California weighs global warming fees on producers

SACRAMENTO - 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 $51.2 million annually for the next three years to fund the bureaucracy needed to implement California's 2006 global warming law. The total would drop to $36.2 million by the fifth year.

The fee would cost the average cement plant, for example, about $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 program. 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 percent, the highest in modern record-keeping.

Beginning in 2010, about 250 businesses in California that make, sell or import gasoline, diesel, natural gas and coal would be charged roughly 12 cents per ton of carbon dioxide that both they and their customers emit into the atmosphere.

Cement plants also would be subject to the fee because the chemical process they use to make cement produces greenhouse gases. The charge would drop to 9 cents per ton of carbon dioxide in 2014 because loans approved in past years by the Legislature to run the $36.2 million program 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 authorized 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 percent 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 percent comes largely from dairy farms, aviation and biodiesel. Those producers are not subject to a fee.

Dan Kammen, a professor of energy and public policy at the University of California, Berkeley, said charging the state's energy providers is the most practical and cost-effective way to account for the greenhouse gases that are released when a Californian turns on the air conditioning, drives a car or mows the lawn.

He also expects the costs to be passed along to consumers.

A few local government entities have adopted similar fees. Last year, air regulators in the San Francisco Bay area imposed a 4.4 cent per-ton carbon fee on businesses that emit greenhouse gasses. In 2006, voters in Boulder, Colo., imposed a carbon tax on own their energy use.

Oil companies and major utilities argue that the California air board's approach unfairly holds them accountable not just for their own emissions but also for those generated by the millions Californians who use their products.

Ralph Moran, director of West Coast Climate Change Issues at BP America Inc., told regulators in a June 12 letter that motorists should be charged a carbon fee at the pump for the fuel they buy. Gasoline distributors also could pay the fee, as they do with state and federal fuel taxes at their terminals, he said.

Pacific Gas & Electric Co., the state's largest utility, said in a March letter that its pipeline unit is merely the transporter of natural gas, rather than the user. About 80 percent of the natural gas used in California is transmitted over pipelines owned by PG&E, Southern California Gas Co. and San Diego Gas and Electric Co.

Air regulators assumed that the cost to the state's major energy players - roughly $1.3 million for the average oil refinery - would be passed along to consumers through slightly higher gas prices or electricity bills.

For example, the average chain restaurant would see about a $14 a year increase in its electricity and natural gas costs, said Jon Costantino, manager of the climate change planning section at the air board. The cost to each Californian would amount to between $1 and $1.50 a year.

Manufacturers and oil producers question whether they could recover the cost of the proposed 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 $200,000 fee - that's four employees."

Board staff said the industries would see only minimal effects, raising their prices 0.1 percent 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 program that eventually will hold industry accountable for those emissions.