California Finally Adopts Cap and Trade Program

California formally adopted its "cap-and-trade" system Thursday, which is designed to provide financial incentives for polluters to reduce greenhouse gas emissions. The California Air Resources Board voted unanimously to approve the final draft of its plan, a key part of the state's landmark 2006 global warming law, AB 32, which seeks to reduce the emissions to 1990 levels by 2020.

The Center supported AB 32 and supports California's cap and trade program.

Some businesses regulated under the program argue it will increase the price of electricity for consumers and hurt job creation by raising the cost of doing business in the state. But the program's supporters expect cap-and-trade to spur economic recovery and innovation, by pushing business to invest in clean technologies.

While implementation of some parts of the program will begin in 2012, compliance for power plants and other of the worst polluting facilities actually starts in 2013, with others joining in 2015. In total, the plan will cover 85 percent of California's emissions.

In general, the program will require pollution producers like refineries and cement manufacturers to buy permits, called allowances, from the state. Each permit allows for a specified amount of greenhouse gases each year, with the amount declining over time. Companies that cut emissions and have extra allowances can then sell the permits in a marketplace; greenhouse gas emitters could purchase those allowances if they failed to cut emissions. Polluters that reduce emissions could turn a profit if the market price for extra allowances rises above the initial cost of the permit. A company can also meet up to 8 percent of its emissions reduction obligations by purchasing carbon "offsets," or investments in forestry or other projects that reduce greenhouse gases. To help companies prepare, 90 percent of the allowances would be free in the first years, providing time for equipment upgrades.

The program was briefly halted by a judge after environmental justice groups sued, arguing the market-based approach of cap-and-trade would allow polluters to buy the right to pollute more by purchasing more allowances. This, they argued, would affect mostly low-income neighborhoods located near governed facilities. The California Supreme Court in September allowed work to continue on the regulations.

In response to these concerns, the board on Thursday also approved a new "adaptive management plan," under which the air quality of neighborhoods near power plants and other regulated facilities will be monitored to see if any more pollution results from cap-and-trade. If increases are found to be a result of cap-and-trade, the board said it would respond. (Anchorage Daily News, AP, 10/19/2011)