SACRAMENTO—Only two weeks after California voters turned back an effort to suspend the state's program to combat climate change, a cap-and-trade market for greenhouse gas emissions saw its first trade, a swap of a climate-change pollution permit for 2012.
"While our federal government is sitting on its hands, California is moving full speed ahead to a clean-energy future," Gov. Arnold Schwarzenegger said in his weekly address on November 19. "We are creating a consistent, long-term energy policy—something that has eluded Washington for decades. In fact, Washington should take a lesson from what is happening right now here in California."
Deep in the bowels of state government bureaucracies such as the California Air Resources Board (ARB)—responsible for implementing much of the state's program to combat climate change—new rules are being set, rules that may one day extend from the west coast across the U.S. After all, standards set in California—the eighth-largest economy in the world on its own—are often adopted at the federal level, ranging from emission standards for vehicles to efficiency settings for appliances. That is because California has often set standards more stringent than the federal government's—for example its decades-long efforts to rein in pollution from automobile exhaust, including being the first state to mandate catalytic converters in 1975.
And, right now, the main goal for California, environmentally speaking, is to reduce the state's greenhouse gas emissions to 1990 levels by 2020, or back to roughly 427 million metric tons of carbon dioxide–equivalent from roughly 525 million metric tons now—as enshrined into law in 2006 with the passage of Global Warming Solutions Act (aka Assembly Bill 32.)
In charge of developing the bulk of that program is the Air Resources Board—described by some as "the most powerful agency in California, and that's not a compliment," according to transportation expert and board member Daniel Sperling of the University of California, Davis. Its plan calls for roughly 70 different measures, ranging from energy-efficiency standards for residential and commercial buildings to rules that require fuels sold in California to yield fewer greenhouse gas emissions when burned. The board's oversight is to ensure "all our regulations are as cost-effective as possible while advancing the environmental agenda," explains economist William Dean of the California Environmental Protection Agency.
The centerpiece of the program, however, is a new market for greenhouse gas pollution, so-called cap and trade. In it California sets an overall cap for the amount of pollution that can be emitted by roughly 600 sources that individually emit more than 25,000 metric tons of CO2 equivalent per year—mainly power plants and refineries. Then the state government awards or sells emission permits to the roughly 360 corporations and other entities that control those sources. Those that reduce emissions below the cap can sell their excess permits to those sources that fail to meet the targets—the trade part of the market—resulting in an overall reduction of pollution at the lowest economic cost, in theory. "If I'm under the cap, I make more and more money. If I'm above the cap, I'm paying more and more money," explains policy analyst Tiffany Roberts of California's Legislative Analyst's Office (LAO). "They are actually able to profit from that good behavior."
The program will not take effect until 2012 at the earliest—and sources will average their emissions over three-year compliance periods to even out any short-term emissions bumps—but the market may prove to be a model for federal efforts, alongside a regional greenhouse gas cap-and-trade program among 10 northeastern states. That program, known as the Regional Greenhouse Gas Initiative (RGGI), aims to reduce emissions from more than 200 power plants in states from Maine to Maryland by 10 percent by 2019—a goal the program has already more than met thanks to the impacts of the Great Recession.