I went to Sacramento the other day to testify before the Market Advisory Committee that is supposed to design a California carbon market. The committee includes top-notch economists from Stanford, Environmental Defense, the Pew Climate Center, the World Resources Institute, BP and Credit-Suisse. In other words, smart corporate-friendly types.
The first big issue the committee must address is whether to give free future emission rights to historic polluters, or make all polluters pay market prices on an equal basis (i.e. auction 100% of pollution permits). There is indisputable evidence from the European Union that giving free emission rights to historic polluters leads to windfall profits for the old polluters, higher prices for everyone else, and zero public benefit. It is a pure wealth transfer, the corporate nanny state at its very best.
At the hearing, no fewer than three of the committee members spoke nonchalantly about the need to ‘make whole’ or ‘hold harmless’ the big historic polluters, as if it were the most natural thing in the world. I was the last witness from the audience, and I went wild.
Back in the 1970s and 80s, I told them, I ran a solar energy company in San Francisco with yearly sales of $2 million. Then, George Deukmejian (the governor of California) and Ronald Reagan (president of the U.S.) repealed the tax credits that put solar energy on a roughly level playing field with fossil fuels. My business, and thousands like it, soon went bankrupt.
I did not complain about my business’ demise. I simply noted that not once did anyone suggest that the government ought to ‘make us whole.’ We were private enterprises, our shareholders took risks in pursuit of profit, and we lived and died by the market.
The world envisioned by historic polluters and their friends in Sacramento is not like that. It is a world in which private companies are ‘made whole’ by government when prices change, a world in which the job of government is to calculate how much companies could conceivably lose under various scenarios and compensate them in advance for those potential losses. It is a world, in short, that doesn’t appear in any economics text book, yet is increasingly the presumed norm among today’s cynical policy elite.
The good news is that, when politicians in New York, Massachusetts, Vermont, New Jersey and Maine saw what a scam this was, they got wise and decided to auction 100% of the permits. Maybe California will follow, and eventually the news might even get to Washington.