Desperately seeking rent

May 24, 2013 | By TONY FRANCOIS

PLF represents Morning Star Packing Co and others in their constitutional challenge to California’s illegal greenhouse gas allowance auction.  A hearing this week at the California State Senate illustrated how high the stakes in this fight are.  California anticipated collecting $1 billion dollars (cue Dr. Evil) to balance its budget this year by auctioning off allowances that Morning Star and others need to comply with the state’s emissions rationing program.  Governor Jerry Brown wants to “borrow” half of those billion dollars to balance the state’s General Fund, and spend the other half on a laundry list of eco-pork around the state.

This division of spoils brings us to the nub of the problem: this year’s auctions have only brought in about half a billion dollars, because demand for future year allowances has been low.  So who gets the $500 million they did collect?  The Governor’s “loan” for the General Fund?  Or the roster of special interests with their hands out?  The Senate Budget Subcommittee #2 on Resources, Environmental Protection, Energy and Transportation (ugh, lets just call them the Subcommittee) held a hearing on just that question this past Tuesday.  At issue was whether the Subcommittee would recommend approving the General Fund loan even though it would leave no money for the eco-pork projects.

It is hard to decide what portion of the proceedings was most neuralgic.

First up was State Senator Hannah-Beth Jackson (D – Santa Barbara) berating the staff of the California Air Resources Board because the cap and trade regulation hasn’t raised the billion dollars she thinks it should have.  Then came the 33 minute parade of special interest groups demanding that their pet projects be funded instead of “loaning” the auction proceeds to the General Fund.  Finally, we witnessed the Subcommittee Chair’s comment that “If I was a fiscal conservative, and I had to borrow some money to balance the budget, I’d find a fund that had a nice fat balance in it.”

But there was a moment of truth in the midst of, well, what normally happens at legislative hearings.  As Senator Jackson pressed the Air Resources Board staff to explain why cap and trade is not a failure because it did not produce a billion dollars for her this year, the staff made the right answer: the purpose of cap and trade is not to make money for the state.  It succeeds because it caps greenhouse gas emissions at the number of allowances available, not because it auctions the allowances at exhorbitant prices.  As PLF argues in its lawsuit, the cap and trade regulation does not require an allowance auction to work as intended.  The auction is just profit taking by the state, which profit the state intends to use to attract and reward rent-seekers.

After all the drama, the Subcommittee “held the item open,” meaning they punted their responsibility upstairs to the full Senate Budget Committee, where the real horse trading will happen.  Stay tuned, and keep an eye on your wallet.