Cap and Trade Needs Auctions like the Ocean Needs Whales

Source: National Geographic

Arguing that California’s cap-and-trade program doesn’t need to auction carbon allowances is like arguing that the ocean doesn’t need whales or that America doesn’t need bald eagles.  This is essentially what the California Chamber of Commerce and the Pacific Legal Foundation are arguing in a series of lawsuits against the Air Resources Board.  On Tuesday EDF and the Natural Resources Defense Council filed a brief with the Sacramento Superior Court pointing out just how ridiculous this argument is.

Like whales and bald eagles, auctions are quickly becoming a popular part of the cap-and-trade program because of the many environmental, health, and economic benefits that can come from investing auction proceeds to reduce GHGs.  But just as whales don’t exist because people think they are cute, auctions are not part of the cap-and-trade program because the public thinks they’re cool (although they are and people do).  If whales suddenly went extinct there may be a few (fishy) beneficiaries but the whole ocean ecosystem would be thrown off kilter. Like the whale, the auction is an integral part of a cohesive, functioning system for reducing climate change pollution.

Source: Flickr

Half of Plaintiffs argument is that AB 32 did not give ARB the authority to hold auctions under a cap-and-trade program when it gave them the authority to design a program to reduce GHG pollution to 1990 levels by 2020.  They argue that ARB doesn’t need to auction allowances in order meet this target.  But what they ignore is that ARB is supposed to meet this target while protecting low-income communities, maximizing total benefits to California, encouraging early pollution reductions, promoting equity, and encouraging cost-effective reductions. Auctions help California achieve all of these goals.

The other half of Plaintiffs argument is that the auction of carbon allowances is an illegal tax on businesses.  Interestingly they argue this not by comparing the auction to a tax and showing overwhelming similarities but instead by setting up a straw man that they can more easily shoot down.  To continue the whale analogy, it’s as if a scientist discovered a whale for the very first time.  The scientist really, really wants the whale to be a fish.  But instead of looking at whether whales have scales and are cold blooded, the scientist just says “well, it’s not a seal so it must be a fish”.  In our brief we take a more direct approach and lay out at least five reasons why auctions are different than taxes.  Just for starters, have you ever heard of a tax that people volunteer to pay?  Because as many as 12% of the participants in each auction have been buyers who have absolutely no obligation to turn over allowances under the cap-and-trade program.

Speaking of whales and bald eagles, some of the Plaintiffs in this case are no stranger to trying to drive them extinct.  The Pacific Legal Foundation which is representing some of the plaintiffs was a longtime proponent of DDT which nearly wiped out America’s bald eagles.

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