San Francisco Regulators Seek Greenhouse Fee

Published April 1, 2008

San Francisco-area air quality regulators are proposing to charge a fee to most businesses based on the amount of greenhouse gases they emit.

The fee–4.2 cents per metric ton of carbon dioxide–would affect everything from oil refineries to power plants and would include landfills, factories, and small businesses such as restaurants and bakeries.

The largest emitter of greenhouse gases in the Bay Area, the Shell oil refinery in Martinez, would pay $186,475 a year for its 4.4 million annual metric tons of emissions. The largest emitter in Santa Clara County, the Hanson Permanente Cement Plant in Cupertino, would pay $44,507 a year for its 1.05 million tons.

Foot in Door

The levy proposed by the Bay Area Air Quality Management District would replace voluntary local measures that have recently slowed local greenhouse gas emissions. If the fee is successfully implemented, supporters of greenhouse gas fees are likely to seek similar ones in other cities and states.

“The climate is changing, and we think that everybody needs to help with the solution and pay their fair share to reduce greenhouse gases,” said Jack Broadbent, executive officer of the Bay Area Air Quality Management District in San Francisco, according to the February 9 San Jose Mercury News.

Taxes in Disguise?

The Bay Area Air Quality Management District has regulated smog for the past 50 years in nine counties around San Francisco Bay. The air district’s board could take a final vote on the proposed greenhouse gas fee by May. Broadbent said the proposal is designed to raise $1.1 million a year, the Mercury News reported.

“It is not a ‘carbon tax’ but a cost recovery fee,” Broadbent said, according to the article, “because the money would not go into a general fund, but would be used instead to pay for the air district’s global warming reduction programs.”

“California, regrettably, has taken the lead in obfuscating the differences between a tax and a true fee,” responded Jon Coupal, president of the Howard Jarvis Taxpayers Association, in an interview for this story.

“The proposed global warming ‘fee’ is clearly a tax,” said Coupal. “There is little if any nexus between fee payers and the alleged harm sought to be addressed, and there is clearly no direct benefit to the fee payers.”

Successful Current Programs

The proposal is being closely watched around the state because it would represent the first time companies have been hit with direct levies based on their greenhouse gas emissions. Businesses already pay various surcharges on energy use to fund greenhouse gas emissions programs, but this is the first time a fee would be charged per unit of such emissions.

To date, most greenhouse gas reduction programs in the U.S. have been voluntary. The voluntary programs have been much more successful than the mandatory ones put in place in other developed nations.

The U.S. Energy Information Administration reports the greenhouse gas intensity of the U.S. economy has been declining for the past 10 years and U.S. greenhouse gas emissions are slowing faster than emissions in the European Union, which relies on mandatory restrictions.

Chasing Businesses Away

Consumer groups and business officials reacted warily to the Bay Area Air Quality Management District’s proposed new fee. Tupper Hull, a representative for the Western States Petroleum Association in Sacramento, said hitting oil refineries and power plants with fees could end up hitting consumers in the pocketbook.

“This proposal will raise the cost of producing energy and fuel for California consumers, and at a time when consumers have concerns about what they are paying,” said Hull, according to the February 9 San Jose Mercury News. “We can’t say how much that is, but it is a significant concern.”

Hull also said if some of the other 30 air districts in California begin copying the idea, the state will have a confusing patchwork of rules right at the time government is trying to craft a statewide implementation plan for Assembly Bill 32, the greenhouse gas reduction law signed by Gov. Arnold Schwarzenegger (R) two years ago.

The proposed fee would be especially harmful because costs and tax burdens on California businesses are already significantly higher than in the rest of the country, critics note. The neighboring states of Arizona, Nevada, and Oregon each have much lower energy costs and tax burdens, and therefore are better able to attract new business development.

“Other states, such as Florida, Nevada, and Arizona, are cheering the proposal,” Coupal said. “They will welcome with open arms those businesses operating in California whose tolerance for nuttiness has run out.”

Tom Tanton ([email protected]) is a senior fellow at the Pacific Research Institute.