Tomorrow is a watershed event in the US as California holds its first cap-and-trade auction, in advance of its program start on January 1.
California’s cap-and-trade program sets industry-wide limits on greenhouse gas (GHG) emissions, allowing those that exceed the limits to buy carbon credits from those that are more efficient. It affects only the biggest polluters – about 430 utilities, oil refineries and producers and large manufacturers. A second wave of industries will join the program in 2015, including the transportation sector.
The state got the legal go-ahead for cap-and-trade last year after being challenged in court. The original program was announced in November 2010 after four years of development.
Cap-and-trade is a key part of AB32, California’s 2006 landmark climate change legislation that was adopted to fill the gap in federal policy. Under the law, California must reduce GHG emissions to 1990 levels by 2020.
An original plan that would have linked California to a wider cap-and-trade system covering other Western states failed to materialize, but Quebec plans to link to the program.
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Emily Reyna of the Environmental Defense Fund gives us more details:
1. This is the best designed cap-and-trade program in the world
California has the good fortune of learning from predecessor cap-and-trade programs like the European Union Emissions Trading Platform, the Regional Greenhouse Gas Initiative, and the Acid Rain Program, just to name a few.
Key elements of California’s program include giving free allowances to industry in the beginning years to help with transition; letting entities bank allowances for future use; and establishing an allowance reserve in case prices exceed a certain value. All help keep carbon prices more stable and make for a well-functioning market.
2. A price will be established for carbon, but that will vary as the program evolves
The California program will include auctions four times a year through 2020 – 32 more times after November 2012. As such, the number of participants, the settlement price and other results of the first auction may not necessarily predict the activity of future auctions. Over time, the market will change and both prices and participation will fluctuate as the cap reduces and businesses decide how best to participate.
3. Money from the auctions will be used to invest in California’s clean energy future
Proceeds from the auction must be invested in ways that further the goals of the law-the Global Warming Solutions Act of 2006 (AB 32).
Though these investments are scheduled to start in the next fiscal year, a specific investment plan is still underway and is being guided by two bills passed at the end of California’s legislative session. Likely project categories include renewable energy, energy efficiency, advanced vehicles and natural resource conservation. In addition, 25% of proceeds must be used in ways that benefit disadvantaged communities. These investments will boost cleantech in California, improve air quality and create jobs.
4. California’s leadership will serve as a launch pad for other programs
California is the ninth largest economy on the planet, and the world is watching. No state or country can stop climate change alone, but California’s environmental policies have a history of success and replication, including clean car, clean fuel and energy efficiency standards that have saved consumers across the U.S. hundreds of billions of dollars in avoided energy purchases.
If the past is any indicator, California’s rich history of leading the nation on responses to critical environmental problems, while delivering wide ranging benefits, means the U.S. is on the brink of something special.
A public notice of the auction results will be released on Monday, Nov. 19, and will be posted to both the Air Resources Board and auction website.
Here are details on the auction:
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What is the penalty for non-compliance?