California Set to Roll Out Historic Cap-and-Trade Program to Address Climate Change

Nov. 14 auction will require some of the state’s heaviest polluters to buy and sell carbon emission permits

Published Nov 13, 2012

BERKELEY, CALIF. (Nov. 12, 2012) – When California launches its inaugural auction of carbon allowances on Nov. 14, the state will become the first in the nation to kick off an economy-wide, cap-and-trade program aimed at significantly reducing carbon emissions that cause climate change.

The Union of Concerned Scientists (UCS) believes that a price on carbon pollution can stimulate new technology development and lower global warming emissions, benefitting our economy and our environment.

“If successful, California’s cap-and-trade program will serve as a model for other states, particularly now that federal efforts to address climate change have stalled,” said UCS climate economist Jasmin Ansar. “What we have at stake here is much larger than just one state’s efforts to control carbon emissions.”

California’s carbon market, which will be the second largest in the world after the European Union, is a significant feature of California’s Global Warming Solutions Act, a set of strategies designed to help meet the state’s goal of reducing global warming emissions to 1990 levels by 2020.

The market-based program sets a cap on how much carbon dioxide and other greenhouse gases can be emitted by California’s heaviest polluters such as fossil-fuel power plants, oil refineries and cement producers. Businesses are given or required to purchase allowances, while companies that reduce emissions can sell or trade their unused allowances at auction.

“Cap and trade provides financial incentives for polluters to reduce emissions through greater use of energy efficiency, renewable energy and alternative technologies,” Ansar said.  “Up until now, fossil fuel industries have been able to release unlimited amounts of carbon into the environment for free. This program will make it more economically attractive for technology developers to invest in the tools that carbon-intensive industries can use to curb their emissions.”

Since California passed its pioneering climate law in 2006, more venture capital has streamed into the state’s clean-tech industry than to the other 49 states combined, including $1.5 billion in the first quarter of 2011 alone.

Auctions are the primary market mechanism for emitters to buy and sell permits in the cap and trade program. The trading allows companies to profit from reducing pollution if they can do this more cost effectively than other companies.

Initially, some allowances will be given out for free to certain industries, such as oil refineries, to address concerns that cap-and-trade might cause them to move their operations out of California. UCS, which opposed that decision, estimates that the total value of giving free credits to some of the state’s heaviest polluters will be more than $2 billion for the period 2013-2020.

California oil refineries produce more carbon emissions per barrel than those in any other part of the country,” Ansar said.  “If they are exempt from paying for the costs of their pollution, they will have less incentive to reduce the environmental damage associated with their production methods.”