Potential Cap-and-Trade Overhaul Would Be Costly for Agriculture

Brian German Agri-Business, Industry

Significant changes to the current cap-and-trade system may be on the way as part of the latest draft of the budget that was agreed to by both chambers of the California Legislature last week.  Under the proposed budget, the California Air Resources Board (CARB) would be required to “conduct a rulemaking to consider improvements to the Cap-and-Trade Program.”  The proposal is causing concern within several industries including agriculture.


“There’s a movement in the Senate to change cap-and-trade to a cap-and-tax type proposal, whether it be a fee or tax if you will and you’re not going out there and buying allowances,” said Roger Isom, President and CEO of Western Agricultural Processors Association. “The ability of allowances is to bring that cost down or control that cost because you can go out there in the market and buy them.  This eliminates all that market.”

The current system has been instrumental in funding several incentive programs that assist farmers and ranchers lower their emissions, which is the stated goal of the cap-and-trade system.  The interest in potentially moving to a cap-and-tax system comes as the most recent cap-and-trade auction generated very little revenue comparatively. The May 20 auction brought in only $25 million in revenue, with the state selling only 37 percent of the available allowances.  Isom noted that a temporary decline in revenue is not reason enough to abandon the entire system.

“They’re ignoring the fact that this is coming in a crisis,” Isom stated. “Yes, the proceeds from this last auction in May were down considerably, but the fact is the businesses that are subject to cap-and-trade either weren’t operating or were operating at severely reduced capacity; therefore they didn’t have the emissions and so they don’t need to purchase as many.” 

Another concerning aspect is how some of the revenue generated at auctions is being used.  The agricultural industry has made noticeable strides in lowering emission levels, thanks in part to programs made available by cap-and-trade funding. Quarterly auctions generally raise around $600 million, with some of the money being used on projects that have a tenuous connection to achieving emission reductions such as the high-speed rail project.

“The Legislature has always looked at cap-and-trade as a golden goose. It’s the one pot of money that they can go after to fund other projects,” Isom explained. “But if you look at a couple of the ones that are related to ag there’s definitely emission reductions and it’s quantifiable, it’s real, it’s right now.”

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Brian German

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Ag News Director, AgNet West