Why California's Cap And Trade Program Is A Big Deal

The state's program will be able to test the theories about whether cap-and-trade reduces pollution without destroying businesses. If it works, expect other states to quickly follow.

The U.S. may be lagging on carbon emissions reductions, but that hasn't stopped California from adopting the country's first cap and trade program—a set of regulations that will slash CO2 pollution to 1990 levels by 2020, all by charging the state's heaviest polluters for being dirty. Just as with its auto emissions standards, the state is taking its regulations to a level unmatched anywhere in the country. But if the new program works, it may not be long before others follow.

Starting in 2013, California's Air Resources Board (CARB) will give polluters an allowance of carbon credits (the amount of carbon they can emit) at the beginning of each year based on emissions reductions benchmarks. If a company doesn't use all of its credits, it can sell them—hence the "trade" part of cap and trade. And if a company knows in advance that it will emit too much carbon, it can buy credits or carbon offsets and keep polluting, just at a cost.

"This regulation is a safety net to ensure that our total CO2 emissions reduction targets are met. So if some of California's other regulations don't perform fully [i.e. fuel standards], the total amount of emissions still have to go down," explains Tim O'Connor, Director of the Environmental Defense Fund's California Climate and Energy Initiative.

Big polluters are, of course, concerned about the effect of the regulations. In a meeting last week, O'Connor observed many of the state's biggest petroleum refineries complaining about cap and trade. But, says, O'Connor, "This creates an incentive to find emissions reduction opportunities." And in any case, CARB has built-in transition assistance for major polluters (in the form of carbon credits).

In addition to cutting down on pollution, the cap and trade program may have the added benefit of boosting cleantech entrepreneurs, who will soon have a built-in market for their services. According to a recent paper in The Energy Journal, "a desirable climate change policy should provide polluting industries with strong incentives to take early preventive actions." Even if these industries don't take early action, they will be forced to in the coming decade.

Now that California officially has a cap and trade program, the rest of the country is taking notice. "This program will serve as a calling card for what can be done to reduce greenhouse gas emissions throughout a state's economy. States are not only looking at how it's going to be implemented, but they're looking at the fact that it was passed at all," says O'Connor. "That in and of itself should be the starting gun for other states to get serious about this kind of action."

[Image by Flickr user Bas Lammers]

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