Cap and Trade and the Corporate State

For years, one of the problems I have had with the way CO2 cap and trade systems were structured was a fear that these systems would devolve into cronyism, with the companies best able to lobby the government getting allocations while less connected companies had to pay.  It seems this is already occuring in California:

 The California Air Resources Board (ARB), the regulator of the forthcoming program, held a workshop in Sacramento on Monday where it discussed plans to give away more free permits to prevent leakage in “trade-exposed” industries like cement production, oil refining and food processing.

Over the first three allowance auctions, which begin in November, the state will sell 48.9 million allowances and give away 53.8 million allowances, according to ARB.

Any company deemed to have either a high, medium or low risk of leaving the state will receive all the allowances they need to comply with the program during the first two-year compliance period, from 2013-2014, rather than have to buy the permits at regular auctions.

But those in the low and medium risk groups are currently scheduled to see their allotment of free allowances start to decline in 2015 by as much as half.

ARB officials on Monday said they are conducting studies examining the leakage risk of companies based on their historical energy costs and trade flows.

Don't be fooled by the quasi-scientific-sounding language here about categories of "trade exposure."  The reality will be that companies with political clout will get the permits, and companies without such clout will not.  This is a system that will favor large manufacturers over smaller companies.  It will also, oddly, apparently shift the burden of compliance from large manufacturers to service companies  (since service companies are the least likely to be "trade exposed.")  Of course, any manufacturer still operating plants in California is crazy anyway.


  1. James H:

    There seems to be a logic problem with their stated intent. If you're at high risk of leaving, you get more allowances. If you're low or medium risk, you have to pay a bunch more, which I would imagine lead to you thinking more and more about leaving. Then, you would get the allowances, but if you ever decided that maybe things are good enough to stay, you'll be back in the low or medium risk group and have to pay more. Why would you ever stop considering leaving?

    This makes it clear that the stated intent is not the actual intent.

  2. NL_:

    News restated: California creates new incentives to replace auto mechanics and hairdressers with robots.

    Jobs that supposedly aren't outsourceable might soon be outsourced - or just shifted into the gray market. If a haircut cost $200, then people will just buy $20 clippers for themselves or find a friend who will do it under the table. If an oil change costs $80, then just buy your own oil and drain it yourself, or find a friend who will do it on the side.

    Theory: California is a vast social experiment intended to determine how much natural beauty and fair weather makes up for horrible governance.

  3. Harry:

    When California issues these permits, which are worth -what? $45 apiece? -- how different is that from printing money? The permits go to whomever the California Commissar deems worthy.

    Of course, this kind of kingly largesse exists all around us. The zoning hearing board decides to give its friends extra lots, while condemning propery of its foes.

    The Koyoto cap-and-trade system was a plan to extract money from United States citizens and give it to the Germans and the French, with the crumbs going to Ghana, Angola, and other needy members of the United Nations.

  4. Ian Random:

    My understanding is that everyone that could leave, has done so.

  5. epobirs:

    For the system to devolve into cronyism it would first have to evolve above cronyism. It hasn't.

  6. kelly:

    California government will not be happy until we all live in teepees and eat our own shit.