US: Steinberg pulls carbon tax proposal, focuses on revenues

California Senate President Pro Tempore Darrell Steinberg officially scrapped his carbon tax proposal for the fuel sector, also scheduled to join the state’s cap-and-trade programme in 2015, on Monday.

In his prepared remarks, Steinberg announced major revisions to the proposed bill that will now focus on using cap-and-trade revenues towards affordable housing, sustainable communities and mass transit.

Steinberg’s original proposal, which was introduced in February, would have removed the fuel sector from the carbon scheme and levied a carbon tax on the industry instead ( see EDCM 20 February 2014 ). His proposal will now centre on developing a long-term investment plan.

“Cap-and-trade needs a long-term strategy that maximizes the efficiency of its revenues as we seek to curb greenhouse gasses,” he said during a press event in Sacramento.

Traders did not expect Monday’s news to have a significant impact on the market in the short term because of prior expectations that the bill would not be approved. Two market participants, however, attributed some of the 3.8m allowances traded or cleared on the InterContinental Exchange on Thursday to fuel suppliers rejoining the California market on the heels of the news ( see EDCM 11 April 2014 ).

Participants said the decision removes the final hurdle for future compliance entities to enter the market. Traders told ICIS more fuel suppliers should enter the market ahead of their 2015 inclusion following Steinberg’s decision to drop the carbon tax. “It pushes them closer to jumping in,” said a trader at a large utility.

Revised bill

In his revised proposal, Steinberg would divert 40% of cap-and-trade revenues to housing and sustainable communities, 30% to general mass transit, 20% to California’s high-speed rail project and 10% to streets. The bill would also allocate $200m (€145m) to fuel consumers who would receive an annual dividend, similar to the yearly dividend that electricity consumers receive from investor-owned utilities.

Governor Jerry Brown proposed earlier this year to allocate 30% of the cap-and-trade revenues to the $68 billion rail project, which would not be completed until 2022.

Steinberg’s original bill did not find support politically, because critics said it could adversely impact the current California carbon allowances (CCA) market. CCAs have been relatively stable in the $12.00/tonne of CO2e equivalent for the past few weeks ( see EDCM 6 March 2014 ).

Market participants polled by ICIS did not believe the bill was likely to pass because of legislative hurdles, mainly it would have to be approved by two thirds of the state legislature since it was classified as a tax. Brown, who has supported the carbon scheme, could have also opted to veto the bill. Dan X. McGraw