Gov. Arnold Schwarzenegger, facing a ballot initiative that could derail his cherished global warming law, is urging a go-slow, pro-business approach on a key mechanism used to reduce greenhouse gases.
The law, AB 32, requires California to reduce greenhouse-gas emissions 15 percent by the end of the decade. Scheduled to take effect in 2012, it is a centerpiece of Schwarzenegger's governorship.
But a conservative group is pushing a November ballot initiative that would put the law on ice until unemployment falls below 5.5 percent, on the grounds that AB 32 would cripple an already fragile economy with tens of billions of dollars in new costs. The initiative is being bankrolled by a group of Texas oil companies.
In a letter to the California Air Resources Board this week, the Republican governor sided with business interests on a key piece of the law, saying California's industries must be given "sufficient time" to scale back their carbon emissions gradually.
Mary Nichols, chairwoman of the ARB who is overseeing the rule-making for the global warming law, said Schwarzenegger is trying to tamp down fears of economic calamity that are being "fanned by the initiative proponents."
She said the governor, who appointed her in 2007, is still deeply committed to the global warming law but is concerned about its "political feasibility" in a down economy.
A leader of the ballot initiative, Jon Coupal of the Howard Jarvis Taxpayers Association, dismissed Schwarzenegger's gesture as "a baby step" that won't block the initiative.
Schwarzenegger's letter simply shows that the economic harm from AB 32 "is becoming readily apparent," Coupal said.
But if Coupal believes Schwarzenegger isn't going far enough to mollify businesses, some environmentalists say he's gone too far.
The governor's plan "would result in windfall profits for utilities and oil companies," said Bill Magavern, head of Sierra Club California.
A Schwarzenegger spokesman, Matt David, said the governor was simply confirming his belief that AB 32 can help the environment without harming the economy. Schwarzenegger isn't backing away from the law, he said.
"He's been very consistent with this approach," David said. "He wants to continue to move full speed ahead with AB 32."
Schwarzenegger's letter to the air board, which is writing the rules of AB 32, comes amid an escalating debate over the law's economic impact. The board released an analysis this week saying the impact will be negligible, but conservative groups have said AB 32 will be a disaster for the economy.
The governor's recommendation focused on a crucial piece of the law: the "cap and trade" market for carbon-emissions allowances.
The market will allocate emission allowances to utilities and other companies while putting a ceiling on the volume of carbon that can be spewed into the air. The ceiling will be lowered gradually.
The idea is to inject market forces into the process. Companies that pollute less could sell their unused allowances to companies that pollute heavily, creating powerful financial incentives to reduce emissions voluntarily.
The key question is how to distribute the emissions allowances in the first place: Should they be given away or auctioned off?
Environmentalists believe an auction is the most effective way of getting across that there's a price to be paid for emitting carbon. A team of economists and others advising the ARB this week came out in favor of an auction.
Lawrence Goulder, a Stanford University economist leading the advisory team, said the auction method probably would cost businesses a total of $22 billion.
But business lobbyists said the cost would be far higher – as much as $140 billion a year, according to a study released this week by a business-funded organization called the AB 32 Implementation Group.
Schwarzenegger said he's sympathetic to businesses' concerns. He urged the ARB to give away the emissions allowances in the beginning, and phase in the auction after the economy is healthier.
An auction "may be too abrupt a transition – posing high short-term costs," he wrote. "It is critically important that California's program be designed in a way that gives businesses and industries in this state sufficient time to reduce their emissions."
Schwarzenegger sent his letter Wednesday, one day after the team of economists advising the ARB recommended that allowances be auctioned.
The Implementation Group welcomed his letter.
"It's a cautious approach, and that is appropriate," said co-chairwoman Dorothy Rothrock, a senior vice president with the California Manufacturers & Technology Association.
The ARB is expected to decide the issue later this year.
