It’s raining money! Or so Gov. Jerry Brown would have us believe. The new state budget assumes $2.2 billion in new revenue from California’s pioneering cap-and-trade program designed to help reduce greenhouse gas emissions.

But thousands of business and community leaders are concerned about the program’s economic impact on business and jobs, the state’s transparency, and regional distribution of that $2.2 billion and its demonstrable effect on helping boost local communities and critical sectors including affordable housing. Depending on whom you ask, many of those issues remain unresolved even as business has begun footing the bill.

The cap-and-trade program kicked in two years ago as part of the passage of landmark legislation AB 32, the California Global Warming Solutions Act of 2006. Simply put, the program is trying to reduce the state’s greenhouse gas emissions to 1990 levels by 2020 by selling a set number of emission allowances at state auctions. The allowances will decline annually until California’s emissions goals are achieved. Revenue from the program will come from greenhouse gas emitters – such as utilities, refineries, manufacturers and other businesses – that are buying the allowances to allow them to operate. Businesses can trade their surplus allowances to other businesses that find it difficult to reduce emissions through capital investment and other means.

So that projected $2.2 billion will actually be coming directly from utilities and businesses that must pay to emit greenhouse gases – and the state is now receiving actual revenue from this uncharted territory.

But early results and varying communications are confusing folks. Funding raised from the program is being purported to either help solve California’s affordable housing, infrastructure and transportation funding problems – or the costs to affected businesses will soon drive energy prices through the roof, which will lead to imminent job losses and bring economic growth to a halt.

Recently, BizFed Institute, a nonprofit, educational arm of the Los Angeles County Business Federation, also known as BizFed, convened a public forum at Woodbury University in Burbank that drew more than 100 business, community, academic and opinion leaders to discuss the complex challenges and opportunities afforded by the cap-and-trade program in California.

The forum’s expert panelists – which included Colleen Callahan, Luskin Center for Innovation at UCLA; Andrew Cheung, Southern California Gas Co.; Gary Gero, Climate Action Reserve; Dennis Luna, Luna & Glushon; Tiffany Roberts, Western States Petroleum Association; Ellah Ronen, LA n Sync, Annenberg Foundation; Richard Stapler, CA Natural Resources Agency; and Bob Wyman, Latham & Watkins (who was the moderator) – unanimously agreed that the future of cap and trade is largely uncertain given the Brown administration’s aggressive emission-reduction challenges and opportunities afforded by the program in California.

Running program

The effectiveness of the state’s program directly hinges on careful implementation and oversight by a single entity: the California Air Resources Board, which constructed a sizable administrative infrastructure specifically for this program. Shifting market-based investment decisions to any government has always been historically tricky. Meanwhile, the complexity of any cap-and-trade program is a challenge to scaling up the program without reducing its effectiveness. So a critical element for California to maintain its environmental leadership position is that our cap-and-trade program must be efficient and not impose unnecessary energy costs on businesses in the state.

And one thing so far is clear: There is a big cost to business.

Money is being pulled out of the state’s private sector – a projected $2.2 billion – through this program. By sheer economics, that impact has to be reflected elsewhere in the bottom line of a business through cost-cutting in other areas such as jobs, reduced purchases or capital investments, reduced investment in new technologies, or reduced work hours or contracting.

And as businesses are paying, concerns are growing about where their money is going.

At the BizFed Institute forum, Callahan noted that Senate Bill 535 (by Sen. Kevin de Leon) requires at least 25 percent of the cap-and-trade funds be allocated to benefit disadvantaged communities.

But Callahan also noted that while Los Angeles County has more disadvantaged communities than anywhere else in the state, the process for distributing money gives no guarantee of funding by region. As a result, of the 54 affordable housing projects statewide asked to submit full proposals for cap-and-trade funds, only 13 are located in the five-county Southern California region that contains half of the state’s population.

How does that math work?

We applaud California’s leadership in reducing greenhouse gas emissions and being a global contributor of clean energy. But there must be a better way to balance California’s groundbreaking work without jeopardizing the private sector and ensure equitable distribution of funds being raised under our cap-and-trade program.

We all must keep asking Speaker Toni Atkins and the newly formed Strategic Growth Council for serious answers and, better yet, seek change in the outcomes. Cap-and-trade funds must go back to work where the needs are greatest. Sadly, that’s right here in our Los Angeles region.

Tracy Rafter is founding chief executive of the Los Angeles County Business Federation, an alliance of 142 business groups representing more than 273,000 companies that employ nearly 3 million people in the county.

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