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LA Business Journal OP-ED by Dave Slater
October 22, 2012LOS ANGELES BUSINESS JOURNAL OP-ED
Coming Clean on AB32
Cap-and-trade auction will only add to costs of businesses that have paid to curb greenhouse gas emissions.
By David Slater
Monday, October 22, 2012
California’s cap-and-trade program will create significant financial penalties for companies like ours that chose to invest in a cleaner method of powering our operations. Our method of electricity generation was incentivized by our state not long ago, but now we are being penalized for our clean energy generation facility under Assembly Bill 32’s cap-and-trade program. We are not an isolated case. Many companies throughout various industries will be severely penalized by this regulation.
We are a family-owned company in Signal Hill specializing in responsible and sustainable exploration, development and production of oil in urban areas. We produce more than 1 million barrels of oil a year.
With that oil we produce natural gas, which is essentially a byproduct. To efficiently utilize this byproduct and reduce our reliance on utility-generated electricity, our company constructed an in-house natural gas-powered electrical generator that powers the majority of our operations.
This generator was installed entirely at our cost and utilizes the best available control technology to reduce emissions. It is one of the cleanest electrical generating facilities in Southern California and is significantly cleaner than utility gas-powered generation sources. It has also added to the electrical supply for Southern California and has been a factor in forestalling the need for new generating capacity.
AB32, the Global Warming Solutions Act of 2006, is the most expensive regulation of its kind in history, mandating the control of greenhouse gases with the goal of bringing emissions to 1990 levels. The current cap-and-trade rule creates a trading market for businesses to buy the rights to produce greenhouse gases. It is essentially a tax that is being imposed by the California Air Resources Board, an agency that is not accountable to our state Legislature.
Broken promises
The Legislature sold AB32 as a regulation that would help the environment while protecting the economy. Legislative supporters promised that utility and gasoline costs would not increase with the bill’s implementation. The opposite is happening. Businesses are being taxed severely in the form of buying carbon credits and the costs will be passed on to consumers. Electricity bills will go up and it will dramatically increase the cost of gas and diesel.
The impacts will be serious. We talked with the owner of Zenith Specialty Bags Co. in the City of Industry. Among other things, their 240 employees make food wrappers and bags for Starbucks, In-N-Out and others.
“This cap-and-trade auction comes on the heels of higher workers’ comp payments, more expensive rules from the (Air Quality Management District) and more regulations from (California Occupational Safety and Health),” said Zenith owner Scott Anderson. “Our family has had this business for 67 years, but why would I stay in the state?”
California has not convinced any other state to join in this greenhouse gas reduction scheme, and the federal government and other countries have also declined to pursue similarly aggressive policies. Therefore, it is expected to have negligible impact on global emissions. Regardless, the state moves forward with billions of dollars of new costs being piled upon California companies.
The cap-and-trade program was originally envisioned as a gradual reduction of emissions allowance levels to give companies time to implement cost-effective methods to reduce their greenhouse gas emissions. CARB set baseline emission limits by industry based on average emissions, and those limits would be lowered over the years. If companies failed to meet the reduced levels, they would be forced to buy credits, creating a penalty for not reducing emissions.
What actually happened was that last October CARB cut allowances by 10 percent in every regulated industry for each company’s respective emissions, which has forced many companies to buy carbon credits immediately. Starting in January, the cost to many California industries and the electrical utilities will ripple through our state. Our company will be forced to pay an estimated $500,000 in the first year of the program alone to continue to operate our clean natural gas electrical turbine generator.
The regulation being implemented by CARB will take millions of dollars from struggling companies at the worst possible time and might actually prove to be an illegal tax that can’t be spent on the state programs that policymakers have in mind.
Hardest hit by the cap-and-trade auction will be energy producers, but there are many industries you would not expect that will fall victim to this program. Our state’s colleges and universities fall under this regulation, as many campuses use self-generation – like we do – to power their facilities. Hospitals will also be impacted and eventually all consumers will pay with significantly higher energy costs.
Didn’t someone once say no good deed goes unpunished? Punishment it will be, especially as California’s economy continues to struggle with unemployment at 10.6 percent.
The cap-and-trade auction will begin next month. Gov. Jerry Brown needs to act now and tell CARB to not move forward with the auction as planned.
David Slater is executive vice president of Signal Hill Petroleum Inc.