USA: California weighs global warming fees on producers

USA: California weighs global warming fees on producers
Published: 25 June 2009

California air regulators on Thursday will consider leveling the nation’s first statewide carbon fee on utilities, oil refineries and other industries as a way to pay for the state’s landmark greenhouse gas emissions law.

The move comes at a time of rising unemployment and great economic uncertainty in the nation’s most populous state, prompting concerns that the regulatory fee will impose yet another burden on California’s struggling business climate.

If approved, the fee would raise US$51.2m annually for the next three years to fund the bureaucracy needed to implement California’s 2006 global warming law. The total would drop to US$36.2mby the fifth year.

The fee would cost the average cement plant, for example, about US$200,000 a year. Industry groups say the proposal by the California Air Resources Board unfairly singles them out to pay for the law, which was a Democratic proposal but has generated worldwide publicity for Republican Gov. Arnold Schwarzenegger, its main cheerleader.

"This small group is paying for the whole programme. It’s really not economy-wide. We need something more broad-based," said Michaeleen Mason, director of regulatory issues at the Western States Petroleum Association.

She said the fee comes at a time when many companies say they can least afford to pay it. California’s unemployment rate for May was 11.5 per cent, the highest in modern record-keeping.

Cement plants would be subject to the fee because the chemical process they use to make cement produces greenhouse gases. The charge would drop to nine cents per tonne of carbon dioxide in 2014 because loans approved in past years by the Legislature to run the US$36.2m programme would be paid.

Air regulators say they need the fee to carry out the California Global Warming Solutions Act, which seeks to reduce emissions in the state to 1990 levels by 2020. It is intended to cover the salaries of 174 people hired since Schwarzenegger signed the law, which authorised the board to charge an administrative fee.

The air board has justified the fee by saying that targeted industries represent the starting point for roughly 85 per cent of California’s greenhouse gas emissions. The refineries and utility plants
are the first handlers of the fuel and electricity that Californians consume every year.

The remaining 15 per cent comes largely from dairy farms, aviation and biodiesel. Those producers are not subject to a fee.

A cement plant is unlikely to raise its prices in a competitive global market, said Dorothy Rothrock, vice president of government relations at the California manufacturers & Technology Association.

"Every additional cost goes right against the bottom line. It’s not that there’s any wiggle room or you can absorb it," Rothrock said. "A US$200,000 fee – that’s four employees."

Board staff said the industries would see only minimal effects, raising their prices 0.1 per cent to cover the fee.

Air board Chairwoman Mary Nichols said the fee was not designed to encourage lower greenhouse gas emissions. Rather, it’s designed to pay for the programme that eventually will hold industry accountable for those emissions.