Cap & Trade

According to the United State Environmental Protection Agency, “Cap and Trade” is a market-based policy tool for protecting human health and the environment. A cap and trade program first sets an aggressive cap, or maximum limit, on emissions. Sources covered by the program then receive authorizations to emit in the form of emissions allowances, with the total amount of allowances limited by the cap. Each source can design its own compliance strategy to meet the overall reduction requirement, including sale or purchase of allowances, installation of pollution controls, implementation of efficiency measures, among other options. Individual control requirements are not specified under a cap and trade program, but each emissions source must surrender allowances equal to its actual emissions in order to comply. Sources must also completely and accurately measure and report all emissions in a timely manner to guarantee that the overall cap is achieved.

California Cap and Trade

The Assembly Bill 32 Scoping Plan identifies a cap-and-trade program as one of the main strategies California will employ to reduce the greenhouse gas (GHG) emissions that cause climate change. This program will help put California on the path to meet its�goal of reducing GHG emissions to 1990 levels by the year 2020, and ultimately achieving an 80% reduction from 1990 levels by 2050. Under cap-and-trade, an overall limit on GHG emissions from capped sectors will be established by the cap-and-trade program and facilities subject to the cap will be able to trade permits (allowances) to emit GHGs.

The California Air Resources Board (ARB) is working with stakeholders to design a California cap-and-trade program that is enforceable and meets the requirements of AB 32, including the need to consider any potential impacts on disproportionately impacted communities. Consistent with AB 32, ARB must adopt the cap-and-trade regulation by January 1, 2011, and the program itself must begin in 2012.

California also is working closely with six other western states and four Canadian provinces through the Western Climate Initiative (WCI) to design a regional cap-and-trade program that can deliver GHG emission reductions within the region at costs lower than could be realized through a California-only program. To that end, the ARB rule development schedule is being coordinated with the WCI timeline for development of a regional cap-and-trade program.

For more information: California Air Resources Board Website Section on Cap and Trade

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