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Calif. Board Finalizes Cap and Trade

The California Air Resources Board yesterday gave its final approval to the state’s cap-and-trade system, which sets limits on carbon emissions starting next year.

CARB unanimously approved details of the regulations over the objections of industry groups, the San Francisco Chronicle reported, with the board’s major actions focusing on the allocation of carbon allowances.

Under the plan approved yesterday, the state will limit carbon emissions from its 350 or so biggest emitters starting in 2012, with enforcement starting in 2013. The carbon cap will drop every year until 2020. Over this time, CARB expects the program to prevent 273 million metric tons of carbon emissions.

The regulations will cover electric utilities and large industrial plants first, later expanding to cover fuel distributors. Each company covered by the program will need to hold allowances for carbon that they emit over the cap, and companies will be able to trade these allowances in the marketplace. This will create the world’s second-largest carbon market behind that of the EU, with about $10 billion in allowances traded by 2016, according to the Los Angeles Times.

Initially 90 percent of allowances will be free, with companies needing to buy the other 10 percent. From there some industries will see the percentage of free allowances drop to about 30 percent.  Emitters will also be able to meet up to eight percent of their required emissions reductions through carbon offsets.

In a letter to the board, industry groups and the California Chamber of Commerce called the 10 percent purchase requirement an “unjustified, job-killing tax,” and they said California would lose business to other states and countries. Water agencies are also covered by the regulation, and they told the board that the program would increase water rates.

In the eight-hour session, the board also heard from union members fearful of losing their jobs, the L.A. Times said.

CARB’s work on the cap-and-trade system was held up by lawsuits earlier this year. In an April decision, a San Francisco Superior Court judge said that the board had failed to sufficiently study alternatives to carbon trading.

But earlier this month, the California Supreme Court ruled that the CARB could establish the system while the state appeals the lower court judge’s order.

Environmental justice groups had argued that cap-and-trade would increase pollution in low-income neighborhoods near high-emitting facilities, because polluters could simply buy the right to increase pollution.

The board yesterday responded to these concerns by approving an adaptive management plan, which would monitor the air quality of neighborhoods near regulated facilities, the AP reported. If pollution does increase, the CARB said it would respond.

Last week Bank of America Merrill Lynch announced it is entering the nascent California carbon trading market with an agreed option to buy several million tons of offsets from TerraPass, through 2020.

Picture credit: Monceau

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4 thoughts on “Calif. Board Finalizes Cap and Trade

  1. Cap and trade is just a trading game, where the ultimate cost is paid by the public in the form of higher prices for EVERYTHING.
    Just what we DON’T need in this time of economic hardship.

  2. It is very encouraging to see efforts made by regional and national governments to adopt market mechanisms designed to curb greenhouse gases. We need more of these, not less. Compliance should become the new normal, and threats of job losses and lower competitiveness should be ignored. These kinds of measures will become accepted and expected around the world, but getting the process started requires leadership and vigilance in regulation.

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