California’s carbon trading plan explained

capandtrade By now, you’ve likely heard that California created a carbon market to reduce pollution. You may not know, however, what that news means, exactly. Here are quick answers to some of the questions you may have.

What’s cap and trade, and how will the program work in California?

Basically, California’s adopted a program to put a cap on the total amount of emissions that are allowed by major industries — then shrink that cap each year. The long term goal is to “gradually reduce emissions to about 15 percent below 2012 levels by 2020,” according to NYT.

Regulated industries will be given “allowances” — one allowance equaling one ton of greenhouse gas emissions — that they can use by releasing greenhouse gases themselves, or can trade (as in sell) to others who’d like to pollute. Here’s NPR‘s example of how carbon trading would work:

If a company in Fresno is 15 percent under its pollution allowance, it can sell the unused portion to a company in Long Beach that has exceeded its quota. The Fresno company gets to keep the money. Polluters can even make a profit, if the marketplace sets a price above the initial cost of the permit.

On top of the allowances, regulated industries can also offset up to 8 percent of their greenhouse gas emissions by investing in programs that reduce greenhouse gas emissions elsewhere. This part of the program was highly controversial according to Climatewire, because of a “provision that would make clearcutting eligible to receive offset credits for improved forest management” that pitted environmental groups against each other. LAT has more on that debate, which the pro offset side won.

Why’s this cap and trade program important?

Because California will now have the the world’s second largest cap and trade program (after Europe) — and the biggest carbon market in the U.S. California’s program’s especially notable because efforts to pass a federal cap and trade program recently failed.

Why are we doing this now?

Because of AB32, a.k.a. California’s 2006 Global Warming Solutions Act. AB 32 “requires the state to slash greenhouse gas emissions to 1990 levels by 2020 — amounting to a 15% cut below today’s levels,” according to LAT. The deadline to get a carbon cap program in place to make AB 32 happen is next month, so Calif. regulators were under the gun.

Are the environmentalists happy?

Not all of them. Major controversies about California’s cap and trade program begin with the controversy over — the fact that it’s a cap and trade program. Remember how regulated industries are given “allowances” for a certain amount of pollution each year? In a cap and trade program, these allowances are usually given out free — which grates against some environmentalists because regulated industries can then sell those allowances. As NPR points out, “Polluters can even make a profit, if the marketplace sets a price above the initial cost of the permit.”

That’s why “Many speakers at the public hearing criticized the board’s decision to ignore its own economic advisory committee’s recommendation to auction those allowances from the start of the program, rather than give them to industry and phase in auctions,” according to LAT. For a simple video that explains some environmentalists’ anti cap-and-trade point of view, watch The Story of Cap and Trade.

For better or worse, California’s program is a cap-and-trade program, and free allowances will be given out. According to NYT:

The allowances will be mostly free for the first three years of the program, with the overall total of allowed emissions declining by 2 percent a year during that time….

In the program’s next three years, distributors of transportation fuels will be included but will get no free allowances. The number of annual allowances in the program will also more than double. Thereafter, until 2020, the number of allowances will decline by 3 percent annually.

When does the program begin?

The beginning of 2012. And a lot has to happen before that time. As NRDC’s Alex Jackson points out, many details still have to be worked out — like allowance distribution in the electricity sector. So the California Air Resources Board will be holding many more meetings to hash out the details.

KQED’s Climate Watch gives an overview of the process. “Several facets of the regulation will now undergo a fine-tuning process, with another report back to the board in July of next year. Eventually it will find its way to the state’s Office of Administrative Law for review, and finally to the governor’s office, to be signed as an executive order.”

Why’s California doing this all alone?

Well as I mentioned, federal efforts to pass a cap and trade program didn’t pan out. But NYT points out that “Ten states including New York, New Jersey, Delaware, Maryland and the New England states are participating in a less extensive system known as the Regional Greenhouse Gas Initiative, which covers only electric utilities.”

And California’s system could link up to other programs, according to NPR and NYT, which reports that “By the time the program takes effect in 2012, California regulators plan to have created a framework for carbon trading with New Mexico, British Columbia, Ontario and Quebec — some of its partners in the Western Climate Initiative.”

Photo: A power plant is seen next to the Los Cerritos Wetlands as land developers and wildlife conservationists compete for the vanishing wetland near Long Beach, California in 2007. (David McNew/Getty Image)


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