California's New Green Tax
As the world retreats from cap and trade, Sacramento signs on.
WSJ Editorial, October 31, 2011
It may be time for California to formally apply for membership in the European Union. Taxing, borrowing and regulatory policies are already more in line with the southern tier of Euroland than with other U.S. states, and the Golden State has taken another lurch in the Euro-direction by becoming the first jurisdiction in the nation to adopt a full-scale cap-and-trade tax to combat global warming. The new taxes and regulations will require a nearly 30% reduction in carbon emissions from power plants, manufacturers, cars and trucks by 2020.
This green tax was signed into law in 2006 by then-Governor Arnold Schwarzenegger when the state's economy was flying high. California was going to be the green role model for other states. Now no one believes that fantasy. Ten states in the Northeast entered a regional cap and trade compact to limit greenhouse gases in 2008, but that market is now dying if not dormant and states (recently New Jersey) are dropping out.
In 2006 it also seemed plausible that the federal government would establish national carbon caps. But in 2010 the Democratic Senate killed cap and trade, and there is no chance anytime soon this tax will be implemented in Washington.
So California will go it alone on cap and trade, and the economic fallout won't be pretty. Nearly every independent analysis agrees that water, electricity, construction and gas prices inside the state will rise. The only debate is about how much.
A 2009 study by the California Small Business Roundtable estimated costs of $3,857 per household by the end of the decade. Gasoline prices, already near the highest in the nation, could rise by another 4% to 6%. An analysis by the state's own Legislative Analyst's Office found that the higher costs of doing business would mean "leakage of jobs," with the California economy "likely adversely affected in the near term by implementing climate change policies that are not adopted elsewhere."
Now even unions are catching on to the damage. The Los Angeles Times reports that the California Air Resources Board (CARB) gave final approval to the new scheme two weeks ago after listening to "scathing comments from union workers fearful of losing their jobs." Hard-hat union members from the steel, concrete and oil and gas industries were among the opponents. Charles McIntyre, president of an association of the glass workers union and companies, told the CARB hearing that "these manufacturers are spending millions of dollars every year to meet different requirements and different standards. Well, this is starting to cost us a lot of jobs."
The Western States Petroleum Association calculates the new law could cost its members up to $540 million in higher costs in the first two years alone. When a spokesman from Conoco Phillips told the CARB hearing about its higher costs, Mary Nichols, the CARB chairman, responded that a company with $14 billion in profits shouldn't complain but rather "should do something about the problem of global warming." Sounds like a candidate to be President Obama's next jobs czar.
Ms. Nichols also said that "our society is going to have to use less gasoline"—a remark that reveals the elites-know-best impulse that animates much of the anticarbon energy movement.
The tragedy is that this economic harm is being inflicted for nothing but environmental symbolism. A single state's policies can't possibly alter the planet's temperature given the huge carbon footprint elsewhere, as even the CARB has acknowledged.
Notwithstanding their bouts of carbon imperialism, even some Europeans are having cap-and-trade second thoughts. "There is a trade-off between climate-change policies and competitiveness," concludes a recent EU commission report. "Europe cannot act alone in an effort to achieve global decarbonization."
But evidently high-minded California—with 2.1 million people already out of work and with the nation's second highest jobless rate at 11.9%—will. The job cost will be paid not in the tony salons of Hollywood but in the working class neighborhoods of Torrance and Fresno.