Just think — if Democrats win the midterm elections in 2014, we could see this kind of success on a national scale! California has struggled with massive budget deficits for years, but the political class in Sacramento stumbled on the perfect solution to falling revenues and rising costs … soaking the business world to seize more capital for further spending. The state held its first auction of cap-and-trade credits, and projected that businesses would spend a billion dollars in buying, er, vapor. Those projections were just a teensy bit optimistic, as Bloomberg’s Steven Greenhut explains:
In late November, the California Air Resources Board held its first of these auctions, in which businesses such as oil refineries and utilities bid for credits that allow them to emit greenhouse gases. They must cut back their production or buy enough credits to cover all their emissions. Statewide emission caps will drop each year as California pushes businesses to produce fewer greenhouse gases or pay more to buy the declining number of credits for auction in this newly created government “marketplace.”
That is the plan anyway. “First cap-and-trade auction a bust for California budget,” read the headline in the Sacramento Bee. Budget planners expected that the state would receive $1 billion from the sale of credits, but the 2013 credits went for a low price and there was little demand for 2015 credits. As the Bee story explained, “The nonpartisan Legislative Analyst’s Office estimates that if trends hold in the February and May auctions, the state may only raise about $140 million in the first year.”
So they’re on track to miss their target by only 86%. Some people might consider that a failure, but in California, that $140 million will fund eleventy-billion dollars in new spending. Winning!
As if to prove my point, Governor Jerry Brown wanted the proceeds to fund the high-speed rail project that California has begun, which will transport people from Bakersfield to somewhere near Fresno, two places people love to leave but don’t want to arrive. Even at the rate of income projected by the geniuses in Sacramento, it would take 100 years of cap-and-trade sales to fund that project without taking interest payments into account. At the rate of actual sales, it would take 714.28 years.
Of course, there might not be many people to move between Fresno and Bakersfield by that time:
While they count on money from the auctions, California officials have imposed new costs on businesses, raised utility rates and put the state’s industrial products at a competitive disadvantage so that it can set an example for the world on how to reduce global temperatures. Democratic officials argue that the new green-energy model will energize the state’s business climate, but even the Air Resources Board admits that the state will suffer from what it terms jobs “leakage.”
The “leakage” might be a “floodage,” according to Dave Roberts, who reports for the website CalWatchdog. A study sponsored by pro-business groups estimates that the state will have 262,000 fewer jobs in 2020 because of the climate-change law. Roberts also cited a Boston Consulting Group finding that as many as 51,000 jobs might be lost due to refinery closings alone. California farmers and food processors are concerned that the rising state-mandated production costs will cause job losses as low-cost Chinese and Mexican processed-food imports take some of their business.
Leakage. Job destruction is more like it. Seizing capital from businesses in order to fund a government that hasn’t been able to accurately project a budget since the Los Angeles Dodgers were last in the World Series isn’t exactly a model for growth. The cap-and-trade system imposed by California will necessarily hike energy costs, as businesses pass along the burden to consumers, and energy producers will continue their exodus from the Golden State.
California used to act as an example of success for the nation. Lately, they’re more a warning to others.