Earlier this month, Jerry Brown and legislators happily carved up $850 million they figure will flow into state coffers from California's cap-and-trade experiment.
Brown got $250 million for his pet project, high-speed rail. Legislators got $400 million for housing and transit, plus more for alternative energy concepts. But while they patted one another's backs, a problem in the cap-and-trade system emerged 2,000 miles away in the town of El Dorado, Ark.
El Dorado was an oil boomtown in the 1920s, but nearly a fourth of its 18,000 residents live below the poverty line now. The Associated Press reported in 2005 that El Dorado has some of the worst air in Arkansas. It also has a huge incinerator that is a link to California's cap-and-trade program.
If oil refineries and other polluters cannot fully attain state-imposed caps on greenhouse gas emissions, they must trade - or pay - in other ways to help save the Earth. One way is to "offset" emissions by contracting with Eos Climate. Based in San Francisco and funded by Silicon Valley venture capitalists, Eos proclaims that it provides "cool benefits for the planet and for business."
Eos, named for the Greek goddess of dawn, buys chlorofluorocarbons, which are nasty gases that keep old air conditioners and refrigerators cold but punch holes in the ozone. Eos collects it and transports it to El Dorado, where it is destroyed in a 2,000-degree incinerator.
Clean Harbors Inc., a multibillion-dollar corporation that owns the incinerator, is based in Norwell, Mass., which, unlike El Dorado, is one of the nation's wealthiest communities and has no hazardous-waste incinerator. Not that we Californians would want the incinerator, either. We are, however, willing to wrap hypocrisy in irony and ship it to Arkansas, so we can provide cool benefits for business, and the planet, too.
The El Dorado incinerator destroys 80 percent of the chlorofluorocarbons nationally, 230 tons in 2011 and 300 tons in 2012. Demand is rising because of business generated by California, so much so that Clean Harbors is building a new incinerator in El Dorado.
Why Arkansas and not, say, California?
"You can't operate an incinerator in California," said Phillip G. Retallick, who oversees regulatory affairs for Clean Harbors.
Retallick said Arkansas officials took 18 months to approve Clean Harbors' permit for the new incinerator. By contrast, Clean Harbors runs a hazardous-waste landfill in Kern County and has had a request pending to renew the permit since 2005, he noted.
The California-to-Arkansas connection was working well until last month, when the Environmental Protection Agency announced a $581,236 penalty against Clean Harbors for improper storage and handling of hazardous waste. Clean Harbors admitted no wrongdoing but paid the fine.
Referring to the EPA's action, the California Air Resources Board, which oversees cap and trade, sent an email on May 29 to companies that paid for the so-called ozone-depleting substances offsets announcing it was suspending the El Dorado link.
The air board offered little explanation, beyond saying the El Dorado incinerator offsets "may have been generated while the facility was not in compliance with provisions of its operating permit."
Despite the significance of the action, the air board issued no press release announcing it. Air board spokesman Stanley Young would not discuss the matter, saying in an email that an investigation continues.
The air board doesn't disclose the identities of polluters that buy the offsets. That's considered proprietary information.
But under the program's rules, each company is at risk for what it spent to destroy chlorofluorocarbons in Arkansas, as much as a combined $43 million, said Jean-Philippe Brisson, a partner in the New York office the law firm Latham & Watkins, which represents some of the companies.
Brisson, representatives of EOS Climate and Clean Harbors insist there is nothing wrong with the El Dorado incinerator, and are lobbying the air board to allow the offsets.
Jeff Cohen is a founder and senior vice president at Eos Climate, who helped the California Air Resources Board write the rules governing destruction of ozone-depleting substances.
"We expect the Air Resources Board will come out of this with a more refined definition of what regulatory compliance means, and I think it will result in a stronger program," Cohen said.
Cohen said Eos does business with Clean Harbors because its incinerator is "state of the art."
In reporting the $581,000 fine, the Arkansas Democrat-Gazette counted 13 consent orders or notices against the El Dorado incinerator during the past 10 years.
"If a scofflaw is someone who has serial violations, they would fit the bill," Little Rock attorney Sam Ledbetter, who has sued over mishaps at the facility, said by phone. "But they have a permit and they keep burning stuff."
Ledbetter first sued over a 2005 fire that forced the evacuation of hundreds of people, including nursing home residents and 150 inmates from a county jail. Another company owned the incinerator then. Ledbetter sued Clean Harbors over a December 2012 incident in which a cloud of chlorine wafted over El Dorado.
"I'm pretty sure this thing wouldn't go over too well in Marin County," Ledbetter said. I'm pretty sure he's right.
Under the cap-and-trade program, polluters can purchase four types of offsets. One is to destroy ozone-depleting substances. Another is to pay to protect forests. A third is to eliminate methane emissions from manure at dairies in New York, Michigan, Minnesota, Indiana and Idaho. Starting in July, California polluters can pay to offset methane emitted from coal mines, none of which are in California.
Sen. Ricardo Lara, a Los Angeles-area Democrat, carried a bill last year that would have limited the offsets to California. The oil industry, California Chamber of Commerce and Eos Climate lobbied against it; the bill died.
If all this seems arcane, it is. Without question, chlorofluorocarbons should be destroyed. But maybe there is a simpler way, like passing a law requiring their destruction.
Or maybe polluters could pay to, say, scrap old diesel engines that foul the air in the Los Angeles basin and Central Valley, or make sure that every dairy in California has a digester to reduce methane emissions from California cows. Of course, that might not be quite as cool for certain businesses.
Follow Dan Morain on Twitter @danielmorain.