Last week, the state of California’s judicial branch stood by its cap-and-trade pollution control measures. The Third District Court of Appeal unanimously found that the state-controlled auctions for carbon credits did not violate a California proposition requiring that two-thirds of the legislature vote in favor of any new tax. In layman’s terms, the court determined that California’s cap-and-trade environmental policy does not constitute a tax and may proceed unbridled by the restraints that such a designation would normally carry with it.
It has been determined, then, that cap-and-trade is not a tax, even though it is a set of financial incentives designed to got carbon emissions below 1990 levels by 2020. Instead of taxing polluters traditionally, California is instead requiring that polluting industries purchase pollution allowances from the state at auction. How this differs in structure from a highly complex tax is not clear at first glance, but what is clear is that cap-and-trade in California needs to be looked at with a critical eye now more than ever.
Admittedly, the world faces an environmental crisis, one that becomes much more obvious with each passing day. However, what we must recall is that the rate of carbon emission is not the sole factor that Californians should be concerned with when it comes to the state’s policy. For certain, cap-and-trade helps to reduce the amount of pollution that the state experiences; but the policy may have associated costs with it that are not immediately apparent. For example, the way that cap-and-trade is implemented may harm the profitability of prominent California businesses that use traditional energy sources or utilize heavy industry, potentially causing a jump in unemployment and a consequently larger amount of economic woes for the state of California.
Cap-and-trade in California is aimed at limiting annual carbon emissions to no more than the amount released in 1990. While that is a laudable goal that is also in line with the priorities of many members of the international community and environmentalist groups, studies point out that measures such as cap-and-trade will inevitably lead to a substantial spike in the cost of living for people who rely on energy and products created by using polluting fuels. While some may argue that can offset a greater reliance on clean energy sources like solar and wind energy, one must recall that these technologies are still quite cost-prohibitive and will require a substantial amount of time to supplant more traditional sources of energy like natural gas, which is responsible for over half of California’s electricity generation.
In addition to the resulting short- and long-term changes in the energy sector of the economy due to cap-and-trade, the newly imposed costs of operation associated with purchasing pollution credits may lead to unemployment in the manufacturing sector, which makes up about 25 percent of the state’s economic output and is host to 8 percent of the state’s working population. In short, cap-and-trade may sound appealing for those concerned with the state’s environmental health, but it overlooks the very real effects of state-imposed costs on employers and employees if it is implemented too rigorously and too quickly.
None of this is to say that environmental concerns and public health are not important; quite the opposite is true. However, they must be balanced with the ability of the California economy to grow and develop steadily alongside the state’s burgeoning population, to say nothing of the amount of meddling with the market that cap-and-trade represents if handled poorly. Now that it has surmounted the last major legal hurdle before it, California’s cap-and-trade program must take economic effects into account before it mandates even more stringent regulations and penalties on businesses. Foreclosing job opportunities and driving up the already high cost of living in California within a short period of time would not only be counterintuitive, but also supremely unwise.
Trevor Kehrer is a senior majoring in political science. “Point/Counterpoint” runs Wednesdays.