California High-Speed Rail Authority

State cap-and-trade revenue, which now includes tailpipe credits, appear set to far outpace expectations.

The California high-speed rail project got a big funding cushion last summer when the state set aside 25 percent of cap-and-trade revenue for the $67.6 billion bullet train between Los Angeles and San Francisco. Now it turns out that cushion might be much bigger than expected.

The state's latest budget anticipates about $1 billion dollars in total cap-and-trade revenue for 2015-16, leading to about $1.7 billion over 2014-2016. But when the state's Legislative Analyst's Office crunched the cap-and-trade numbers late last month, they were much higher. As in roughly twice as high for the LAO's most conservative 2014-16 revenue scenario, and about $6 billion higher in the most ambitious outlook.

LAO's Ross Brown has the digits (via California High-Speed Rail Blog):


While acknowledging that every cap-and-trade revenue scenario comes with some uncertainty, Brown writes that the latest carbon auction—conducted this February—was consistent with the "moderate revenue" scenario. "The low- and high-revenue scenarios are plausible, but less likely," he writes. "Under all three scenarios, state auction revenue will likely be significantly higher than what is assumed in the budget."

If he's correct, the state stands to bring in $3.7 billion over 2014-16. And with its 25 percent cut, high-speed rail stands to get a $925 million windfall.

Cap-and-trade revenue itself got a big boost after the new year, with fuel suppliers now required to pay for carbon emissions. Previously, only large industrial firms had to buy carbon cap-and-trade credits. Gas distributors joined the party after January 1, and the result was $969 million in cap-and-trade revenue at the quarterly auction in February—reportedly the largest total to date.

As expected, gas suppliers seem to have passed this charge onto drivers, with fuel prices rising early in the year. UC-Berkeley economist Severin Borenstein has predicted a 10-cent-a-gallon increase at the pump in the near term, rising to about 14 cents by 2020. He shares the technical details in a December op-ed in the L.A. Times:

The calculation looks like this: When you buy one gallon of California gasoline, the seller will have to cover about 18 pounds of emissions. At the current price of allowances — about $12 per metric ton — that works out to about 10 cents per gallon of gas. So, in early January, the state's cap-and-trade program will increase our gas prices by about a dime.

A dime a gallon is hardly a game-changer for California drivers. But the cap-and-trade program does indicate a willingness to pay at least part of the hidden social cost of driving. And the revenue is a "game-changer" for high-speed rail, as the authority notes in its March public update. Perhaps even more of one than it realized.

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