California Bill Proposes Carbon Tax to Replace Cap-and-Trade

Decisions, Decisions. What's the best way to add transportation fuels to California's cap-and-trade program? Charge a carbon tax at the pump, as Senate leader Steinberg proposes, or charge refineries in the same manner as applied to other industries?

2 minute read

February 22, 2014, 5:00 AM PST

By Irvin Dawid


"California’s cap-and-trade system currently affects only industrial plants – but next year, it’s set to expand to vehicle fuels too.  Now, Senate Leader Darrell Steinberg (D-Sacramento) says he wants to exempt those fuels from cap-and-trade – and implement a carbon tax instead," writes Ben Adler. [Also on audio].

In essence, the decision is whether to charge consumers at the pump or have refineries participate in a carbon auction, and pass on the added costs to consumers. "Steinberg hopes that a straightforward carbon tax would be better received by consumers than the complicated cap-and-trade pricing mechanism," writes Marc Lifsher in the Los Angeles Times.

The proposal doesn't seem to be going over well - with some fellow Democrats and environmentalists. 

  • "Cap and trade is the preferred approach," said Derek Walker of the Environmental Defense Fund in San Francisco, wrote Lifsher.
  • Sen. Fran Pavley (D-Agoura Hills), who wrote California’s landmark greenhouse gas reduction law, says a carbon tax would conflict with AB 32’s overall goal of reducing climate change “… because it sends mixed signals to the major emitters – where some now are under a cap required to roll back, other people get a free pass, the motorists pay,” writes Adler. 

Another way the carbon tax would deviate from cap-and-trade would be how it distributes the revenue. Rather than combining auction revenues from refineries with other Cap-and-Trade Auction Proceeds, it would "(r)eturn two-thirds of the Carbon Tax revenues to poor and middle-income Californians through a state Earned Income Tax Credit for families making less than $75,000 per year," wrote Steinberg in his press release.

Interestingly, the oil industry that has fought gasoline and oil royalty taxes in the past, is neutral, writes Adler, "but business groups don’t like the proposal.  They argue companies and consumers would pay more at the pump."

In fact, Steinberg acknowledges gas prices will go up regardless – under cap-and-trade or a carbon tax.  “And it may not be popular to say, but that’s necessary.  Higher prices discourage demand.”

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