Cap and trade may be a near impossibility on the national level at this point (thanks, dead climate bill!), but California is still pushing ahead with a system that will require major polluters to cut down on carbon emissions, but will give them the option to trade carbon credits on a newly introduced market. The system, which is set to go into place in 2012, will be the first carbon trading program in the U.S.
Here's how it will work. At first, California won't restrict emissions, instead giving companies so-called "allowances" to cover their carbon input. Over time, the state will reduce allowances, forcing companies to slash emissions. If companies want to emit more than their allowance, they can either trade for carbon credits with other companies or support select sustainable projects (such as preserving woodlands in a sensitive area).
A floor price for allowances—$10 per metric ton of carbon dioxide—will also be added to the carbon market. By 2020, the estimated 2.7 billion allowances on the market will go for $15 to $60 per metric ton of CO2 by 2020, according to the New York Times.
The system will being in two phases. The first phase, which begins in 2012, will cover all industrial sources and utilities—that is, 360 companies. In 2015, distributors of natural gas and transportation fuels will be added to the list.
The economic impact on the state will be minimal, according to a study from Next 10, a nonpartisan organization that funds research for complex California quality-of-life issues. Next 10 explains:
115,000 jobs by the year 2020 result from the 100 percent auction scenario in which revenues are returned to Californians through dividends, while 109,000 jobs are produced by 2020 in the 100 percent auction scenario in which resulting revenues are returned to Californians through reductions in personal tax rates
California has not yet decided how to distribute revenue from carbon auctions. The state does, however, plan to create a "community benefits fund" that uses select auction funds to assist low-income families in managing potential energy price increases resulting from the cap and trade program.
A California-only cap and trade system doesn't do much for the rest of the country, but consider: California has the biggest economy of any state, and it is the eighth largest economy in the world. When one of the world's largest economies takes on cap and trade, other countries sit up and pay attention.