Cap-and-trade to generate billions, tough choices

Starting later this year, California's cap-and-trade system to fight global warming will generate billions of dollars in revenue, as companies buy and sell permits to produce greenhouse gases.

How should the money be used?

With the first permit auction scheduled for November, that question still hasn't been answered by Sacramento - not fully, at least. Now a series of studies, released Wednesday by the Next 10 public policy group, delves into the question's legal and economic implications, trying to assess which options would most benefit Californians.

As arcane as some of the details may be, the topic is not academic.

The auction of emission permits, known as allowances, could generate $1.8 billion next year by one estimate, growing to $5.8 billion in 2015. The amount Californians pay for electricity and gasoline could rise as a result, unless some of the money is returned to them as rebates or dividends.

"These decisions are now upon the state," said F. Noel Perry, founder of Next 10. "They're upon the Legislature and the governor and the people of California. I'm not really sure if people realize it, but yeah, it's here."

For example, the California Air Resources Board, which is in charge of developing the system, estimated two years ago that gas prices could climb 6 percent by 2020 because of cap and trade. At today's prices, that would equal an increase of 26 cents per gallon. Under one of the commission's less rosy scenarios, the increase could be as much as $1.61.

Cap-and-trade systems set a cap on the amount of greenhouse-gas emissions that companies and industries can produce, a limit that decreases over time. Companies buy and sell the right to produce those emissions. Companies that find the most cost-effective ways to cut their emissions can profit by selling some of their permits to others.

California's system, years in the making, begins in earnest this fall and will initially cover the electricity sector and large industrial companies. Transportation fuels will be included in 2015.

As a result, one of the four studies from Next 10 examines the potential impact on electric utility bills. According to the study, cap and trade could add $2.24 to $5.52 to the average monthly summertime electricity bill for Pacific Gas and Electric Co. customers. Southern California Edison customers could fare worse, with average summer bill increases of $2.28 to $10.98.

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