Climate: California Approves Carbon Cap-and-Trade

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California Governor Arnold Schwarzenegger Credit: Robyn Beck / AFP / Getty

OK, so a national carbon cap-and-trade program is, as we’ve said many times before, extremely dead. And at this point, no one has any idea what form energy and climate legislation might take over the next couple of years, or whether anything’s really possible. Climate change hasn’t gone away, even if many people are pretending that it has—NASA has reported that 2010 will likely be the hottest climate year on record. But that’s not translating to national action any time soon, even if the international climate process has come back from the dead.

Into that vacuum steps the great state of California, however, where regulators voted last night to approve the creation of a comprehensive carbon cap-and-trade program. The state’s powerful Air Resources Board (ARB) voted 9-1 to approve the plan, which will be the key part of California’s effort to reduce its greenhouse gas emissions to 1990 levels by 2020, an ambition that was put into law in the state’s 2006 climate change act, known as A.B. 32. As ARB chairman Mary Nichols said in a statement following the vote, which came after testimony from more than 170 witnesses:

This program is the capstone of our climate policy, and will accelerate California’s progress toward a clean energy economy. It rewards efficiency and provides companies with the greatest flexibility to find innovative solutions that drive green jobs, clean our environment, increase our energy security and ensure that California stands ready to compete in the booming global market for clean and renewable energy.

The cap-and-trade will eventually cover about 85% of the state’s industrial greenhouse gas emissions, with the rest of California’s emissions covered by fuel-efficiency standards and other regulations. The cap-and-trade system will be relatively straightforward, at least in theory: power plants, oil and gas refineries, steel manufacturers and other heavy industries that emit more than 25,000 tons of CO2 a yea will be put on a carbon cap. At first they’ll receive free allowances that will cover most of their emissions, but over time they’ll have to buy those allowances through quarterly auctions that will begin in 2012. If a company manages to keep its emissions level below the cap, it will be able to sell off excess allowances to other companies that might be emitting above the cap—hence the “trade” in cap-and-trade.

Companies will also be allowed to purchase carbon offsets, although the final rules over what will constitute an offset have yet to be set. Expect that to be controversial—dozens of witnesses and a few ARB members spoke out yesterday against a provision that would have made forest clearcutting eligible to receive credits for improved forest management. Many environmental groups worry that such a standard could inadvertently encourage forest loss, making the offsets virtually meaningless—though the Nature Conservancy, for one, is in favor of the provision. The question is whether the rules will actually encourage the planting of more trees over time, increasing the overall amount of carbon stored in California’s forests. “The total amount of carbon must be increased and it must be maintained over the long-term,” says Gary Gero, the president of the Climate Action Reserve, a group that certifies and tracks offsets. “This is going to continue to evolve over the future.”

Industry has always been, at best, wary about California’s climate-change law, but with the defeat of Proposition 23 on the November ballot—which would have all but blocked A.B. 32—there’s little choice but to embrace it now. Still, there are concerns about the overall cost of the cap-and-trade system on energy and electricity prices, and on a state economy that is suffering through 12% unemployment. As John Telles, the one ARB member who voted against cap-and-trade, told Climatewire:

This is a regressive tax on the most economically disadvantaged communities. I don’t think we can pass something that doesn’t in very strong language protect the people. This is a moral issue that’s beyond the issue of greenhouse gas reductions.

Still, as Governor Arnold Schwarzenegger—who sees A.B. 32 as a chief part of his legacy—has said time and time again, taking strong action on global warming can help the state build its green economy. “Adoption of a program like this is probably California’s best insurance against future recessions,” Nichols told the San Francisco Chronicle. With a $1.7 trillion gross state product, California alone is the world’s eighth-largest economy, so even if it is acting alone while the rest of the country drags its feet on climate change, the state has a real chance to make a difference. It also means the concept of carbon cap-and-trade may not be quite dead yet.