Cap-and-Trade Energy Tax Renewed in California

Associated Press photo of Valero Benicia Refinery in California.

SACRAMENTO, Calif. (CN) – Calling cap-and-trade a “down payment” for California’s ambitious climate change agenda, lawmakers Monday extended the emissions tax, despite environmentalists’ concerns over new tax breaks included for oil and energy groups.

Democratic leaders called the extension an historic vote and a monumental compromise between business, environmental and agricultural interests.

The program, which stands to generate billions in business-related taxes, was passed in the Senate by a mostly party-line vote just a week after being introduced. The extension received a two-thirds supermajority in both houses, clearing a state mandate for approving new taxes.

Once signed by Gov. Jerry Brown, the cap-and-trade program will be extended through 2030. The Legislature also passed a companion bill that creates local air quality monitoring guidelines and stiffer civil penalties for polluters.

“Tonight, California stood tall and once again, boldly confronted the existential threat of our time,” the governor said after the vote. “Republicans and Democrats set aside their differences, came together and took courageous action. That’s what good government looks like.”

The program requires businesses to buy permits in a free market model for exceeding carbon emission standards. Each year state regulators set a limit for how much carbon dioxide can be emitted, lowering it incrementally until the state reaches its emissions reduction goals.

Revenue is generated from quarterly auctions and the proceeds go to projects to reduce emissions and to major infrastructure projects, including the high-speed rail project.

Supporters say that taxing businesses for emitting greenhouse gases is the most effective way to encourage companies to invest in clean, more efficient technology. The program was initiated under Republican Gov. Arnold Schwarzenegger in 2006 and was slated to sunset in 2020.

Brown is a vocal proponent of California’s stringent environmental policies and has traveled to China and Paris to negotiate climate change treaties.  Testifying to a state Senate policy committee last Thursday, Brown told lawmakers “this is the most important vote of your life.”

The fourth-term governor led negotiations on the cap-and-trade expansion, winning crucial endorsements from the state’s most influential businesses, environmental and agricultural interests.

The extension reflects a significant political win for Brown, 79, in his final term.

Brown maneuvered and pried support from skeptical business groups by including sales tax exemptions for new equipment purchases and tax credits for manufacturers. He also agreed to repeal a rural fire-prevention property tax that is bitterly opposed by conservatives.

The earmarks swayed a handful of Republicans as well as influential groups including the Natural Resources Defense Council, Pacific Gas and Electric Company, the Western States Petroleum Association, the California Farm Bureau Federation, the State Building and Construction Trade Council and the California Chamber of Commerce.

“Cap-and-trade spreads our efforts to partners in industry and the environment far beyond California,” Building and Construction Trade Council president Robbie Hunter said in a statement. “It’s more than just symbolic leadership.”

Environmentalists were split on Brown’s final cap-and-trade deal. While the National Resources Defense Council and the Environmental Defense Fund supported it, a collection of environmental justice opposed the renewal.

The Sierra Club and the Center on Race, Poverty and the Environment blasted handouts given to California industry groups. They accused the bills’ authors of ignoring their requests for amendments and of caving in to Big Oil by not forcing it to adhere to stricter emissions standards.

California small businesses complained that they were not included in cap-and-trade negotiations and derided lawmakers for approving the sweeping deal less than a week after it was proposed.

“If this is so important, we need to have a full vetting process and not just a few handshakes behind closed doors,” testified Ken DeVore, lobbyist for the National Federation of Independent Business.

Devore said 90 percent of the members of his group opposed extending the cap-and-trade program.

Republican lawmakers were also highly critical of the proposal and accused Democrats of rushing it through the legislative process. They noted that Democrats also pushed through a $52 billion transportation plan in April on short notice.

“This is the way the Legislature, ladies and gentlemen of California, does business now,” said state Sen. Jim Nielsen, R-Gerber. “Everything is rushed through and not thoroughly fleshed out.”

Nielsen’s fellow Republicans worried that extending cap-and-trade would raise energy and gas prices.

“This bill is a Christmas tree, with ornaments bought and paid for by special interests,” said state Sen. Jeff Stone, R-Temecula.

After two hours of caucusing and debate, the Senate passed the measure 28-12, with one Republican vote.

State Sen. Tom Berryhill, R-Modesto, defended his Yes vote, saying he refuses to sit on the “sideline.”

“Again, this bill is not perfect, but it is more reasonable after bipartisan negotiation,” Berryhill said after casting the lone Republican vote. “I am very pleased to have given farmers, small business owners and rural Californians a voice in the negotiation of a measure that would have been passed one way or another.”

The Democrats’ plan cleared its final hurdle late Monday in the Assembly, with bipartisan support.

Lawmakers approved Assembly Bill 398 by 55-21, clearing the supermajority threshold by one vote. Seven Republicans voted for it, including Assembly Minority Leader Chad Mayes, R-Yucca Valley.

“Today, we proved that Sacramento can rise above the partisan fray of our country to do right for all Californians,” Mayes said in a statement.

In gaining two-thirds approval, the state protected itself from lawsuits that the current cap-and-trade program has faced from groups including the California Chamber of Commerce.

Senate President Kevin De Leon called the bill a “legislative unicorn,” citing the broad range of supporters it attracted. He said the deal equates to a $3.5 billion tax cut.

“It allows our manufacturers and agricultural businesses to innovate and make the type of investments necessary to create jobs, reduce pollution and meet our overall state emissions targets,” De Leon said.

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