California's groundbreaking cap-and-trade auction, which launches Wednesday, is often seen as a win for the climate and clean air, but a hidden tax that will increase energy costs, hurt consumers and drive businesses from the state.
But while oil companies, power plants and factories across California may struggle to reckon with the new mandate to reduce emissions of greenhouse gases, cleantech companies in Silicon Valley and beyond see a surge of new business.
From startups that build energy-efficient products to software firms that specialize in carbon accounting, the cap-and-trade program signals that California is launching a new market that supporters say will grow huge over time.
"There's a positioning that this is the business community versus the environment, and that's a false premise," said Susan Frank, director of the 1,242-member California Business Alliance for a Green Economy. "It's about leveling the playing field with fossil fuels. Companies that get ahead of the curve and make changes in the way they operate will benefit."
Frank says AB 32, the state's global warming law that laid the framework for cap-and-trade, has helped drive innovation in California, evidenced by the rise in cleantech patents and venture capital investment.
The idea behind cap-and-trade is simple: The state sets an overall "cap" for greenhouse gas emissions by California companies. Companies that reduce emissions below their cap can sell or trade their unused allowances to companies that exceed their limits. Wednesday marks their first chance to buy or sell additional allowances as needed.
For example, if an oil refinery that emits 100,000 tons of carbon has credits for 90,000 tons, it either has to go on the market and buy credits for the extra 10,000 tons or lower the emissions. If it reduces its emissions to 80,000 tons, then it could sell the unused permits to someone else. In 2015, the program extends to include distributors of transportation fuels.
Some companies may try to buy their way to compliance. But far more seem to be focusing on efforts to reduce their greenhouse gas emissions through technological innovation and energy efficiency. If the system works as designed, the most efficient companies will be financially rewarded, polluters will pay and greenhouse gases will be dramatically reduced.
"California's auction is not a surprise, and companies have been planning for this for several years," said Larry Goldenhersh, founder and CEO of Enviance, a software company that helps Chevron, Valero and several utilities manage the tracking and reporting of their greenhouse gas emissions. "Cap-and-trade made carbon the latest cost of doing business that companies need to deal with, and in doing so it's created an enormous amount of business for companies like Enviance. We've seen a dramatic uptick in the usage of our system."
Mike Mielke, vice president of environmental programs and policy at the Silicon Valley Leadership Group, which represents many of the Valley's leading tech companies, says the cap-and-trade program will benefit clean tech companies by sending "a clear signal to the market that there's a price on carbon."
"It's a critical step as we transform the economy from one that is resource intensive and wasteful to one that is resource efficient and effective," he said. "Cleantech is still evolving, and the cap-and-trade program will enable the sector to mature."
But many business groups still hope to kill the program. On Tuesday, the California Chamber of Commerce filed a lawsuit seeking to invalidate California's cap-and-trade auction, arguing that the California Air Resources Board exceeded the authority granted under AB 32. The chamber did not seek an injunction.
"We are reviewing the lawsuit, but are confident that the cap-and-trade program will withstand any court challenge," said Stanley Young of the Air Resources Board. "This market-based approach to cutting greenhouse emissions gives businesses the flexibility to best decide how to reduce their emissions. We are going forward with tomorrow's auction."
Other cleantech startups in Silicon Valley see Wednesday's auction as just the beginning. California's program will expand over time, and the hope is that other western states, Canadian provinces and eventually other nations will join in.
"If there's a cap-and-trade program for carbon dioxide that's viable, then there's a potential for other greenhouse gases like methane to be included," said Mike Woelk, CEO of Santa Clara-based Picarro, which makes scientific instruments to measure specific greenhouse gases in quantities as small as parts per billion. "The Chinese are talking a lot about greenhouse gas emissions. We're selling our instruments all over the world, and we're moving more and more into industrial compliance. It's very bullish for us."
Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.