For years, one of the problems I have had with the way CO2 cap and trade systems were structured was a fear that these systems would devolve into cronyism, with the companies best able to lobby the government getting allocations while less connected companies had to pay. It seems this is already occuring in California:
The California Air Resources Board (ARB), the regulator of the forthcoming program, held a workshop in Sacramento on Monday where it discussed plans to give away more free permits to prevent leakage in “trade-exposed” industries like cement production, oil refining and food processing.
Over the first three allowance auctions, which begin in November, the state will sell 48.9 million allowances and give away 53.8 million allowances, according to ARB.
Any company deemed to have either a high, medium or low risk of leaving the state will receive all the allowances they need to comply with the program during the first two-year compliance period, from 2013-2014, rather than have to buy the permits at regular auctions.
But those in the low and medium risk groups are currently scheduled to see their allotment of free allowances start to decline in 2015 by as much as half.
ARB officials on Monday said they are conducting studies examining the leakage risk of companies based on their historical energy costs and trade flows.
Don't be fooled by the quasi-scientific-sounding language here about categories of "trade exposure." The reality will be that companies with political clout will get the permits, and companies without such clout will not. This is a system that will favor large manufacturers over smaller companies. It will also, oddly, apparently shift the burden of compliance from large manufacturers to service companies (since service companies are the least likely to be "trade exposed.") Of course, any manufacturer still operating plants in California is crazy anyway.