Despite Lawsuit, California Business Leaders Support a State Cap-and-Trade System

California CEOs and business leaders sent a letter to Governor Jerry Brown urging him to not revise California’s cap-and-trade system. The California Air Resources Board (CARB) is developing the details of the system, which has come under fire from environmental justice groups. The groups went as far as filing a lawsuit to stop CARB from implementing the system, claiming that CARB didn't explore alternatives to cap and trade and that the systems allows the worst polluters to keep polluting, which can have a serious impact on local air quality. The plaintiffs include Communities for a Better Environment and the Center on Race, Poverty, and the Environment.

The Global Warming Solutions Act of 2006 (AB 32) requires the state's greenhouse gas (GHG) emissions to be reduced to 1990 levels, a 25 percent increase, by 2020. Although AB 32 does not create a cap-and-trade system, it gives CARB the authority to create one.

Last week, a California Supreme Court judge ruled in favor of the environmental justice groups, arguing that CARB violated the California Environmental Quality Act (CEQA) because the state agency did not consider alternatives to a cap-and-trade system such as a carbon tax.

CARB spokesman Stanley Young announced that CARB will file an appeal. Young said, “We respectfully disagree with the court’s determination. At the same time, ARB is working on a revised Scoping Plan alternatives analysis that will fully address the issues raised in the court’s decision…We intend to bring the revised analysis to the Board for consideration as soon as possible.”

The letter sent by California CEOs and business leaders rejects the attacks from the environmental justice organizations for two reasons:

• “First, we reject the calls from some environmental organizations for a wholesale revision of the AB 32 cap and trade system.” The signers of the letter are particularly concerned that environmental groups have called for revisions “in the name of jobs and the economy.” The letter states that “as business leaders who are responsible for creating the jobs that have become such a popular talking point, we can tell you that nothing will do more harm to the emerging California clean economy sector than continued regulatory uncertainty.”


• “Second, a recent court decision based on a lawsuit filed by several organizations has effectively halted the cap and trade rule development.” The lawsuit stopped CARB from doing anything to implement a cap-and-trade system.

The economic advantages of a cap-and-trade system

A report by Evan J. Ringquist from Indiana University’s School of Public and Environmental Affairs lists four economic advantages of a cap-and-trade system:

1. Requires firms to reveal their marginal costs, or the price they are willing to pay for a pollution permit


2. Recognizes the difference across firms in the marginal cost of control, and allows for varying levels of pollution reduction


3. Produces the desired level of environmental quality at lower cost


4. Promotes technological innovation in pollution controls as firms find ways to reduce pollution so that they can sell their pollution credits

What do you think? Are you in favor of a cap-and-trade system?