Californians Pay the Price for State’s Energy Policies on Cap-and-Trade: Critics

The Phillips 66 Los Angeles Refinery Wilmington Plant in Wilmington, Calif., on Nov. 28, 2022. Mario Tama/Getty Images

Critics of California’s cap-and-trade program, implemented 10 years ago with a goal of limiting carbon emissions, say it is increasing the cost of energy in the state while failing to fulfill its mission, as well as endangering vulnerable communities in the process.

The program limits the amount of carbon produced by companies and requires those that exceed limits to pay for credits—which are used to invest in clean energy and for other green initiative funding—adding to the affected companies’ cost of doing business.

Monies received are used to fund decarbonization efforts and governmental programs. Opponents say the latter is clearly the priority, based on the allocation of funds.

“It’s a complicated issue, and it’s hard for people to understand. They know the government wants to do a lot to try to reduce our carbon footprint, but what they don’t understand is this balance sheet,” former California and current Nevada State Senator Jeff Stone (R-Henderson) told The Epoch Times. “[The government] is selling these credits, which is giving permission for these companies to pollute, and keeping a lot of that money.”

Experts also question the discrepancy between the total money collected and the amount received by companies committed to producing clean energy.

“Polluters pay more tax than we’re delivering to clean energy companies, and that’s a recipe for disaster,” Mr. Stone said. “It shows that the government is in this to make money, and they’re not in it to lower our carbon footprint.”

A wind farm outside of Palm Springs., Calif., on May 26, 2018. John Fredricks/The Epoch Times

Critics say part of the problem lies in the structure of the program, with no limit placed on the number of credits the state is willing to sell.

Records from the state’s air resource board show that petroleum and refinery companies, which are releasing more carbon than allowed, are paying for the majority of these credits, and experts say they’re passing the price on to consumers.

“The false narrative is that we have these credits that are there to try to impede polluters from polluting, when actually it’s nothing more than a cash cow for government,” Mr. Stone said. “And that’s what government does, and the state of California does a great job of extracting money from polluters without reducing pollution.”

Lawmakers began discussing the program in 2006, with an agreement reached in 2012, and the law took effect the following year. Since then, energy prices have skyrocketed in the state, with experts pointing to cap-and-trade as a contributing factor to the high cost of living in California.

“To reduce greenhouse gases marginally in this state, we have this very expensive program called cap-and-trade, which is a hidden tax on energy,” Susan Shelley, a Southern California-based journalist, said in EpochTV’s Leaving California documentary. “It’s on utilities, it’s on refineries, it’s on manufacturing, it’s on everything.”

The rising cost of fuel is cumulative, Ms. Shelley observed in the documentary, noting the price of goods and many services in the state are tied to the cost of energy.

“This extra tax adds to the price of gasoline, it adds to the price of diesel fuel, and it adds to the price of everything that is made or moved in California,” Ms. Shelley said.

Gas prices are projected to increase up to 73 cents a gallon in total because of state regulations by 2031, according to economists.

A motorist drives near the pumps at a Chevron gas station in Oakland, Calif., on April 25, 2017. Ben Margot/AP Photo

Cap-and-trade regulations generated more than $4 billion in revenue in 2022 and have amassed more than $22 billion since being implemented a decade ago, according to the International Carbon Action Partnership—a forum of governments and public authorities to share statistics and monitor the program’s implementation.

Overseen and enforced by the California Air Resources Board, the program applies to electric power plants, industrial plants, and fuel distributors that emit 25,000 tons of carbon dioxide or more per year.

Economists point to the inclusion of the cap-and-trade costs as contributing to an increased price in gasoline and diesel fuels, effectively adding to the cost of all goods and services that rely on transportation services.

California has one of the highest gasoline prices in the country, with a 54 cent per gallon state tax among the highest in the nation, and the cap-and-trade program is estimated to add at least 23 cents to each gallon, according to economists.

Electricity prices in California rate as the fourth highest in the country, and the results of a study conducted by the Pacific Research Institute—a California-based public policy think tank—showed that low-income households and those living in the Central Valley and Inland Empire are paying disproportionately more than those in other regions.

“There is nothing unique about California that should cause the state’s electricity rates to be significantly higher than the rest of the country,” Wayne Winegarden wrote in a 2022 report (pdf) analyzing the study, titled “Zapped: How California’s Punishing Energy Agenda Hurts the Working Class.” “Instead, the results are the expected and desired outcome from Sacramento’s energy policy agenda of recent years.”

Reality of Goals Questioned

A recurring argument from those opposed to cap-and-trade is what is described as the futility of the attempt, as California produces less than 1 percent of all the carbon in the world.

Experts say that for a credit purchase program like cap-and-trade to be effective, it will have to include every nation around the world.

“It’s a global issue,” Jim Doti, Chapman University economics professor, said during a recent 30-minute interview on EpochTV’s California Insider. “And when you look at China’s pollution, the most polluting country in the world, the impact California can have is minuscule, but the cost is huge to the state.”

Professor and President Emeritus Jim Doti delivers the 44th annual Economic Forecast at Chapman University’s Musco Center for the Arts on Dec. 14, 2021. Courtesy of Chapman University

A cost-benefit analysis that considers the impact of the regulations is imperative to understanding how best to proceed, according to experts.

“The state is taking on a disproportionate responsibility ... when it should be maintaining the economic vitality and prosperity of the state,” Mr. Doti said.

Policies Harming Low-Income Neighborhoods

Additionally, some environmental activists are concerned the program is harming disadvantaged communities by leading to more pollution in low-income areas.

State records show that emissions at the Chevron Richmond Refinery in the East Bay Area have increased as compared to statistics prior to cap-and-trade.

A 2018 study, published in the PLOS Medicine Journal by the Public Library of Science—an open-access science and medicine journal—found that the situation in Richmond is not unique, as 52 percent of the approximately 450 regulated facilities in the program reported higher emissions since the program was initiated.

Neighborhoods that experienced increased levels of pollution had a higher proportion of low-income and less-educated residents, according to the study.

Experts Debate the Future

State grants are used to fund programs and positions using cap-and-trade revenues, and consultants confirm the opinions of those who appointed them in what becomes a self-fulfilling prophecy, according to critics.

With complaints coming from both sides of the aisle, the future of the program remains uncertain, as some of its original supporters are now questioning its efficacy.

Some say the ambitious goals set by the state exceed the capacity of available equipment and infrastructure.

“We all want cleaner energy, we all agree, but we know you can’t force technology. It’s going to happen when it happens, and you can’t force companies to get cleaner when the required technology doesn’t exist,” Mr. Stone—the state senator from Nevada—told The Epoch Times. “If you look at all the cap-and-trade taxes, the excise taxes, and the sales taxes … it’s just an insult to the people of California.”