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CA NIGHTMARE: WORSENING STATE'S FISCAL CRISIS THROUGH BAD CLIMATE POLICY

Thomas Tanton, Pacific Research Institute

March 5, 2009


[Publisher's Note:  As part of an ongoing effort to bring original, thoughtful commentary to you here at the FlashReport, I am pleased to present this column from Tom Tanton.   Tanton is a Senior Fellow with the Pacific Research Institute - Flash

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I have spent my entire 35 year professional life developing and implementing energy policies vital to our state.  So it pains me to now see California taking an unfortunate misstep: embracing participation in the Western Climate Initiative. 

WCI, developed by seven U.S. states (California is joined by Oregon, Washington, Utah, Montana, New Mexico and Arizona) and several Canadian provinces along the western rim of North America, proposes to combat global warming – independently from their national governments.  Herein lays the first reason I oppose the WCI: with the likelihood of federal pre-emption with President Obama and the 111th Congress set to pass a national climate change bill this year, it is dangerous to put California and the West in a counterproductive and severe disadvantage to other states. 

Moreover, fundamental to WCI’s plan is a “cap and trade” system, which I do not consider the answer to carbon dioxide emission reduction and control. The Europeans have used a similar system and their emissions have actually increased.

Cap and trade systems invite manipulation and political abuse. They require vast new bureaucracies to regulate and run.  Some have likened cap and trade to the buying and selling that happens on Wall Street.  Now that most of us have front seats to disastrous market manipulations and abuse, few are eager to see this system mimicked in our approach to climate policy.  We already live with the consequences of Wall Street failures: elderly citizens losing their nest eggs during Wall Street’s free fall and low-income families suffering from the escalating unemployment resulting from companies’ cut backs and bankruptcies as stock values plummet.  I have no desire to see this disaster repeated in the quest for climate control.

In addition, the WCI has yet to clear significant hurdles, such as approval by Congress.  Another cap and trade scheme, the Regional Greenhouse Gas Initiative, is comprised of 10 U.S. states and constitutes the first mandatory cap and trade system to reduce CO2 emissions in the U.S.  But, like WCI, RGGI’s multi-state compact was never approved by Congress. It therefore could violate the Compact Clause of the Constitution.  Lawsuits challenging the constitutionality of the RGGI accord, including one before the New York State Supreme Court, are now pending.  It seems likely that WCI will follow. 

Finally, the WCI suffers from a severe case of bad timing.  On top of the recession currently facing us, California has an additional raft of economic problems making a dire situation even worse.  The state is nearly out of cash, levies the nation’s highest state income and sales taxes, and has one of the country’s highest unemployment and foreclosure rates.  California, our nation’s most populous state, is the poster child for economic crisis.

It therefore makes no sense for California to take a “go-it-alone approach” that would open it up to more ever further economic harm.  By adopting a “go-it-alone” approach with five, or fewer, other western states under the WCI proposal, California is putting itself at unnecessary risk.  Additional risk it cannot afford to take right now.

Both Utah and Arizona have begun legislative action to remove themselves from WCI. In Washington and Oregon, the proposal started its trek through those legislatures last week.

HB 1819 and Oregon Senate Bill 80 are up for debate during a time of massive state budget cuts, dwindling revenues and widespread job cuts in the private sector. In those two states, the WCI is being opposed by energy consumers, especially the most energy-intensive industries, such as steel and glass making, which warned that implementing the program will force them to move their business out of state. In response, WCI proponents argue that Utah and Arizona (and Washington and Oregon if the proposal fails there) would then siphon business investment dollars and jobs from California [which by the way is already occurring].  That argument misses the point.  If WCI states do not embrace national climate policy, they will lose out instead to foreign nations, such as Mexico, India and China, where carbon intensity is more lax than in the WCI.

If global climate change is the primary mission at hand, we need to recognize some fundamental facts.  If in fact we are all in this together, we need to pull together, not take separate approaches. U.S. climate change actions are a small part of the greater whole, but it has an important voice and can make itself heard.  WCI is a small part of the global system and will be rendered ineffective by self-inflicted competitive disadvantages.  California must join federal climate policymaking if it is to have any impact at all in reducing the world’s carbon footprint on the planet.

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Tom Tanton is a Senior Energy Studies Fellow at the Pacific Research Institute.  He is also President of T2 & Associates, an energy technology consulting firm.

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