California Air Resources Board Approves Nation’s Largest Cap-and-Trade Program
The California Air Resources Board (CARB) has voted to approve California’s first-of-its-kind carbon market to reduce pollution across California, helping to ensure that the state will make good on its AB 32 pledge to reduce greenhouse gas emissions back to 1990 levels (427 million metric tonnes of carbon dioxide equivalent) by 2020. The program, set to launch on January 1, 2012, is expected to account for roughly 18-27% of the emissions reduction required by AB 32.
Entities affected include power plants, oil and gas refineries, steel manufacturers, and those in other heavy industries that emit more than 25,000 tons of CO2 per year. Each emitter will start with enough free permits to cover most of its emissions, but will eventually have to buy more through quarterly auctions set to begin in February 2012.
Despite this vote, many questions remain as to how the program will be implemented. First, while CARB has determined the total number of allowances that will be allotted to cover emissions from the electricity sector (98 million metric tons in 2012 and declining 15% by 2020), it has yet to establish a concrete methodology for allocating emissions within the sector. CARB must decide how to reconcile its objectives of rewarding utilities that have already taken steps to lower their carbon footprint, while also allowing utilities transition time to make investments in low carbon alternatives. Also at issue is the allocation of auction revenue in the electricity, transportation and industrial sectors. While state law requires that this revenue be directed towards furthering the goals of AB 32, CARB has granted the California Public Utilities Commission (electricity) and the Legislature (transportation and industrial) significant discretion in the use of these funds.
CARB’s action also positions California to link with programs approved by partner jurisdictions in the Western Climate Initiative (WCI) to create a broader Western carbon market. Through the WCI, California has been working with six other western states and four Canadian provinces to design such a regional system that can help deliver lower GHG emissions at a less cost than a California-only system.
