California Carbon Tax Pushback!

The California Air Resources Board (CARB) postponed its planned adoption of the first round of carbon taxes designed to collect about $50 million per year under AB32, the California Global Warming Act of 2006, until its July 23rd meeting based upon increasingly vocal pushback by utilities and other market participants who say that imposing the carbon taxes will violate the interstate commerce clause of the US Constitution because the energy products are sold across state lines.

CARB Chairman Mary Nichols seemed clearly unhappy about the delay and said that CARB will move forward once “some loose ends” are addressed. The problem seemed to be that the CARB staff proposed assessing the carbon tax fees where energy is delivered rather than on end use fuel consumers.  Doing so is certainly administratively convenient for the state since it limits its carbon tax accounting to about 250 suppliers whose products account for about 85% of California’s emissions.

But those suppliers complained that staff proposal shifts the administrative burden for collecting the taxes to them unfairly since they do not cause emissions. “Fuel producers and importers cannot be considered sources of greenhouse gas emissions,” Michaeleen Mason, Western States Petroleum Association regulatory issues director, told CARB board members at their public hearing June 25th.

Obviously, California wants these suppliers to pass the carbon taxes onto consumers as part of their charges, but suppliers counter that transmission and fuel shipments result from scores of transactions and are often moved through California on their way to customers in other states not subject to California’s carbon taxes.  This is a clever delaying tactic and clearly true argument, but it is surprising that the CARB staff and board are hearing it for the first time.  This is the kind of due diligence the state’s attorneys should have done long ago.

How high can the California carbon taxes go?

That was the other inconvenient truth the CARB board faced at its meeting.  An attorney for public power agencies said his cities were concerned that there was no cap on the fee and feared it would increase year after year making energy transactions increasingly more costly and difficult.  This framed a sore point for the CARB board members because their staff proposed setting the carbon tax each year based upon the state budget process.

RED FLAG! WARNING!   RED FLAG! CAUTION!!!

CARB proposal for the initial $50 million in carbon taxes includes $36.2 million for program administration and $13.5 million for annual repayment of loans used for AB 32 implementation.  The CARB staff “estimated” the administrative fee will be about 12 cents per ton of emissions, but this is clearly an open-ended administrative tax raising process masked as a “fee”.  Just the kind of revenue raising gimmick California politicians love because it conveniently avoids the 2/3 vote required to pass the state budget or raise taxes or sell bonds.  Some Sacramento revenue analyst will merely “estimate the carbon tax revenue expected for the coming budget” and then the carbon tax will be set each year not by the Legislature but by CARB based upon need.

Now we begin to understand the real impact of AB32—it isn’t about emissions at all—its about raising tax revenue for the insatiable appetites of California’s politicians.