Cap and Trade in California

By Abby Volkmann ‘13Environmental Columnist

A cap-and-trade scheme was developed under California’s 2005 Global Warming Solutions Act (AB32) as a strategy to reduce greenhouse gas emissions to 1990 levels by 2020. California’s Air Resources Board (CARB) was designated as the primary regulatory agency in charge of designing the plan for the state to meet the statutes of AB32. The cap- and-trade program is just one of the projects that CARB established in the Scoping Plan. Others include performance standards for cleaner cars, fuels, energy efficiency, and renewable energy requirements. AB32 is one of the most aggressive climate action strategies in the world right now.

The cap-and-trade program will take effect on Jan. 1, 2013 and will use market mechanism to provide incentives for companies to find cost-effective and innovative ways to reduce greenhouse gas emissions. The first phase of the scheme includes electricity suppliers and industries that emit more than 25,000 metric tons of carbon dioxide, but in the future the program will extend to providers of gasoline, diesel, and natural gas. Businesses buy pollution allowances (pollution permits) that represent one metric ton of carbon and must emit equal or fewer metric tons of carbon than the number of allowances they purchased that year. For example, if an industry emits 25,000 metric tons of carbon then that industry is required to turn in 25,000 pollution allowances. A company will be punished if it fails to obtain the correct number of pollution allowances. In order to ensure the state’s emissions are consistently reduced, CARB will reduce the number of pollution allowances available by 2-3 % each year.

On Nov. 14, 2012 CARB held the auction for the pollution allowances, which occurred online and lasted three hours. Participating bidders submitted bids to purchase three times CARB’s available 23.1 million allowances for 2013, which is evidence of California’s dedication to lowering its greenhouse gas emissions. As the number of available allowances decreases, companies must decide how to pay for their emissions. Their choices include burning less fossil fuel, buying allowances from other companies, or becoming more efficient.

The world is watching as California instates its cap-and-trade scheme, and I look forward to seeing the overall performance of the program.