California gives green light to emissions trading program

Cap-and-trade program will drive innovation and jobs, and
will promote efficiency, clean energy

California Air Resources Board (ARB) today endorsed the
cap-and-trade regulation, marking a significant milestone toward
reducing California’s greenhouse gas emissions under its AB 32

ARB’s cap-and-trade regulation, along with several complementary
measures will drive the development of green jobs and set the state
on track to a clean energy future.

The regulation is a key measure to achieve the greenhouse gas
reduction goals of AB 32, California’s pioneering climate change
law signed by Governor Schwarzenegger in 2006.

“This program is the capstone of our climate policy, and will
accelerate California’s progress toward a clean energy economy,”
said ARB Chairman Mary D. Nichols.

“It rewards efficiency and provides companies with the greatest
flexibility to find innovative solutions that drive green jobs,
clean our environment, increase our energy security and ensure that
California stands ready to compete in the booming global market for
clean and renewable energy.”

The regulation sets a statewide limit on the emissions from sources
responsible for 80 percent of California’s greenhouse gas emissions
and establishes a price signal needed to drive long-term investment
in cleaner fuels and more efficient use of energy.  The
program is designed to provide covered entities the flexibility to
seek out and implement the lowest-cost options to reduce

The cap-and-trade program also works in concert with other
measures, such as standards for cleaner vehicles, low-carbon fuels,
renewable electricity and energy efficiency, and complements and
supports California’s existing efforts to reduce smog-forming and
toxic air pollutants.

The cap-and-trade program and the other measures to reduce
greenhouse gases provide a model for action that can be used at the
federal, state and regional levels.  As climate policies are
being addressed worldwide, California’s early actions are
positioning its economy to reap the benefits on the world stage and
are catalyzing action throughout the country and the world.


“The cap-and-trade program provides California with the opportunity
to fill the growing global demand for the projects, patents and
products needed to move away from fossil fuels and to cleaner
energy sources,” added Nichols

The regulation will cover 360 businesses representing 600
facilities and is divided into two broad phases: an initial phase
beginning in 2012 that will include all major industrial sources
along with utilities; and, a second phase that starts in 2015 and
brings in distributors of transportation fuels, natural gas and
other fuels.

Companies are not given a specific limit on their greenhouse gas
emissions but must supply a sufficient number of allowances (each
covering the equivalent of one ton of carbon dioxide) to cover
their annual emissions.  Each year, the total number of
allowances issued in the state drops, requiring companies to find
the most cost-effective and efficient approaches to reducing their

By the end of the program in 2020
there will be a 15 percent reduction in greenhouse gas emissions
compared to today, reaching the same level of emissions as the
state experienced in 1990, as required under AB
To ensure a gradual transition, ARB will
provide significant free allowances to all industrial sources
during the initial period (2012-2014).  Companies that need
additional allowances to cover their emissions can purchase them at
regular quarterly auctions ARB will conduct, or buy them on the

Electric utilities will also be given allowances and they will be
required to sell those allowances and dedicate the revenue
generated for the benefit of their ratepayers and to help achieve
AB 32 goals.

Eight percent of a company’s emissions can be covered using credits
from compliance-grade offset projects, promoting the development of
beneficial environmental projects in the forestry and agriculture
sectors. Included in the regulation are four protocols, or systems
of rules, covering carbon accounting rules for offset credits in
forestry management, urban forestry, dairy methane digesters, and
the destruction of existing banks of ozone-depleting substances in
the U.S. (mostly in the form of refrigerants in older refrigeration
and air-conditioning equipment).

There are also provisions to develop international offset programs
that could include the preservation of international forests. 
A Memorandum of Understanding has already been signed with Chiapas,
Mexico, and Acre, Brazil, at the Governor’s Global Climate Summit 3
to establish these offset programs.

The regulation is designed so that California may link up with
programs in other states or provinces within the Western Climate
Initiative, including New Mexico, British Columbia, Ontario and
Quebec.  Efforts are also underway to link the WCI with other
regional climate programs, such as the Midwest Greenhouse Gas
Reduction Accord and the Regional Greenhouse Gas Initiative which
covers the power generation emissions of 10 northeastern

The regulation has been in development for the past two years since
the passage of the Scoping Plan in 2008.   ARB staff held
40 public workshops on every aspect of the cap-and-trade program
design, and hundreds of meetings with stakeholders. 

ARB staff also benefited from the analysis of a blue ribbon
committee of economic advisers, consultation with world-renowned
institutions that specialize in climate issues, and advice from
experts with experience from other cap-and-trade programs elsewhere
in the world.


You can return to the main Market News page, or press the Back button on your browser.