Taking the lead where Washington has wavered, California today is expected to adopt the nation's most ambitious plan yet to curb global warming.
The California Air Resources Board is all but certain to vote to approve comprehensive "cap and trade" regulations designed to cut greenhouse gases. The regulations would impose limits, or "caps," on emissions from large industrial polluters through permits, or allowances, that could be traded on a market.
California's plans to forge ahead are in sharp contrast to the lack of action from Washington, where Congress has rejected cap and trade at the national level. While the state's plans have drawn criticism from affected industries, the cap-and-trade program is expected to be a boon for Silicon Valley's burgeoning cleantech economy.
"We are the innovators when it comes to figuring out how to reduce carbon," said Bob Hines, energy director of the Silicon Valley Leadership Group. "We're really excited. It sends the market signal we've all been waiting for, and it's going to lead to further job creation."
Kate Gordon, vice president of energy policy for the Center for American Progress, a progressive think tank, called the regulations "a game-changer. We have an existing infrastructure for fossil fuels, and this levels the playing field for cleantech."
Cap and trade is not without controversy, and California's regulations have come after years of heated debate. The California Manufacturers & Technology Association warns that the new regulations will hurt the state's economy, and critics on the left fear polluting industries will find ways to "game" the market for trading permits.
Under the new system, which goes into effect Jan. 1, 2012, California would distribute annual allowances to such industrial entities as power plants, oil refineries and cement and glass factories that emit large volumes of greenhouse gases. In 2015, the program would extend to distributors of transportation fuels.
The state will set a limit on the amount of greenhouse gases each affected entity is allowed to emit. Companies that reduce their emissions below their cap can sell or "trade" their unused allowances to companies that exceed their limits. If the system works as designed, the most efficient companies will be financially rewarded, polluters will pay and greenhouse gases will be dramatically reduced.
"If I'm an oil refinery and I emit 100,000 tons of carbon, and I have 100,000 credits, then I'm good," said Jon Costantino, a senior adviser with the Sacramento law firm Manatt, Phelps & Phillips in Sacramento and a former climate change planning manager at the Air Resources Board, known as CARB. "But if they give me 90,000 credits, then I have to either go out on the market and buy the extra 10,000 credits or try to get my emissions down on my own. And if I do a really good job and get my emissions down to 80,000, then I could sell my extra permits to someone else."
Initially, CARB planned to sell or auction off the permits. But objections from affected industries -- and the state's high unemployment rate -- led to a decision to "soft start" the program.
Until 2015, most affected industries will receive the majority of their allocations from the state for free, but will have to purchase additional allowances or use offset credits to cover all their emissions. There's no cap on individual facilities; the cap is for total emissions statewide for all facilities. Over time the total cap decreases, making allowances scarcer and providing an incentive to find cost-effective ways to cut emissions.
"This is a way to send the market a signal that cleaner technologies are going to be rewarded here in California," said Mary Nichols, CARB's chairwoman. "The program starts in a gentle way so that it doesn't feel too burdensome for industry."
Derek Walker, director of the California Climate Initiative for the Environmental Defense Fund, would rather see a shorter transition period for industries. But EDF remains enthusiastic about the regulations.
"CARB has done a masterful balancing act here -- we're real happy with it," Walker said. "For the first time, pollution costs. The new paradigm is that states, not national governments, are in the driver's seat, and California is seizing the leadership position."
California's groundbreaking global warming bill, AB 32, requires the state to cut carbon dioxide, methane and other greenhouse gases 15 percent by 2020, and the cap-and-trade regulations are considered key to achieving that goal. California could eventually link up its efforts with those of other states and regions with cap-and-trade plans, from British Columbia to Shanghai.
"These are the kinds of regulations that other countries have and are beating us at," said Kevin Surace, CEO of Serious Materials, a Sunnyvale company that makes energy-efficient building products. "When you have regulations, you create markets, and where there are markets there is business and where there is business there are jobs. It's a great opportunity for everybody, including us."
But the California Manufacturers & Technology Association warns that regulated industries will face significant costs and that many companies will be forced to move out of state. It has urged CARB to consider giving free allowances through 2020.
Valero, which has an oil refinery in Benicia and which failed to delay implementation of AB 32 through an initiative it backed in the recent election, is highly critical of the proposed regulations. If the price of carbon is $20 a ton, Valero expects to spend hundreds of millions of dollars each year purchasing the allowances it will need to meet the emissions cap.
"We anticipate that the cost of the cap-and-trade proposal would be about $500 million a year to Valero alone," said company spokesman Bill Day. "It would be an overwhelming financial burden on the refining industry and our company, and it will be impossible to bear these costs without passing some of it on to consumers."
Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.
The California Air Resources Board will place a limit, or cap, on greenhouse gas emissions by giving industries a limited number of permits, or allowances, that can be traded. Over time, the amounts of allowed emissions will steadily decline. If the system works as designed, the most efficient companies will be financially rewarded, big polluters will pay and greenhouse gases will be reduced.
The program covers 360 businesses, representing 600 facilities across the state. Starting in 2012, cap and trade will cover electric utilities and large industrial facilities. In 2015, it will extend to distributors of fuels and natural gas.
For more information, go to the California Air Resources Board website at www.arb.ca.gov.
A PRIMER FOR CALIFORNIA'S CAP AND TRADE
How it works The state will cap greenhouse gas emissions by giving industries a limited number of permits, or allowances, that can be traded.
What should happen Over time, the amounts of allowed emissions will steadily decline. If the system works as designed, the most efficient companies will be financially rewarded, big polluters will pay and greenhouse gases will be reduced.
Who it affects The program covers 360 businesses, representing 600 facilities across the state. Starting in 2012, cap and trade will cover electric utilities and large industrial facilities. In 2015, it will extend to distributors of fuels and natural gas.
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