Caps off to The Golden State – California Adopts Cap-and-Trade Regulations
October 28, 2011
October 20th, 2011, in a unanimous vote, The California Air Resources Board chose to implement a comprehensive statewide cap-and-trade system for greenhouse gas emissions (GHGs).
Scheduled to begin in 2013, the regulation sets a limit on the emission of carbon dioxide and other heat-trapping gases on sources responsible for 85 percent of California’s GHGs. This translates into 360 businesses and 600 facilities that will be affected. Cap-and-trade will incent these businesses to be judicious about GHGs – emission reduction leaders could see new revenue opportunities by selling excess allowances and heavy polluters will be required to purchase credits and/or offsets on the market when exceeding allowances.
The emissions cap is set to decline over seven years, and utilities, refiners and other large polluters will have to cut their emissions or buy allowances to pollute. Meanwhile, the increasing demand for allowances will spur innovation and drive investment in cleaner fuels and more efficient use of energy. Businesses will be guided by market forces and will pursue the lowest-cost options to reduce emissions.
The regulation is divided into two phases. Beginning in 2013, all major industrial sources and electricity utilities will be covered and will have to turn in allowances corresponding to their GHG emissions. In 2015, distributors of transportation fuels, natural gas and other fuels will join them under the cap. The Air Resources Board will provide the majority of allowances during the initial compliance period in a way that will reward the most efficient companies. The first auctions of 2013 allowances are slated for the end of summer/early fall next 2012.
Passed in 2006, California’s climate change law, AB 32, mandates an reduction in emissions to 1990 levels by 2020 (equivalent to a 15% reduction from business-as-usual). The adoption and successful execution of cap-and-trade will be the key component to curbing climate change and meeting pollution reduction targets. The system’s adoption hasn’t been without setbacks. This time last year Prop 23 threatened to suspend AB 32 altogether and in March 2011 a California judge halted cap-and-trade plans requesting California Air Resources board to consider more comprehensively public comments and alternatives to the state’s cap and trade program. Fortunately, the Golden State has taken the lead yet again on its commitment to the environment. We applaud their efforts to date and anticipate other Western Climate Initiative members (including Quebec, British Columbia and Quebec) will follow suit.
