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Efforts to implement cap-and-trade programs at state level are faltering, just as policymakers in Washington are struggling to generate enough support to put in place a comprehensive national system.

Recent setbacks in California and Arizona point to growing headwinds against the policy. As cap-and-trade loses momentum and becomes embroiled in bigger political disputes about the size and role of government, opponents are becoming emboldened to try to block the policy completely.

Carbon market supporters have repeatedly expressed the hope that state and regional initiatives can provide at least a temporary substitute as hopes for a national program have dimmed in the wake of last year’s failed summit in Copenhagen and a string of election defeats that have thrown the progressive wing of the Democratic Party onto the defensive.

But the same factors that undermined support for a nationwide program, especially concern about the near-term costs and adverse impact on employment when the economy is only just starting to recover from deep recession, are dimming enthusiasm at state level as well.

In trade policy, policymakers and analysts talk about “bicycling theory”: you have to keep pressing forward with new liberalizing measures or risk forfeiting the gains already made as the process loses momentum and support falls away.

Proponents of carbon markets are about to learn the same lesson.

ARIZONA AND CALIFORNIA

In February, Arizona Governor Janice Brewer (R) signed an executive order (2010-06) pulling the state out of the proposed cap-and-trade program announced by the Western Climate Initiative (WCI), due to start in January 2012.

Arizona was a founder member of the WCI, which groups seven states in the western United States and four Canadian provinces, together with a number of other observers, to develop collaborative climate-change solutions. While the state will remain a member of WCI, and support other aspects of the program, it will no longer participate in cap-and-trade.

In California, Meg Whitman, the Republican Party’s likely candidate for governor in this year’s election has indicated she would delay implementation of the state’s own trading scheme for at least a year to study its likely economic impact. Whitman currently has a narrow poll lead over likely Democratic rival Jerry Brown.

Now the New York Times reports independent oil refiners Valero Energy Corp and Tesoro Corp are backing a petition drive organized by the California Jobs Initiative (CJI), which is trying to collect enough signatures to put an initiative on the ballot in November suspending the state’s climate change law.

CJI’s initiative would suspend operation and implementation of California’s landmark Global Warming Solutions Act (AB 32) until the state unemployment rate has fallen to 5.5 percent or less for four consecutive quarters. The rate is currently over 12 percent.

CJI’s initiative goes much further than proposed Whitman moratorium. It would defer all actions under AB 32 (not just cap-and-trade) pending a strong economic recovery and improvement in the job market.

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