California’s cap-and-trade program started its trial run

California  is a state located on the West Coast of the United States. It is by far the most populous U.S. state, and the third most extensive (after Alaska and Texas). Also, California is the ninth largest economy in the world fact that has a great impact on the environment. Therefore, competent authorities of the state has set one of the most aggressive renewable energy goals in the United States, with a target for California to obtain a third of its electricity from renewables by 2020.
Towards a more environmentally sustainable economy California is also the second state that has adopted a cap-and-trade program sets limits on carbon dioxide emissions, first attempt has been made by a collective of several Northeastern states (including Massachusetts, which rejoined a few years after being forced out by then-Gov. Mitt Romney) by adopting the Regional Greenhouse Gas Initiative (RGGI),  where auctions  of carbon credits take place, called allowances (each worth one metric ton of carbon), since 2008. In contrast to RGGI which applies only to power plants, California’s program extends to all sectors of the economy, which means businesses from paper mills, oil refineries, and universities to pharmaceutical manufacturers, steel mills, and food processors like PCP will have a stake in California’s campaign against climate change as Mother Jones reports.Finally, after six years of planing the program has made its formal debut yesterday, on 14 November 2012, where the state sold 61.3 million allowances.

But how the cap-and-trade program will work?

An emission cap will be established by collecting 3 years of emissions data from the state’s largest industries. Those businesses were grouped into sectors and assigned an average emissions benchmark. Businesses are allowed to emit up to 90% of that amount in the first year. Companies that operate efficiently under the cap may sell their excess carbon allowance  on the market; companies whose emissions are above the benchmark must either reduce their carbon output or purchase credits or offsets. Thus, 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. Each year, the “cap,” or the overall amount of emissions the state allows, will shrink,  as will the number of allowances for sale. That means emitters will need to shrink their greenhouse gas levels or buy allowances.

The California Air Resources Board will operate the market and hire an auction host and monitors. By 2016, about $10 billion in carbon allowances are expected to be traded through the California market, which will be the second-largest carbon market in the world behind the European Union.

Concerns about the program

As a lot of other novel program, this one has its own opponents too, opponents who are trying to persuade Californians that a carbon market will somehow hurt the state’s recovering economy. One of their arguments is the possibility of leakage. As a leakage can be considered the cases of jobs shifting out to other states should companies find the new regulations onerous and shut down.

On the other hand, Dave Clegern,  a spokesman at the California Air Resources Board, notes that regarding the possibility of leakage there are some modifications about sectors that are in some way unique, such as cement industry, and having specific obstacles in meeting their targets. A good example given by Dace Clegern is this of cement industry, in which there is  no alternative technology that could be less greenhouse gas intensive for making  hydraulic cement.

Moreover there are investors such as Cynthia Ringo supporting the opposite. As she mentions “The new carbon market is one element in a broad suite of business-friendly clean energy and efficiency policies that California has carefully crafted over decades. These measures might attract continued opposition from in- and out-of-state oil interests, but they are strongly supported by California voters, and with good reason. They are turning the Golden State into a global leader in the fast-growing clean energy sector (10 times faster than the average job growth in any other economic sector in the state).”

What about the revenues?

On October 2, California Governor Jerry Brown has signed two bills concerning the recycling of the revenues deriving from the sale of carbon allowances, although details of how the money will be spent won’t be determined until next year.

The bills are the first to address the estimated $660 million and $3 billion in revenue that will be accrued during the first year.

The first bill creates a new account for the revenue to be deposited into, and directs the Department of Finance and the California Air Resources Board (ARB) to develop an investment plan for the funds. Under California state law, the money raised through the sale of carbon allowances must be spent on programs that help reduce the state’s greenhouse gas emissions.

The second bill signed by Brown requires that 25 percent of all the auction revenue go toward economically disadvantaged communities, which tend to suffer from worse air quality than wealthier neighborhoods. The bill tasks the California Environmental Protection Agency with determining what communities qualify for the money.

Concluding, California’s cap-and-trade program is an enormous and promising step towards creating a clean economy and a brider future for the state. And as California followed the steps of the EU’s regarding the cap and trade program there is a great possibility other states of America also to adopt a similar program.

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