less. The combination of reduced production and consumption will result in fewer jobs and a weaker economy.[7]

Despite candidate Barack Obama’s admission that cap and trade will raise prices, the Administration is attempting to spin the regulations as a win for the economy. Proponents of the Clean Power Plan argue that as energy prices increase, families and businesses will invest in more energy-efficient products and innovative technologies that will save them money in the long run. Arguing that increasing energy prices with regulations will save money by forcing energy-efficient product purchases is equivalent to cutting employees’ salaries and telling them that they will save money by shopping at Target. Just as the option to save money at Target existed before the pay cut, families and businesses already have an incentive to purchase energy-efficient products. When the government mandates efficiency, it removes that choice and makes consumers worse off.

2. No Climate Benefit, Exaggerated Environmental Benefits

The climate impact of the Clean Power Plan will be meaningless. According to climatologist Paul Knappenberger, “Even if we implement the Clean Power Plan to perfection, the amount of climate change averted over the course of this century amounts to about 0.02 C. This is so small as to be scientifically undetectable and environmentally insignificant.”[8] Climatologist James Hansen, who wants the Administration to do much more to combat climate change, has stated that “the actions are practically worthless.”[9]

The monetized climate benefits the Administration is touting are equally worthless. The EPA says the rule will provide $34 billion to $54 billion in annual environmental benefits after 2030. Yet these numbers are misleading for two reasons.

Social Cost of Carbon. First, the Administration uses “the social cost of carbon” to calculate the climate benefit. The EPA is using three statistical models, known as integrated assessment models, to estimate the value of the social cost of carbon, which is defined as the economic damage that one ton of carbon dioxide emitted today will cause over the next 300 years. The EPA uses the average of the three models to estimate the social cost imposed by climate change—$40 in 2015 and $56 in 2030. However, the models arbitrarily derive a value for the social cost of carbon.[10] Subjecting the models to reasonable inputs for climate sensitivity and discount rates dramatically lowers the figure for the social cost of carbon.

People generally prefer benefits earlier instead of later and costs later instead of earlier. Hence, it is necessary to normalize costs and benefits to a common time. For example, if a 7 percent discount rate makes people indifferent to a benefit now versus a benefit later (e.g., $100 today versus $107 a year from now), then 7 percent is the appropriate discount rate to use. The Administration’s own analysis shows how sensitive the social cost of carbon is to the discount rate.[11] When changed from a 3 percent discount rate to a 5 percent discount rate, the EPA’s $20 billion in projected climate benefits decreases to $6.4 billion—less than the EPA’s egregiously low projection of $8.4 billion in compliance costs.

Co-benefits. The second problem is the EPA’s use of co-benefits in inflating the benefits. The EPA exaggerates the environmental benefits by including the estimated benefits from reducing particulates (co-benefits) that are already covered by existing regulations and federal health requirements. Of those benefits, $20 billion come from direct climate benefits, and $14 billion to $34 billion are air quality co-benefits. Co-benefits sound positive. Who would not want additional health and environmental benefits from regulations?

The problem is that these benefits are double-counted over and over again with each regulation the federal government imposes. In some instances the co-benefits have accounted for more than 99 percent of the EPA’s estimated environmental benefits. The agency even overestimates the co-benefits by using questionable assumptions about causality and simplistic methods to calculate the benefits.[12]

3. Overly Prescriptive EPA Picks Winners and Losers

The EPA has been arguing that the plan will provide the states with plenty of flexibility and options in meeting its goal. It proposed that states use a combination of “building blocks” to achieve emissions reductions, including improving the efficiency of existing coal-fired power plants, switching from coal-fired power plants to natural gas–fired power plants, and using less carbon-intensive generating power, such as renewable energy or nuclear power. The proposed plan contained a fourth building block, demand-side energy-efficiency measures, but the EPA excluded that building block in calculating the state emission reduction targets. However, states can still implement energy-efficiency measures as a compliance option. The EPA would also allow states to impose a carbon tax or participate in regional cap-and-trade programs.[13]

All of these options present a Sophie’s choice of economic pain, reduced choice, and regulatory engineering of America’s energy economy. Although the EPA does not explicitly direct the states which path to take, the federal government is clearly nudging them to choose expanded renewables and energy efficiency. If a state chooses to produce more renewable power or implement more stringent energy-efficient mandates for homes and businesses, it will receive extra credits toward meeting its emissions targets.

Coal is an obvious loser, but the final regulation also changed language that would have been beneficial for nuclear and natural gas. In the draft proposal, states would have received credit for prolonging the life of an existing nuclear reactor that was at risk of closing. In the final regulation, that is no longer the case. The White House also ignored the importance and increased use of natural gas, a reversal from highlighting the importance of natural gas in shifting away from coal.[14]

Rather than simply setting reduction targets, the Administration continues to favor its preferred energy sources while driving other sources out of production.

4. Federally Imposed Cap-and-Trade

States will have one year to develop and submit their compliance plans or to develop regional plans with other states, although the EPA will grant extension waivers as long as two years. If states choose not to submit a plan, as several state legislators, attorneys general, and governors have suggested, the EPA would impose its federal implementation plan. The 755-page proposed plan is cap and trade, and the EPA is considering two options.[15]

The EPA could set a cap on power plant emissions in a state and allow utilities to trade emissions permits with one another.[16] Alternatively, the EPA could implement a cap-and-trade plan that requires an average emissions rate for the state’s power sector. Environment & Energy Publishing explains,

A rate-based standard with trading could technically allow emissions to grow, as long as generators only emit a certain amount of carbon per megawatt-hour of power produced. A state with a rate around the same level as a natural gas plant could theoretically keep building more and more natural gas plants and stay in compliance.[17]

The EPA will decide on a final plan in the summer of 2016.

Congress and States Need to Take the Power Back

The threat of a federally imposed cap-and-trade plan should not scare states into concocting their own plans. Instead, Members of Congress and state governments should fight the regulation, rather than settling for a slightly more palatable version that will cause significant economic harm while producing no discernable climate or environmental benefits.

—Nicolas D. Loris is Herbert and Joyce Morgan Fellow in the Thomas A. Roe Institute for Economic Policy Studies, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation.

Via: Heritage Foundation

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Cap-and-Trade Funds Targeted for High-Speed Rail Project

Bills being introduced that monitor or change terms for the state’s high-speed rail project are a rarity. However, there are two bills brewing in the Legislature.

One has a shot at passing. The other doesn’t.

Senate Bill 400 would require the California High-Speed Rail Authority to use at least 25 percent of its cap-and-trade funds for projects to reduce or offset construction emissions. The bill comes as two groups have brought legal challenges to the state’s cap-and-trade program and the state’s plan for measuring emissions from the high-speed rail project. The bill traces its origins to the powerful Hispanic caucus and is expected to pass in the largely pro-rail legislature.

SB400, introduced by Sen. Ricardo Lara, D-Bell Gardens, has been approved in the Senate and is moving through committees in the Assembly.

Last year the Legislature appropriated 25 percent of the state’s revenues from cap-and-trade auctions to the high-speed rail project. SB400 would reduce construction funds to 18.75 percent of the revenues, with the remainder going to “reduce or offset greenhouse gas (GHG) emissions directly associated with the construction of the high-speed rail project and provide a co-benefit of improving air quality,” according to a Senate analysis of the bill.

The analysis suggests that this bill might save the cap-and-trade program, which is being challenged by two lawsuits.

Lawsuits against AB32 and HSR

A suit brought by the Pacific Legal Foundation, which favors limited government and “sensible environmental policies,” claims that the very existence of the cap-and-trade program is an illegal tax. The case is on appeal and expected to be heard in the fall.

A second suit asserts that a state plan to reduce emissions improperly calculated the impact of the high-speed rail project — which the plaintiffs allege will actually contribute to greenhouse gases instead of reduce them.

The plaintiffs in their complaint say that the state’s estimates “were neither real, permanent, quantifiable or verifiable but were instead illusory because in reality the construction of the (rail) project would result in a significant increase in (greenhouse gas) emissions prior to 2030 or beyond.”

The suit is being brought by the Transportation Solutions Defense and Education Fund, a nonprofit environmental group.

Cap and trade bailing out high-speed rail project

The rail project is not slated to be operational by 2020, which is the deadline in state law to reduce the state’s greenhouse gas emissions to 1990 levels.

The Senate analysis points out that state law restricts the use of cap-and-trade funds.

“The Constitution requires that a clear nexus exist between an activity for which a mitigation fee is used and the adverse effects related to the activity on which that fee is levied. …

“It is important that legislation allocating cap-and-trade revenues ensure that the funds are being used to reduce (greenhouse gas) emissions. If opponents of the program can convince the courts that the revenues are not being used appropriately, the entire cap-and-trade program could be jeopardized.”

The analysis hints that the rail program’s use of cap-and-trade funds, as currently outlined, doesn’t meet legal standards, and that passage of the bill would shore up the legal standing of the program and help the state win the pending court cases.

Via: California Political Review

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The Second Coming of Cap and Trade?

The Obama Administration, at this sensitive time, is playing down its expansive regulatory agenda, but some insiders are predicting a new onslaught of costly rules—including the imposition of cap-and-trade schemes on industry.

Although Congress rejected cap-and-trade legislation in 2009, the Environmental Protection Agency (EPA) remains intent on effectively rationing the use of fossil fuels. A court ruling earlier this year upheld the agency’s “finding” that emissions of carbon dioxide pose a threat to public health. The ruling has only emboldened the EPA’s regulatory impulses. According to Carol Browner, former administrator of the agency, the EPA is now poised for “piecemeal progress on cap-and-trade.”

Browner’s forecast came Wednesday during a panel discussion on “Energy and the Presidency” sponsored byPolitico this week. As reported by The Hill, “Browner offered that Obama would use the [Clean Water Act] and the [Clean Air Act] to go even further in his attempts to regulate air pollution.”

Such talk is certainly bad news for the energy and manufacturing sectors, which have borne the brunt of Obama’s regulatory hyperactivity. But revived prospects for cap-and-trade might well hearten the environmental lobby, which has criticized President Obama for (supposedly) ignoring global warming despite his declaration that the 2008 election “was the moment when the rise of the oceans began to slow and our planet began to heal.”

While the President may appear to avoid direct reference to the global warming issue, his regulatory record bespeaks allegiance to drastic and unwarranted cutbacks in emissions of carbon dioxide—the supposed source of looming environmental cataclysm.

For example, the consulting group ICF International estimates that 20 percent of America’s coal power plants could be retired as soon as 2020 because of the Administration’s regulatory actions. Indeed, the EPA’s newestmercury and air toxics rule alone could cost as much as $100 billion per year, according to the Electric Reliability Coordinating Council.

Whether the President overtly pursues a costly cap-and-trade scheme remains to be seen. But there’s no question that his Administration is aggressively imposing regulations that have much the same effect—i.e., inflating the cost of fossil fuel energy in order to reduce some of the disadvantages of solar and wind power.

One might hope that today’s disappointing jobs report—and all the others like it during the previous three years—would persuade Obama that his regulatory agenda is doing more harm than good. But hope for such wisdom from this Administration appears to be in vain.

VIa: The Foundry

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