California Finalized Details of Its Cap-and-Trade Program

The California Air Resources Board (CARB) finalized the rules for the golden state’s cap-and-trade program last week. The cap-and-trade program is part of California’s climate change law (AB 32) which mandates greenhouse gas emissions (GHG) be reduced to 1990 levels by 2020. The program covers 360 businesses representing 600 facilities, and will be implemented in two phases. The first phase will start in 2013 and will include all major industrial sources plus electricity utilities. The second phase will start in 2015, and includes transportation fuels, natural gas and other fuels.

The program will set a limit on sources responsible for 85 percent of California’s GHG emissions. CARB will provide the majority of allowances to all industrial sources during the first phase, using calculation that rewards the most efficient companies. Companies that need more allowances to cover their emissions can purchase them at quarterly auctions CARB will hold or buy them on the market. The first auction is slated to be held in August 2012.

“Cap-and-trade is another important building block in California’s effort to create a clean and vibrant economy,” said ARB Chairman Mary D. Nichols.  “It sends the right policy signal to the market, and guarantees that California will continue to attract the lion’s share of investment in clean technology.  When the nation addresses the growing danger of climate change, as I believe it must and will, California’s climate plan will serve as the model for a national program.”

According to CARB, 80 percent of a company’s emissions can be covered using credits from CARB-certified offset projects (in forestry management; urban forestry; dairy methane digesters; and, the destruction of existing stores of ozone-depleting substances in the U.S.) By 2020 California will reach the equivalent of 1990 levels of GHG emissions, a 15 percent reduction compared to what emissions would be in 2020 without the program.

Tim O’Connor, director of the Environmental Defense Fund's California Climate and Energy Initiative, calls the cap-and-trade program the “first-ever economy-wide market for greenhouse gas reductions in North America.”

"The ability of polluters to make onsite reductions or purchase verified pollution reduction credits from others creates a market for emissions reductions," O'Connor said. "This market establishes a statewide incentive for regulated business, clean tech innovators, and third-party emissions reduction project providers to find ways to cut climate pollution as fast and as cheap as possible."

The program is designed so that California can link up with programs in other states or Canadian provinces in the Western Climate Initiative (WCI), a regional carbon trading initiative. There are six states (California, Montana, New Mexico, Oregon, Utah and Washington) and four Canadian provinces (British Columbia, Manitoba, Ontario and Quebec in the WCI.

Photo: Flickr user, Paul J. Everett