News Column

Pollution 'Allowances' Could Send Prices Up

Nov. 15, 2012

Alex Breitler

There was no one banging a gavel on the courthouse steps, but an auction marking California's adventurous foray into carbon cap and trade attracted much attention Wednesday from San Joaquin County businesses worried about new costs.

Cap and trade puts a ceiling on the carbon emissions causing climate change.

With that ceiling in place, businesses must choose to either reduce their emissions, or to buy and sell "allowances" made available by the state.

Those allowances will decrease over time, lowering the ceiling and making the market more competitive.

The end result, officials say, will be a reduction in the harmful effects of climate change.

Businesses, naturally, are concerned about other harmful effects.

"Bottom line, we think the impact is going to be increased costs for us, which means increased food costs" for everyone else, said Mona Shulman, general counsel for Lodi-based Pacific Coast Producers, a 41-year-old company that processes fruit from California farms and ships it to stores across the country.

The technology does not yet exist to upgrade boilers at the company's plants in Lodi, Woodland and Oroville, Shulman said.

So the company will likely have to buy allowances on the carbon market.

The concern is what happens as the number of allowances shrinks. What if none are available? What if they are so rare they become unaffordable?

"Then we tell our growers to quit growing tomatoes," Shulman said.

That would hurt the 4,000 employees who work at Pacific Coast plants during the peak harvest, as well as the greater agricultural economy, she said.

"This has been very frustrating," Shulman said. "It's just very uncertain and very concerning."

The worry goes far beyond food processors. Officials with Pilkington North America, a glass manufacturer with a plant in Lathrop, did not return calls seeking comment. But in a letter last year to the California Air Resources Board, the company warned that cap and trade will leave its Lathrop plant, which employs about 130 people, "particularly vulnerable."

The company said it would be forced to either accept the new costs of cap and trade "or choose not to invest further in California and produce the ... glass product at another site outside of California or outside the U.S."

Pacific Gas and Electric Co. also is watching carefully. "We just don't know what the cost impact is going to be on our customers," said PG&E spokeswoman Lynsey Paulo.

Lodi, which has its own electrical utility, might actually benefit, said City Councilman Larry Hansen. Its new $500 million natural-gas power plant is so clean, he said, that Lodi will probably be able to sell allowances as opposed to buying them.

"But whether we might have to buy (credits) in the future kind of remains to be seen," Hansen said.

The results of Wednesday's closed-door electronic auction won't be available until next week. Environmentalists say they believe cap and trade will actually help businesses save money by investing in clean and renewable energy. Air board Chairman Mary Nichols has said cap and trade "guarantees that California will continue to attract the lion's share of investment in clean technology."

Source: (c)2012 The Record (Stockton, Calif.) Distributed by MCT Information Services

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