California Gas Prices See Minor Effects of Cap and Trade

Jan 3rd, 2015 | Posted by

Despite dire predictions of massive increases in gas prices on January 1 now that gasoline and other fossil fuels are subject to the cap and trade system, gas prices in California appear to have barely moved:

There’s a small bump in overall prices from January 1 to January 3. But that pales against the enormous drop in prices from the beginning of December, a drop of about 40 cents per gallon.

So cap and trade is clearly not having a negative impact on driver’s wallets. But maybe it should. At least, that’s what Dan Walters thinks:

If the effect is, in fact, as minuscule as it’s being portrayed – Assembly Speaker Toni Atkins, for instance, says it’s “a few pennies, maybe” – and motorists don’t notice it, then they won’t reduce driving.

Logically, one would think, cap-and-trade advocates should want the nibble to be a big bite, at least 50 cents a gallon. Otherwise, it’s just an extra tax to generate money for politicians to spend.

There’s nothing wrong with an extra tax to generate money to spend, especially since the spending goes to projects that will reduce CO2 emissions. But Walters’s point is that climate activists would surely want to make the cost of driving higher so that fewer people do it. Right?

This climate activist and supporter of AB 32, who worked to stop a ballot initiative to repeal cap and trade in 2010, sees it differently.

Cap and trade works in two important ways: hitting large polluters, thereby making large reductions in pollution levels. Cap and trade is not a useful tool to address individual behavior, just as you wouldn’t use a bulldozer to mow your lawn. It’s not the method to choose if the goal is to reduce driving. Cap and trade will help reduce overall consumption of fossil fuels, but that’s not the same as reducing driving in the era of electric cars.

No, the tool you use to reduce driving is to make alternatives to driving easier to use. That means more trains, connecting more places. Cap and trade funds that kind of infrastructure, without socking working Californians with a huge tax increase. The taxes come out of the pockets of polluters – which is why they spent so much money to try and kill it.

If the Western States Petroleum Association thought that drivers would pay the costs, they probably would not have fought so hard to avoid having fuels included under cap and trade. The fact that they did so suggests that their member companies, rather than California drivers, are likely to be the ones actually paying the bulk of the cap and trade fees.

Gas prices will rise, but not because of cap and trade or even because of gas taxes. They’ll rise because of long term trends in oil production that the current decline masks, rather than resolves.

There is no contradiction between pointing out that cap and trade isn’t causing gas prices to soar, and supporting cap and trade because it will help make transportation more sustainable.

  1. Alon Levy
    Jan 3rd, 2015 at 09:46

    $12 per ton translates to $0.11 per gallon; that’s not a massive increase, and unsurprisingly its effect on consumer behavior is minimal.

    Howard Reply:

    In future years the total number of allowances will be reduced each year to reduce emitions to 1990 levels by 2020. A larger percentage of allowances will be sold every year and less given away. This should significantly increase the allowance pricein future years, increasing revenue.

    “The program imposes a greenhouse gas emission limit that will decrease by two percent each year through 2015, and by three percent annually from 2015 through 2020. (See Figure 2). Emission allowances will be distributed by a mix of free allocation and quarterly auctions. The portion of emissions covered by free allowances will vary by industry, but initially will account for approximately 90 percent of a business’s overall emissions. The percentage of free allowances allocated to the businesses will decline over time. ”

    joe Reply:

    You give him too much credit. His column: “Opinion: Logic loses in California carbon war ” should be titled: “Reality is illogical. ”

    The man writes that gas prices will shoot up 76 cents per gallon. He’s upset the propaganda against CnT has not yet come true and blames the opposition for not behaving “logical”.

    Alon Levy Reply:

    The state expects revenue in the next few years to be about the same.

    Mostly, I’m upset that cap-and-trade isn’t actually raising prices by a significant amount. You want to reduce GHG emissions? This side of the Atlantic, fuel costs about €1.50 per liter. That’s why, even in areas with shitty transit (e.g. a large majority of Europe), per capita fuel consumption for transportation is about one third as much as in the US.

  2. adirondacker12800
    Jan 3rd, 2015 at 11:49

    Especially, if I’m reading the chart correctly, yesterdays low price minus 11 cents was two weeks ago, yesterday’s low price minus 22 cents was three weeks ago and minus 33 cents was four weeks ago. It may have been “minus 33” five weeks ago. It doesn’t go back past that. Prices have been generally declining and it was probably “minus 44” two months ago and “minus 66” when prices started dropping, Without looking real hard how Google comes up with an average price of 3.49 in 2013… it’s not going to matter much. Even less because the average price in price in 2011 was 3.69. I’m not in the mood to go find out when it was “four dollars a gallon!” and inflate that to 2014.

    JJJJ Reply:

    The chart comes from Gasbuddy. You can look back up to 11 years

    Even with the bump, gas is lowest its been since 2009. And if you ignore the end of 2008 and start of 2009 when everything went to hell, you have yo go back to 2006 for todays prices to be normal.

  3. BMF of San Diego
    Jan 3rd, 2015 at 19:08

    I don’t understand the blog post. I think there are too many negatives or double negatives or something.

    Though, as a knowledgable person on this matter… There is nothing that influences drivers to shift to alternatives than hitting them in the pocketbook… and the closer you get to the point of being behind the wheel on a daily basis, the greater the impact. Daily parking charges, tickets, tolls, etc.

    Providing alternatives like rail or bus, as incentives, are great, but have limitations as being influencing factors is people’s decision to drive or not. It’s mostly about the pocketbook.

    adirondacker12800 Reply:

    When Southwest pulled out of Providence-Philadelphia ridership on Amtrak increased something like 90 percent. A few of them decided to drive between the two but the ones that were on the planes decided that taking the train was better for downtown to downtown.

    Observer Reply:

    Will Cap&Trade apply to aviation fuel, at least eventually?

    Andrew L-A Reply:

    Aviation fuel is exempt from fuel taxes by international treaty. I don’t know if emissions taxes are treated any differently.

    Richard Mlynarik Reply:

    Not remotely true, as much as the subhuman environmental criminals of the US, China, Russia, Australia, etc, would like it to be so.

    Your search terms are “EU ETS aviation”.

    Edward Reply:

    The European Union courts have ruled that:

    The extension of the EU ETS to aviation infringes neither the principle of territoriality, nor the sovereignty of third countries;

    The EU ETS does not constitute a tax, fee or charge on fuel, which could be in breach of the EU-US Air Transport Agreement;

    The uniform application of the EU ETS to European and non-European airlines alike is consistent with provisions in the EU-US Air Transport Agreement prohibiting discriminatory treatment between aircraft operators on nationality grounds.

    So the answer to the question is “Yes” aviation fuel is exempt from fuel taxes, but “No” it is not exempt from emission taxes. Note that there are many ways to reduce the tax not directly involving fuel.

    Note that this only applies to flights involving the EU as one or both ends of a flight.

    There are negotiations ongoing with the US to extend this world wide in a few years.

    adirondacker12800 Reply:

    Are the cap and trade inputs on the crude or on the refined products? You don’t want to put diesel in your gasoline car so the nozzle on the diesel pump don’t fit into gasoline cars. You could put the gasoline nozzle in your diesel car or truck but people who regularly buy diesel were to put a half a tank of gasoline in they would regret. They are careful about what nozzle they are sticking in the vehicle. You could cheat and use No. 2 heating oil or a little bit of 1-K kerosene. They don’t, both are dyed red and the tank would have pink fuel in it for a long time. You don’t want the cop to find pink fuel in your tank at the truck inspection.

    They don’t sell diesel on the plane side of airports. You could put aviation gasoline in your gas automobile but doing that regularly doesn’t happen even for people who are able
    drive their gasoline car to the aviation gas pump. The most widely available and most used aviation fuel is dyed blue. So that when you are at an airport that has more than the blue stuff you know that’s it’s not. The jet fuel nozzles probably don’t fit gasoline tanks so pumping that into your gasoline plane isn’t a problem. If the cap and trade taxes are on all of it airlines can choose to buy all of their fuel from someplace other than California easily and still fly into California airports and back to where it’s untaxed.

    Richard Mlynarik Reply:

    Fascinating. Do go on.

  4. Thomas Kausek
    Jan 3rd, 2015 at 22:55

    CA Excise
    aviation gasoline tax: 18C/gallon; CA jet fuel tax: 2C/gallon

    CA Sales & Use Tax
    Jet fuel: 6.75%

    US av gas tax: 19.4c/gallon
    US jet fuel tax:21.9C/gallon

    Edward Reply:

    Note that the CA jet fuel tax does not apply to Airlines, only general aviation. Sales tax DOES apply to jet fuel purchased by airlines, like any other item.

    From the Wikipedia article mentioned above:

    “As of 2007, jet fuel (called “kerosene for aviation” by the IRS) is taxed at 21.9¢/gal unless it is used for commercial aviation (airlines such as American Airlines and US Airways and small chartered commercial jets). Because such commercial operations are subject to the federal transportation tax, they are subject to a reduced fuel tax of 4.4¢/gal.

    These taxes mainly fund airport and Air Traffic Control operations by the Federal Aviation Administration (FAA), of which commercial aviation is the biggest user.”

  5. Edward
    Jan 5th, 2015 at 00:05

    Not that it is apropos of the subject at hand… but I just noticed that a quirk of the site software is that the posting time of the originator of a topic (like this post) is in 24 hour time, but the comments to that post are in 12 hour time. Curious… but not particularly relevant to anything.

    aw Reply:

    You’ll notice that the date format is different too. Not that it matters…

  6. Keith Saggers
    Jan 5th, 2015 at 11:37

    JANUARY 13, 2015
    9:00 AM
    2. Presentation on High-Speed Rail Management and Technology utilized by the East Japan Railway Company

    Ground breaking tomorrow

    joe Reply:

    and “wind breaking” from the GOP.

    One of the top GOP leaders standing in the way of further federal funding is House Majority Leader Kevin McCarthy (R-Calif.), whose district includes Bakersfield, a midway point on the line between San Francisco and Los Angeles. McCarthy has vowed repeatedly not to allow any additional appropriations.

    “After the Obama Administration’s unaccountable spending in the early years of his presidency, the American people spoke loudly and ushered in a new Republican Congress to stop the waste. As a result, my colleagues and I decided that no federal money would be spent on such a wasteful project,” McCarthy said in a statement to be released marking the groundbreaking. “Congress will continue to ensure no more Federal taxpayer dollars are directed to this project.”

    trentbridge Reply:

    THe GOP is as disfunctional as the Democratic Party. The desire to appeal to the base as opposed to governing by sensible means is a long-lost art. All this rhetoric about Government waste is just the kind of stupidity that passes for political discourse these days. All government spending has a business lobbyist that considers it vital to his/her industry. Yesterday Senator Corker suggested a rise in the federal gas tax – a sensible approach of adding $0.06/gal tax per year over two years – to replenishing the depleted Highway Fund – but I doubt his GOP colleagues will listen.

  7. les
    Jan 6th, 2015 at 10:17
  8. J. Wong
    Jan 6th, 2015 at 10:53
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