State's Cap and Trade Program

December 17, 2010

By: Wyatt Buchanan, San Francisco Chronicle

The California Air Resources Board has approved the creation of the nation’s first broad-based program to put a cap on greenhouse gas emissions and to begin charging large emitters for the excess carbon dioxide they put in the air.

After an all-day meeting on Thursday, the board voted 9-1 for the proposal, which will take effect in 2012 and means California is once again moving forward with climate-change policy while efforts on the national level have stopped.

“The comment ‘the world is watching’ is sometimes an idle comment. It’s not idle this afternoon,” said Air Resources Board member Ronald Loveridge.

The board heard many hours of testimony as hundreds of people weighed in on elements of the program, including the ratio of free credits to those polluters would have to buy to mitigate emissions, and whether the plan could lead to the clear-cutting of forests. Some people also implored the board to keep a close watch on the regulation’s impact on California businesses.

Board chairwoman Mary Nichols called the vote historic and said the cap-and-trade program “really builds on a history, a legacy of leadership in our state.”

Nichols noted concerns that the new regulations and its subsequent costs could burden the state’s economy, and that California is taking action while similar requirements do not exist nationwide. But, she said, there is more to lose by waiting than by acting now.

“Indeed, adoption of a program like this is probably California’s best insurance against future recessions,” Nichols said, adding that a cap-andtrade program will maintain the state’s status as a magnet for investments in green technology.

Schwarzenegger legacy

Outgoing Gov. Arnold Schwarzenegger, who in 2006 signed AB32, the state’s climate- change law, and since has been its biggest promoter, made the unusual move of stopping by the meeting. The cap-and-trade regulation is the last major piece of the law, which requires the state to reduce its greenhouse gas emissions to 1990 levels by 2020.

Under the new rules, the number of metric tons of carbon dioxide emissions will be capped in 2012 at what is forecast to be emitted that year.

Over the next three years, the limit will shrink by 2 percent per year. From 2015 to 2020, the cap will drop by 3 percent per year.

The rules will apply first to the some of California’s biggest emitters, including utilities and large industrial plants. In 2015, it will expand to fuel distributors. In total, it will apply to 360 businesses at 600 locations across the state.

Industrial sectors will receive free credits equal to about 90 percent of the overall average emissions for that sector. Businesses will pay for excessive emissions by buying allowances – or credits – if they are unable to reduce their carbon dioxide levels.

Emission offsets

Also, up to 8 percent of emissions can be covered through what are called offsets – environmental actions such as planting trees to mitigate pollution.

The program could eventually link to other cap-and-trade efforts in some Canadian provinces and the state of New Mexico.

Michael Hanneman, chancellor’s professor in the UC Berkeley Department of Agricultural and Resource Economics, told the board that more of the allowances should be auctioned and that an uneven allocation could result in windfall profits for some companies.

He also told the board that there needs to be closer monitoring of manufacturing activity in other states to determine whether plants are leaving California because of the capand- trade rule.

Several people and environmental organizations also called for changes in the offset program involving forests, arguing that the rule as written could encourage clear-cutting of forests on land that might be eligible for tree-planting credits, leaving swaths of forests with trees of the same age, which ultimately would be harmful.

Supporters of that portion of the proposal said the concerns were overblown and pointed to the state’s already strict regulations on logging. The board members briefly discussed changing the regulation to address the concern, but did not do so.