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Will California's Cap And Trade Bill Have An Impact On Gas Prices?

SACRAMENTO (CBS13) — The days of paying under $3 for a gallon of gas may soon be over, under California's newly extended climate change legislation, requiring companies to pay the state to release greenhouse gases.

"If we don't want pollution, we should have to pay," said Larry Levine of Sacramento.

But Larry Levine drives a fuel-efficient Prius. For everyone else.

"I don't like it. I just don't like it," said one driver.

"It's another bad idea," said another.

The idea that California's new cap and trade policy will hike gas prices comes from nonpartisan legislative analysts.

According to a March memo sent to Assemblyman Vince Fong, prices at the pump could increase between 24 and 73 cents a gallon between now and 2031.

We consider post-2020 cap-and-trade allowance prices under two hypothetical scenarios—a relatively low price (known as the auction reserve price, or price floor), and a relatively high one (known as the Allowance Price Containment Reserve [APCR]


Under the auction reserve price scenario, cap-and-trade would raise gas prices by an estimated 15 cents per gallon in 2021, increasing to 24 cents per gallon in 2031. Under the APCR price scenario, cap-and-trade would raise gas prices by an estimated 63 cents per gallon in 2021, increasing to 73 cents per gallon in 2031. To obtain these estimates, we assume that retail gasoline prices would increase by 9 cents per gallon for every $10 per metric ton of carbon dioxide equivalent that an allowance costs. Importantly, based on our review of research, we assume that the burden of additional fuel costs will fall completely on motorists. We also assume that the program does not affect fuel prices through other channels.

"That's a hidden gas tax increase," said David Wolfe with the Howard Jarvis Taxpayers Association.

The group also fought a recent gas tax increase, raising prices by 12 cents a gallon to pay for fixing bad roads. But analysts say the impacts of cap and trade won't be felt directly. They estimate that placing caps on carbon emissions forces polluters to pass on those caps to consumers.

"We have a strong degree of assurance [that prices will go up]. Cap and trade has been in place for [about] 10 years. What that's resulted in already is a gas price increase of at least 15 cents a gallon," said Wolfe.

But backers of the measure testified the opposite.

"This program doesn't dictate gas prices. The global market does," said a supporter of cap and trade at Monday's Senate Appropriations Committee ahead of the legislative vote on the measure.

It's a theory even some Republicans support.

Rocky Chavez was one of eight Republicans who voted for the extension of cap and trade.

"[My bottom line], it was a market-based system that took care of jobs, that kept industries here while dealing with the threat of climate," said Chavez (R- San Diego.)

The next step, he says? More clean-car technology.

They go further on gas and favor the air.

"For cleaner air, I'm willing to pay a little more," said Levine, before taking off in his Prius.

The new legislation extends cap and trade until 2030.

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