California's greenhouse-gas law: Who will pay?

Somebody, somewhere will have to pay for California's landmark law that would force dramatic cuts in greenhouse-gas emissions by 2020. Two years on, it's not much clearer who.

State lawmakers last week expressed frustration with a proposal by Gov. Arnold Schwarzenegger that would further defer that decision.

Businesses may ultimately have to shell out billions for permission to pump out carbon dioxide, but that's much further down the tailpipe. For now, a much smaller $55 million is needed to pay for the law's setup costs, including the hiring of dozens of bureaucrats.

The governor's plan would borrow that money from the state's recycling fund. Legislative leaders and watchdogs have cried foul, arguing it is time to put the program on stable financial footing through a "carbon fee" on known emitters. The agency tasked with implementing the law, the Air Resources Board, counters that it wants to avoid setting fees before fully drafting its regulations.

"This question of [levying] the fee is the rubber meeting the road. It's like everybody wants to do this [law], but nobody wants to pay," says Lenny Goldberg, a tax lobbyist supported by labor groups.

While this early skirmish over the $55 million doesn't jeopardize the law, the controversy foreshadows complex and contentious battles ahead over implementation, say experts.

For now, desire is strong in Sacramento to make the high-profile greenhouse-gas law work. "I believe that the whole world is watching us on this law, and the people of California want this law to succeed," says Assemblywoman Loni Hancock (D) who co-chaired an oversight hearing March 3. "But there are going to have to be hard choices, we have to hold each other's feet to the fire; otherwise it's too easy to borrow and shift for the funding."

Eventually, the law, known as AB-32, could bring a huge sum in to state coffers that would easily pay for administrative costs. The remainder might then be used to help the state achieve its carbon targets. One advisory committee has suggested putting the money into clean technology, a prospect fueling speculation in Silicon Valley.

But the state will get this pot of money only if decides to charge fees for permits that allow a business to emit some CO2. California could also opt to simply give away some or all such permits.

The extent of any giveaway will be one tough fight, says Charles Kolstad, professor of economics and environmental science at the University of California, Santa Barbara. Another is whether to let heavy polluters buy credits from lighter polluters in a trading system, or to force those heavy polluters to simply cut emissions.

Given these bigger battles, regulators may be smart to tread lightly now, says Dr. Kolstad. A "pragmatic reason for not levying fees now is as soon as you do that, even though it's very small, you are going to be initiating political battles that maybe [you] don't need to fight," he says.

Indeed, an industry coalition criticized the push for early carbon fees, calling the idea illegal.

"The decision of who should be paying, and how much, and when it should start, needs to be linked to the program that's going to be put in place. Right now there's no program," says Dorothy Rothrock, co-chair of the AB-32 Implementation Group.

But legislators confronted with a budget deeply in the red want to see carbon fees sooner than later. "The general fund is not a stable source. You could end up putting all this investment in and you run out of the loans you can do and you don't have a funding structure," says Mark Newton, director of resources and environmental protection at the Legislative Analyst's Office.