To: California Air Resources Board
From: Michael Feinstein
Date: December 15th, 2010
Subject: Allowance Allocations as part of Proposed Regulation to Implement the California Cap-and-Trade Program
I am writing to you from México, where I have been in Cancun during the recently concluded COP16 climate change negotiations. After attending the COP14 in Bali in 2007, where there was great hope that the post-Kyoto process would lead to binding international GHG reduction targets, the non-binding, minimal-at-best results of Cancun provide little hope that necessary action will occur first on the national and supra-national levels. Therefore, to deal with the already present global climate change catastrophe, we must act forcefully at the state and local levels. This is where the proposal in front of CARB to grant free allocations to industry fails miserably.
I am a Green Party member. As Greens, we favor a True Cost Pricing approach to economics, where the price of goods and services embody 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.
In terms of carbon pricing, Greens generally favor carbon taxes over cap-and-trade schemes, because carbon taxes provide the most direct path to internalizing carbon costs and also provide more predictability in cost, are simpler and faster to implement, and are less open to manipulation through the political, legislative and/or regulatory process.
For these reasons, many Greens are extremely disappointed in the CARB staff recommendation to implement a cap-and-trade scheme instead of a carbon tax. Nowhere could this be more clear than in our opposition to the staff's recommendations to grant free allocations to covered industry (www.cagreens.org/press/pr101214.shtml).
The relevant issue with these free allocations is not leakage risk, but whether California can 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.
Research has demonstrated that even with no free allowances, and even for energy-intensive industries, changes in retail electricity prices are likely to be small. California led the way to national emission control reductions in 1970 by implementing its Catalytic Converter law, by showing that consumers were willing to pay a little more for environmental protection. We can do it again now on GHG emission reductions, but not if we give away the right to emit for free.
The irony in the rationale to grant free allocations is as the staff report states, "Free allocation needed to minimize leakage will be maintained until adoption of equivalent carbon-pricing policies by other jurisdictions eliminates the leakage risk." Is 'waiting for others' what leadership is all about?
Putting aside that the political conditions which led to the adoption of AB32 in California may not even be present in other states for some time, what happens if other states actually do adopt the same model as California? Since the proposed free allocation model fails to accurately internalize carbon costs, we will then have proved little about industries' actual ability to truly adapt to such costs, and therefore only have delayed needed and sufficient action to our planetary crisis.
The absurdity of this free allowance is exactly why many Greens tends to favor carbon taxes over cap-n-trade, and why if the CARB board adopts the staff recommendation, it would be an abdication of historic proportion of our state's environmental leadership role. 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 with fully internalized carbon-burning costs.
In the post COP16 world, we desperately need such an example. Therefore I urge you to rise to the occasion and seize this opportunity for global leadership. Please eliminate the free allowances from the regulations governing the cap-and-trade program you approve.
Co-chair, Green Party of the United States
Former Mayor and City Councilmember, Santa Monica, California