5 Things To Know About California’s Cap and Trade Program
If you’re waiting for the Feds to admit polluters are the problem and renewable energy is the answer, don’t hold your breath. (Or maybe you should, since we all know politicians love making us breathe dirty air). The good news is, our unique style of government means states can sometimes decide to take action when Congress refuses.
California recently initiated a comprehensive cap and trade program [PDF] as part of its Global Warming Solutions Act (AB 32). This means that the state has decided to stop begging polluters to clean up their act. Instead, they’re making them pay for it. Of course, if you believe the fossil fuel industry lobbyists, this decision will be disastrous, driving up energy costs for struggling consumers. Yet others argue that the benefits of economy-wide cap-and-trade programs like California’s will far exceed the costs, reigning in pollution and generating much-needed revenue in fairly short order.
Conflicting claims can make it hard to know whether to cheer or boo for the program, which will hold its first auction of greenhouse gas allowances on Nov. 14, 2012. So, here are five of the most important things to know about the program and what it hopes to accomplish. (Note: If you’re more of a visual learner, Mother Jones has a great cap-and-trade infographic).
1. The law applies to all major sources of greenhouse gas emissions in the State such as refineries, power plants, industrial facilities and transportation fuels, but not all at once. Electric utilities and large industrial facilities won’t be included until 2013, and distributors of transportation, natural gas and other fuels will have until 2015.
2. The regulation includes an enforceable GHG cap that will decline over time, meaning that each year, fewer and fewer carbon “allowances” will be available for purchase. The 2013 cap will be at about 2 percent below the emissions level forecast for 2012, decreasing by an additional 2-3 percent each subsequent year.
3. Over the next year, about 150 allowances will be bid on, together worth anywhere from $550 million to $3 billion depending on market forces. In the beginning, some will be given away for free, to help businesses adjust to the added expense. A billion of those dollars are already earmarked for General Fund relief and other existing programs.
4. Rather than being punished, smart businesses will actually benefit from the program. “California’s decision to reduce greenhouse gas emissions has created tremendous opportunities for entrepreneurs, scientists and business strategists to develop technologies and services that will help businesses accomplish their greenhouse gas emission goals,” writes Cynthia Ringo, managing partner of DBL Investors, a California venture capital firm. “Rather than dictating to polluters exactly how they have to clean up their acts, California’s cap-and-trade program will harness the power of the market to control greenhouse-gas emissions. The power companies and other large polluters affected will decide for themselves how to proceed. A company that is especially effective in cleaning up its act can make money on the deal, by selling unneeded pollution allowances to other firms whose operations run dirtier.”
5. The program will help put California on the path to meet its goal of reducing GHG emissions to 1990 levels by the year 2020 and ultimately achieving an 80 percent reduction from 1990 levels by 2050. This puts the state in good position to capture a large portion of a fast-growing global market. Worldwide, investment in renewable energy alone grew by 5 percent last year, to hit a record $260 billion.
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