California cap & trade: The trucking impact

Opponents of California's cap and trade program fear the result will be a rise in fuel prices, as much as 73 cents by 2031.

Opponents of California's cap and trade program fear the result will be a rise in fuel prices, as much as 73 cents by 2031.

California Assembly Bill No. 398, otherwise known as The California cap and trade extension, has become but a blip in the news cycle, since the law was passed. The bill extended the state’s cap and trade program that aims to cut greenhouse gas emissions until 2030.

The program started under a California law enacted in January 2013. Its main objective is to lower the levels of greenhouse gas emissions with the 1990 level of emissions set as the baseline. Opponents of the original law and the new extension argue that the laws will result in higher fuels prices, with California already having one of the highest average prices in the nation. With the trucking industry reliant on fuel to keep their operations running on a regular basis, how will this affect business operations?

What is cap and trade?

According to the Environmental Defense Fund, cap-and-trade is a strategy to reduce pollution. The cap refers to the limit or cap applied on the carbon emissions that contribute to global warming. Any company found to be going beyond the cap imposed on them is subject to monetary penalties. The trade refers to the allowances that these companies earn to emit a certain amount of emissions. It was the controversial part of this strategy as it basically is a way for companies to buy and sell allowances to emit more carbon emissions. Unless they don’t have the budget of course.

This is one of the concerns small businesses, particularly those involved in the trucking industry. Not everyone has jumped on the bandwagon of climate change. Nor does everyone understand the science behind the cap-and-trade of carbon emissions.

According to a report by the California Environmental Protection Agency’s Air Resources Board, much of the application of the 2013 law, in terms of transportation impact, didn’t start occurring until 2015. Yet the burden is already being felt right in the budget. Trucks, still dependent on diesel fuel, have been forced to raise rates to pay for the higher fuel costs.

Fleet contracts secured before the recent extension means that fuel prices may be fixed, so if the extension triggers another rise in fuel costs, it may take longer for fleets to make money on those contracts.

Lack of data regarding oil price predictions.

Climate change has become one of the factors being blamed for the oil price hike. But oil price predictions cannot be made when much of the data leans towards the average household savings instead of comparisons on oil prices through the years. In a Sacramento Bee report, Steven Cliff of the California Air Resources Board was quoted telling the Senate Appropriations Committee, “We do not predict gasoline prices. We look at cost per household.”

The same report cited critics of the bill, like Jon Fleischman, stating that the increases to be expected make the California state gas tax minuscule in comparison. “Make no mistake about it - cap and tax is a gas tax that is more than five times worse than the one that was just passed,” he said.

He based this statement on a letter signed by legislative analyst Mac Taylor to the Assembly Member of the 34th District, Vince Fong. In the letter, the predicted gas price increase could go as much as 73 cents per gallon by 2031.

With most of the impacts of the California Cap And Trade Extension revolving around fuel price increases, industries dependent on fuel like the trucking industry will feel the pinch the most. And these fuel consumers either adjust to these price increases or generate losses.