Los Angeles Business Journal

Go Cap-and-Trade Yourself

COMMENT By Charles Crumpley Monday, November 7, 2011

When the California Air Resources Board a couple of weeks ago passed the nation’s first cap-and-trade tax on businesses, the chairwoman, Mary Nichols, gushed.

“We’ve done something important,” she reportedly said shortly after the vote was taken. On CARB’s website, she is quoted as saying, “Cap-and-trade is another important building block in California’s effort to create a clean and vibrant economy.”

Here’s a modest proposal: Since the state and its regulators think cap-and-trade is so great, they should impose it on themselves.

It’s a simple proposal, really. The size of the state government – along with the number of regulations – should be scaled back gradually with the aim of getting back to 1990’s size of government by 2020. Each state department or agency would have to start cutting according to a schedule that begins in 2013 – a little more than a year from now. If it fails to hit its target for the year, it has to “buy” a credit by surrendering a chunk of its budget.

They surely couldn’t complain that the schedule is Draconian, since that’s the same one they just imposed on California’s businesses.

And this proposal seems like a fair exchange to me. I mean, both sides will have to reduce the pollution they spew. Businesses will emit less global-warming carbon and Sacramento will emit fewer business-throttling regulations.

(Just as an aside: Stop for a moment and think what it would be like to have a smaller state government, like it used to be. Back then, prisoners were actually kept in prison and middle-class parents could afford to send their children to UCLA.)

Actually, Nichols was right about one thing. The cap-and-trade system is important. While no one knows how much it’ll cost businesses, surely it’ll be hundreds of millions of dollars a year. That’s pretty important when most businesses in this already high-cost state are hurting.

Those most whacked by this will be big emitters, including electricity generators, cement makers and refineries (there are six refineries in Los Angeles County). That, of course, means higher costs for electricity, construction and gasoline, among other impacts. That’s important, all right.

Take, for example, CalPortland Co., a cement maker headquartered in Glendora. An executive there was quoted in the Inland Valley Daily Bulletin saying his company may have to spend $7 million to buy cap-and-trade credits.

How will he pay for it? That’s not easy to answer, seeing as how the very slow economy in California has caused construction to shrivel and his business to suffer.

“There is no room to take it out of our profits, because there aren’t any,” the executive was quoted as saying.

One thing that’ll help: CalPortland is converting its cement plant in Colton into a distribution center. Of course, that won’t help the 30 employees who’ll lose their jobs.

So, yes, Nichols is right that cap-and-trade is important. It’ll be an important consideration for businesses to help them decide if they should cut back, raise prices on their customers or move to one of the states that doesn’t have a cap-and-trade system. They have 49 to choose from.

But Nichols is absolutely wrong about it being a building block to a clean and vibrant economy. It’ll be more like a building block smashed on the head of the state’s struggling businesses.

Charles Crumpley is editor of the Business Journal. He can be reached at ccrumpley@labusinessjournal.com.