California Dreamin’

Joan and I have just returned from a road trip along the beautiful central California coast.

California’s economy – which, if California were a nation, would be the 8th largest in the world – has been hit hard by the economic downturn. We saw some Occupy Los Angeles demonstrators on our way to the coast attesting to that. To compound matters, the difficulties associated with actually conducting a manufacturing business in California, even in the best of times, are pretty general knowledge.

In California, the ideological divide on human generated climate change is even more severe than in most of the U.S. The majority in major population centers is quite concerned about climate change and strongly supports – make that “demands” rather than “supports” — actions to limit greenhouse gas emissions. In more rural areas, human generated climate change is often associated with Chicken Little. However, the folks from the population centers control the State Government.

So, last week California decided to proceed with a Cap and Trade program, which will impose a limit on the aggregate emissions of greenhouse gases (GHGs) in the State.

Power utilities and heavy industries will receive specific allocations, which will decline year over year until the program is fully implemented in 2020. Permit holders that emit less than their allocation can sell the balance of their allocation, while those that emit more than their allocation will have to buy allocation permissions on an open market.

Cap and Trade is hardly a new idea. It is part and parcel of the Kyoto Agreement, which almost every nation except the U.S. has signed. Such a program is law in the European Union. In Australia, a perceived lack of vigor in pursuing climate change issues resulted in a change of Prime Ministers. The current Australian government recently passed a Carbon Tax of about $28.00 a ton on GHG emissions, to be replaced by a Cap and Trade program in a few years. There are regional agreements among states in the Middle Atlantic and Southwestern parts of the U.S.

Any way you look at it, GHG reductions will affect the cost of electric power and the cost of activities such as manufacturing that utilize electric power. In global commerce, areas that reduce GHG emissions will suffer a cost disadvantage compared to those that do not. And there is only one global atmosphere.

I think that the debate on human generated climate change is going to continue for a while, at least in the U.S. While the California program is an important precedent, I see little appetite for national legislation, at least until after the elections next year. Still, the tide seems to be running toward an eventual U.S. national Cap and Trade or Carbon Tax program sometime in the future.

What is a smaller manufacturer to do? Forget about ideological disputes and focus on energy efficiency improvements. With or without Cap and Trade or a Carbon Tax, electric power costs will continue to go up. In any case, manufacturers can take advantage of available support and incentives to improve power utilization efficiency and profit from doing so. The Jera website and a number of earlier posts on this blog provide specifics on how to get started – check them out at

Thoughtful comments are always welcome. Click on the title of this post to open the comments section.

…  Chuck

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