AB 32 Turning Into Pollution Pork

JUNE 13, 2011

By WAYNE LUSVARDI

Call it “pollution pork.” Gov. Arnold Schwarzenegger has been gone only five months and his most beloved legacy, AB 32, already is being cut up like an Austrian wiener schnitzel. AB 32 is the Global Warming Solutions Act of 2006.

Among other things, AB 32 established a “Cap and Trade” system in which polluting companies can “trade” pollution credits with those with less pollution in a new market-like system.

On June 2 the California State Senate passed a new bill, SB 535, the California Communities Healthy Air Revitalization Trust Act, by state Sen. Kevin de Leon (D-Los Angeles). It is currently being heard in the Assembly.

It would require “at least” 10 percent of any revenue generated under the Cap and Trade portion of AB 32 that kicks in around 2012 to be used in “disadvantaged communities for greenhouse gas emission reduction projects, mitigation of health impact of climate change, and support for green collar jobs.”

As proposed, SB 535 would require air excise taxes or rents to be transferred from smoggy agricultural areas such as Visalia, Porterville, Fresno, Merced and Bakersfield to coastal low-income industrial communities that enjoy clean air, such as Oakland, Alameda, and Oxnard.

The auction of pollution credits under the Cap and Trade program is projected to generate a minimum of $100 million in the first year and higher amounts afterward.  Under SB 535, $10 million would go toward green jobs in communities supposedly suffering from more pollution than other California communities.

Cap and Trade

As advertised, Cap and Trade, also called Emissions Trading, is the governmental creation of an artificial “market” designed to reduce pollution by paying people who reduce pollution with money from polluters.  Cap and Trade, however, is not a market but a wealth distribution scheme masquerading as a market.  Markets are mechanisms to deliver the lowest priced product or service, not add a Pollution Pork rent on top of every good or service produced.  Such added costs are properly called excise taxes or monopoly rents.

In other words, under SB 535, California is proposing to impose a 10 percent rental premium on clean air — Pollution Pork — and then transferring that rent to politically favored constituencies that cannot afford to pay that rent in order to buy jobs and votes. SB 535 may purportedly produce clean air; but it will also produce dirty politics because the green jobs will go to the politically connected.  And once parasitical green jobs are created from Pollution Pork, then another entitlement will be created that will be next to impossible to reverse.

Government is good at shifting wealth around to cronies and the well connected and calling it a solution — witness redevelopment, affordable housing, waterless water bonds, etc.  Government is a pea shell game.

There is a term in economics called “rent seeking” that would apply to the Pollution Pork air rents proposed by SB 535.  Rent seeking is when some entity seeks to extract rents from others by manipulation and monopolistic advantage, often through government regulations. What is critical to understand is that rent seeking is not a mutually beneficial or voluntary transaction, as would occur in a market.

And while taking your property would require just compensation under the Fifth Amendment to the U.S. Constitution, “rent seeking” is a way to pick your pocket without compensating you for your loss. Rent seeking is not a value-added activity — it is parasitical.  Pollution Pork will be more of California’s voodoo economics.

Neither is there any convincing nexus between polluters and those communities purportedly harmed. Pollution Pork air rents extracted from polluting industries under SB 535 will not go to pollution reduction technologies or equipment for those industries. SB 535 will merely shift pollution from polluting industries to newly created green jobs and industries that will not be counted in pollution measurements.

Inconsistent Tax

Moreover, that some wealthy people can afford to live in beach and mountain areas with little pollution is not justification for imposing a tax on them and everyone else and transferring it to those who cannot live in such areas.  Such a tax would be highly inconsistent.  Should the people who live in the windy high desert areas of Los Angeles County — such as Lancaster and Palmdale — with some of the most affordable housing in the state, subsidize green jobs in Bell Gardens or wealthy industrial cities such as the City of Commerce, City of Industry and Vernon?

Should smoggy agricultural cities such as Visalia-Porterville, Fresno, Merced and Bakersfield subsidize green jobs in lower-income industrialized coastal cities that have clean air, such as Oakland and Alameda?

Pollution Pork means picking winners and losers in the AB 32 game, and forcing the losers to pay the winners. It’s just the beginning of the economic distortions AB 32 will cause.

SUPPORTERS OF SB 535:

California Environmental Justice Alliance (co-source)

Coalition for Clean Air (co-source)

Ella Baker Center (co-source)

Greenlining Institute (co-source)

NAACP (co-source)

National Resource Defense Council (co-source)

American Lung Association of California

Asian Neighborhood Design

Asian Pacific Environmental Network

Asian Pacific Islander Youth Promoting Advocacy and

Leadership

Breathe California

California Environmental Justice Alliance

California League of Conservation Voters

California Rural Legal Assistance Foundation

Californian Pan-Ethnic Health Network

Catholic Charities Diocese of Stockton

Center for Community Action and Environmental Justice

Center on Race, Poverty and the Environment

Coalition for Clean Air

Communities for a Better Environment

East Yard Communities for Environmental Justice

Environment California

Environmental Defense Fund

Environmental Health Coalition

Latino Coalition for a Healthy California

Los Angeles County Bicycle Coalition

National Parks Conservation Association

People Organized to Demand Environmental & Economic Rights

Regional Asthma Management and Prevention

Sierra Club California

Southeast Asian Community Alliance

Trust for Public Land

Union of Concerned Scientists

 

OPPOSITION TO SB 535:

American Council of Engineering Companies

California, Building Owners and Managers Association

California Building Industry Association

California Business Properties Association

California Chamber of Commerce

California Farm Bureau Federation

California Forestry Association

California League of Food Processors

California Manufacturers & Technology Association

California Metals Coalition

California Retailers Association