Kevin Drum

Cap-and-Trade in California

| Thu Apr. 29, 2010 9:30 AM EDT

When I turn on my TV these days, I'm usually assaulted by ads from the two candidates trying to win the Republican primary for governor of California this year. Both of them are Silicon Valley moderates who are desperately trying to convince the GOP faithful that they're actually stone cold reactionaries, and the ads have gotten pretty ugly. And not just toward each other. One ad that's currently in heavy rotation, after spending its first 25 seconds trashing the opposing candidate, ends with this ominous message: "After Arnold, don't we deserve....a Republican?"

Ouch. Why are California Republicans hating on Arnold Schwarzenegger? The bill of particulars against the Governator is long, but a big part of the answer is AB32, a global warming bill passed by the Democratic legislature and signed into law by Schwarzenegger in 2006. "I say the debate is over," he had declared a year earlier, and needless to say, those are fighting words for modern conservatives.

But what makes it worse — much, much worse — is what AB32 does. This is not your run-of-the-mill conservation or energy efficiency bill. That would be bad enough. But the centerpiece of AB32 is a plan to limit California's greenhouse gas emissions, and the primary way it does this is by authorizing the California Air Resources Board to implement a cap-and-trade plan designed to reduce CO2 emissions to 1990 levels by the year 2020. It's the same kind of cap-and-trade proposal that President Obama and congressional Democrats want to impose on the entire country.

Now, this would hardly be the first cap-and-trade plan in history. That honor belongs to the effort to limit acid rain in the early 90s, which employed a cap-and-trade mechanism that was — surprise! — originally a conservative idea designed to make use of market principles to reduce sulfur pollution. Nor would it be the first CO2 cap-and trade plan. Europe is already in phase two of ETS, their continent-wide cap-and-trade program. In fact, it wouldn't even be the first CO2 cap-and-trade plan in the United States. RGGI, a cap-and-trade mechanism for ten northeastern states, started up two years ago and auctions off CO2 permits every three months. You can see the results online if you're interested. (In the most recent auction, a permit to emit a ton of CO2 sold for about two bucks.)

But none of that matters. California is still California, a bellwether for the nation, and cap-and-trade here would give the idea both exposure and legitimacy that neither RGGI nor far-off Europe ever could. And so the opposition has gotten hot. AB32 set out a 6-year implementation schedule, which means that cap-and-trade is still a couple of years off. To keep that from happening, an ugly confederation of oil companies and conservative activists has banded together to put an initiative on the November ballot that would temporarily suspend AB32 until the economy improves. How long is "temporarily"? Until unemployment is down to 5.5% for four quarters in a row. And how long would that take? State estimates suggest that California's unemployment rate won't drop to that level until 2017, which means the earliest AB32 could go into effect is 2018. But what are the odds that California won't suffer any kind of economic downturn in the next eight years? Pretty slim. The reality is that the proposed initiative would almost certainly kill off AB32 for good.

So what are the chances of repeal succeeding? Hard to say. The anti-AB32 movement is called the California Jobs Initiative, and their argument is that AB32 will cost California over a million jobs, something the state can hardly afford in the middle of a brutal recession. AB32's supporters dismiss CJI's numbers as ridiculous, and the ammunition employed by the two sides, as usual, is dueling reports. A study from Charles River Associates suggests that AB32 would reduce average household income in California by about 1%. A study from the Air Resources Board, by contrast, projects that both household income and the number of jobs in California would rise slightly by 2020. The Legislative Analyst's Office, generally considered an honest broker, suggests that California might suffer small near-term job losses if AB32 is implemented, but their analysis is pretty shallow and speculative and their conclusions were backed up with virtually no evidence at all. Energy efficiency, on net, is usually a winner, something that a wide variety of studies has confirmed.

But all three studies agree on two things: (a) the economic effects of AB32, whether positive or negative, are likely to be modest, and (b) there's a ton of uncertainty in the forecasts. The best bet is to simply admit that the most likely economic effect of AB32 is either zero or not far from it. The econometric tools at hand just don't allow us to say much more.

But that might not be enough to save AB32. A recent Field Poll showed that 58% of Californians favor the law, but that's a pretty thin majority. A barrage of industry-funded ads will probably eat into that majority, and turnout at the November election is likely to skew conservative. Add in California's 12.5% unemployment rate and you have a recipe for a pretty effective fearmongering marketing campaign.

But even if the repeal movement fails, AB32 could still be in trouble if a Republican wins the governor's race. Jerry Brown, the only serious candidate on the Democratic side, supports AB32, but both of the Republican candidates oppose it. And since the legislation allows the governor to suspend the law for a year in the event that it poses a threat of "significant economic harm," a Republican governor could effectively kill it for good by simply suspending it every year for as long as they're in office.

This makes AB32's future hazy to say the least. Supporters need to fight off a well-funded initiative campaign and make sure a Democrat is California's next governor. And they need to do it in an electoral environment that promises to be heavily favorable to the GOP and to anti-government forces in general. Four years ago AB32 promised to be the most muscular climate bill in the country. But unless a bunch of things go its way, by next year it might be dead.

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Oil Spill Goes From Bad to Worse

| Thu Apr. 29, 2010 1:51 AM EDT

I haven't verified these numbers myself, but the friend who sent them to me is a trustworthy sort. Experts now estimate that five times more oil has been spilling into the water from that oil rig explosion off the coast of Louisiana than they thought before:

Okay. Here's how much they estimated was leaking before this evening: 42,000 gallons a day.

Five times that amount means approximately 210,000 gallons a day have been leaking into the Gulf.

If this spill continues unabated for two months — and that seems to be the most likely time frame at this point — we're talking about 12.6 million gallons.

Exxon Valdez? That was 10.8 million.

Enjoy your evening.

But even that might be low. SkyTruth.org estimates that the spill rate is 20 times higher than initial estimates and that 6 million gallons of oil have already spilled into the Gulf. An Exxon Valdez size spill might only be a few days away.

Greece Plumbs the Depths

| Wed Apr. 28, 2010 11:58 PM EDT

You have to hand it to the LA Times for somehow dredging up a local angle to the Greek debt crisis:

Earlier on, with public protests against austerity plans escalating, the Athens government placed a $250,000 order for the body shields that Temecula-based Paulson Manufacturing Corp. makes for riot police and others.

Now, the order has been placed on hold. "We're waiting," the Athens government said in a short message to the company's international staff. "Their money problems in Greece are dramatically affecting us," said company President Roy Paulson.

Jeebus. The Greeks are so broke they can't even afford the protective gear they need to put down the riots caused by the country being broke. If the Germans bail them out, will they insist that the Greek government buy German riot equipment instead?

Chutzpah Watch: Financial Regulation Edition

| Wed Apr. 28, 2010 8:45 PM EDT

I've been noticing a new conservative meme lately. Basically, it's this: the government failed to stop the housing bubble, so it's folly to suggest that more government will stop any future bubble.

I don't really have anything to say about this. I'm just sort of bemused by the audacity of spending 30 years deregulating everything in sight, watching the financial system implode, and then blaming it all on weak-kneed bureaucrats. It's hard not to admire the chutzpah.

Better Coverups, Please

| Wed Apr. 28, 2010 5:28 PM EDT

China's women's gymnastics team in the 2000 Olympics has been stripped of its bronze medal after an investigation revealed that Dong Fangxiao was 14 years old at the time, not 16 as international rules require. How did our intrepid investigators figure this out? Like so:

Dong worked as a national technical official for the Beijing Olympics. Her accreditation information listed her birthday as Jan. 23, 1986, which would have made her 14 in Sydney. Also, Dong's blog said she was born in the Year of the Ox in the Chinese zodiac (Feb. 20, 1985, to Feb. 8, 1986).

Obviously China's athletic authorities are accustomed to pretty lackadaisical standards in the cover-up arena. Subtlety and thoroughness probably aren't especially urgent in authoritarian states, after all. But if they're going to compete with the West, they need to lift their game. Better coverups, please.

Obama and the Media

| Wed Apr. 28, 2010 2:36 PM EDT

If there's anything that reporters can write about at great length, it's themselves. Over at Politico, Josh Gerstein and Patrick Gavin prove that today with a 4,000 word opus about how poorly the Obama White House treats the press corps.

It's actually interesting reading in a gossipy sort of way. I'll just say this, though: I don't think this is an Obama issue, and I don't think it's a Republican vs. Democrat issue. I think it's just one of those things that gets continually worse over time. Nixon ran a tighter press shop than LBJ, Reagan ran a tighter one still (or, perhaps, a more sophisticated one), Clinton took it another step, and then Bush yet another. In the same way that (mostly) Republicans have discovered that a lot of legislative rules are actually just traditions that can be revoked whenever it's convenient, the White House over the years has discovered that it can put a tighter and tigher leash on the press and control its message better without paying any real price. I expect this process to continue regardless of who's in the Oval Office. It's just a reflection of the changing media environment.

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Wall Street And Its Rents

| Wed Apr. 28, 2010 1:58 PM EDT

Matt Yglesias points me to Daniel Gross, who writes in Slate about the history of Wall Street opposition to regulation and reform:

For the past several decades, Wall Street has continually told Washington that if the Street can't do things the way it always has, and if the government changes the rules to mandate greater transparency and customer protection, that the geniuses in Lower Manhattan won't be able to make money, and it would stunt the industry. They've been wrong every time.

It's worth noting that in all of Gross's examples, the geniuses were actually right: they complained that they'd make less money, and they did. The reforms may have been good for everyone else, but they really did erode the profits of the banks that had built up their franchises around offering services under the old rules. As Gross says about their latest self-serving whining, "The opposition to moving derivative trades to a clearinghouse isn't about protecting customers. It's about protecting the entrenched positions and profits of large banks."

That's all perfectly understandable, of course. The real puzzlement is why customers haven't ganged up to complain about this more. Or, for that matter, aggressive small banks that think they could break into the derivatives market if it were more transparent. It's pretty obvious why big banks don't want to give up the massive profits of the OTC derivatives trade, but a little less clear why their opposition is so muted.

Rushing Through Reform

| Wed Apr. 28, 2010 1:34 PM EDT

Right now, credit derivatives are the personal fiefdom of five big banks. Blanche Lincoln wants to make those five banks spin off their derivatives operations, but the Fed's technical staff is opposed:

Fed staff members wrote that the provision, advanced by Senate Democrats, "would impair financial stability and strong prudential regulation of derivatives; would have serious consequences for the competitiveness of U.S. financial institutions; and would be highly disruptive and costly, both for banks and their customers."

Democrats rejected the Fed's push and decided to include the controversial provision, originally drafted by Senate Agriculture Committee Chairman Blanche Lincoln (D., Ark.). It would force any financial company that has insured deposits or can borrow from the central bank to spin off its derivatives operations. Ms. Lincoln has said this would protect taxpayers from having to offer public support for speculative trading operations. The Agriculture Committee passed the derivatives bill last week.

I'm not altogether sure where I stand on this. But I will make one comment: Republicans have a habit of complaining that Democrats are "rushing" their legislative agenda, and most of the time the charge is simply ludicrous. Whether it's heathcare or climate change or financial reform, they're usually talking about things that have been publicly discussed for years and actively part of the legislative process for many months at a minimum. It's a useful rhetorical tool for gullible reporters, but nothing more.

But in this case, there's something to it. Lincoln's proposal, as near as I can tell, came out of nowhere a couple of weeks ago. There's a general argument in its favor — namely that it would push risky derivatives away from federally insured banks and reduce the size of those banks at the same time — but not much in the way of serious discussion of the upsides and downsides. That hasn't changed much in the past couple of weeks, either. I've seen virtually no detailed discussion of what this proposal would entail.

I'm sympathetic to the idea on the simplistic grounds that it would (a) reduce the size and profitability of big banks, and (b) probably reduce the size of the derivatives market. I also find the Fed staff's arguments weak. It's the kind of boilerplate that we're fed about practically every proposal to rein in the financial sector. Still, it's hard to believe that we should enact a measure this sweeping with virtually no time for serious discussion. This one really needs a little more time for consideration.

Petitions and Politics

| Wed Apr. 28, 2010 12:49 PM EDT

Stephanie Mencimer writes today about a Supreme Court case challenging the right of Washington state to release the names of people who signed a petition to overturn its domestic partnership law:

The lawyer leading the attack on these states' disclosure laws is James Bopp, a leader of the Christian Right with an uncanny ability to spot weaknesses in campaign finance statutes and obliterate them via the First Amendment....And while his clients in these cases are usually religious or conservative groups, the biggest beneficiary of these efforts has been, almost exclusively, corporate America.

....Bopp has already succeeded in keeping the Ref. 71 names under wraps for a year, winning an injunction from a federal district court in Washington. The 9th Circuit Court of Appeals reversed that decision, but then the Supreme Court reinstated the injunction and agreed to hear the case. The high court's interest in Reed should trouble anyone unhappy about the court's overreach in Citizens United. If the court finds that petition-signers deserve anonymity, it's not much of a stretch for it to decide that campaign donors should also be shielded, lest they get nasty emails about their political views.

I'm a little nervous about this. Obviously Bopp and his cause don't evoke much sympathy from us liberals, but I'm not sure that I'm not on his side here. To me, signing an initiative petition seems more similar to voting than it does to giving money to a candidate. It's one thing to take the risk of making your political views public if you take the active step of contributing to a candidate or a cause, but it strikes as quite another thing to take that risk for the very routine step of signing an initiative petition. It's simply not clear to me what the public good is in allowing this.

The big concern, of course, is that "it's not much of a stretch" to decide that campaign contributions should be kept private too. But I don't see that. Substantively, there's a huge difference: knowing where money is coming from is fundamental to even the most limited kind of campaign finance regulation. If you strike that down, you've essentially wiped out the power of Congress in this area almost entirely. Conversely, keeping the names on initiative petitions private has virtually no knock-on effects at all.

Practically, I'm not sure I see the slippery slope either. If a majority of the Supreme Court decides that campaign contributions can be kept private, then that's how they'll rule. I don't think they need to sidle up to it slowly by ruling on initiative petitions first.

But I guess here's my challenge, and it's an honest one: can anyone explain to me the social good that comes from making names on initiative petitions public? On the downside, it will make people less likely to sign petitions,1 and it also opens them up to potential harrassment from opponents and employers2 — not to mention fundraising pitches from fellow travelers. On the upside — what? I can't think of any argument that wouldn't also apply to exposing my votes to public scrutiny. But school me in comments if you think I'm missing something.

1Which, admittedly, some might see as an upside. But that's just snark, not a serious public policy argument.

2I'm thinking here of, say, a secretary in a Mormon church who signs a petition in favor of gay marriage and finds his name on the internet a couple of months later. How long would it be before someone in the church office figured out an excuse to fire him?

Quote of the Day: Gordon Brown

| Wed Apr. 28, 2010 12:04 PM EDT

From British prime minister Gordon Brown, forgetting to turn off his mike after chatting with constituent Gillian Duffy:

She was just a sort of bigoted woman. She said she used be Labour. I mean it's just ridiculous.

Poor Gordon. I mean, at some point you almost have to feel sorry for a guy so badly suited to politics. Nick Clegg must practically be cackling. You can watch the whole debacle on the right. The insults come at around the 4:30 mark.