Governor Kate Brown and some Oregon lawmakers are proposing a law to require Oregonians to participate in carbon trading markets through a so-called “cap and trade” system in an attempt to combat climate change. They would throw Oregon into this financial market with California, which adopted its cap and trade system 10 years ago. So, it’s worth exploring how that’s worked out for the Golden State.  The picture is not a good one.

California’s Economy Under Cap and Trade

Much has been made of California’s economy, and several Oregon politicians have pointed to it as evidence that cap and trade helps create opportunity for workers. It’s true that California’s economy – like the rest of the country – has been strong. But that’s only if you live in large urban areas. 44 percent of California’s growth since 2010 has come from the Bay Area, an average growth rate of 4.7 percent. The rest of the state – rural areas that have more regulated industries – has grown at only 2.4 percent[1].

The manufacturing job growth rate bears out this macro-economic picture. Manufacturing jobs are what every politician says they want. Why? Because they tend to pay much higher wages than other jobs, bring large investments in plants and equipment, and serve as the hub of a supplier ecosystem that creates opportunity for small businesses around the community.

But, since enactment of its cap and trade law in 2010, California has generated less than half the manufacturing job growth as the U.S. average.[2]  The latest figures from 2018 show a national manufacturing job growth rate of 10.6 percent and California’s at 5.6 percent. Reshoring of US manufacturing is up 52 percent since 2017, but only 1.4 percent of that reshoring has landed in California. Workers in other states that have proven more attractive for business are the beneficiaries of this shifting investment out of California.

Cap and Trade’s Impact on California Energy Prices

How much of the loss of manufacturing can you attribute to cap and trade? Quite a bit. By definition, cap and trade is designed to drive up the cost of operations and energy. Since enactment of its system in 2010, California’s industrial electricity rates have risen from 44 percent to 86 percent above the national average, and their commercial rates have risen from 28 percent to 49 percent above the national average. For most manufacturing, energy is the second-largest cost after labor, and California’s electricity is anywhere from 50 percent higher to double what companies might pay in other states.

California families also pay more for energy. They now pay 41 percent more than the national average for electricity at their homes. And cap and trade impacts every Californian at the pump. $.11 of every gallon of gas can be directly attributed to cap and trade, and this is on top of a new Low Carbon Fuel Standard charge that California is applying to gasoline. The LCFS charge is another $.10 per gallon.  California families are being charged twice – a total of $.21 per gallon – to combat the same molecule of carbon. This is not a policy designed to reduce carbon; it’s a policy designed to raise money for government.

Cap and Trade Doesn’t Reduce Greenhouse Gas Emissions

Cap and trade has shown it decreases manufacturing job creation, raises energy rates for families, and further divides urban and rural economies. If it delivered on the promise of greenhouse gas reductions, however, at least you could argue it’s achieving its policy objectives. But, the evidence is clear that cap and trade doesn’t reduce emissions.

Oregon has had more success reducing its carbon footprint without cap and trade. Between 2000 and 2016, Oregon reduced its greenhouse gas emissions by 11.4 percent, and California reduced its emissions by only 8.1 percent[3].  Of that 8.1 percent reduction in greenhouse gas emissions in California, only a small fraction can be attributed directly to their cap and trade system. Most of it has to do with the Great Recession, other laws directing utilities to acquire more renewable energy, the proliferation of residential solar panels, and more available hydropower.

All the complexity and cost of cap and trade is really about raising money for politicians to spend on pet projects. It’s not about reducing emissions. While workers and families in California have to live under this system, Oregon shouldn’t follow them down this path.