US: Carbon tax disruptive to cap-and-trade system, Nichols said

14 March 2014 21:02 Source:ICIS

The California Air Resources Board (ARB) chairwoman Mary Nichols said a proposed bill to repeal the scheduled inclusion of the fuel sector in the state’s carbon market with a tax would be “disruptive” to the scheme.

Senate president pro tempore Darrell Steinberg proposed a bill last month that would keep out of the cap-and-trade programme fuel distributors, which are set to join in 2015, and impose a carbon tax instead ( see EDCM 20 February 2014 ).

Nichols, speaking at a conference organised by the American Law Institute Continuing Legal Education, noted the proposed bill would have been an interesting discussion in 2006 as California debated how to tackle global warming issue. But now that the inclusion of the fuels in the programme is less than a year to go, she noted that a carbon tax would have a significant impact.

“It would have a pretty disruptive effect on the cap-and-trade programme and frankly to the fuels programme too,” Nichols said, referring to the low carbon fuel standards (LCFS), a separate system requiring fuel suppliers to purchase credits to offset the life cycle of gasoline used in California.

Market participants are sceptical that the Steinberg bill has a chance of success in the state legislature because of the political climate and the size of the hurdles it will have to pass on the way to approval. Since it is a tax, the bill would have to be voted by two-thirds of the California legislature.

University of California at Davis economic professor James Bushnell, who advises the ARB, told ICIS the bill could risk making the California carbon allowance market more volatile ( see EDCM 6 March 2014 ). Dan X. McGraw

By Dan X. McGraw