California board approves cap and trade on carbon emissions

(October 21, 2011)

California approved one of the broadest and most controversial components of its landmark climate change law, pushing the state toward a low-carbon economy that relies less on imported foreign oil.

The California Air Resources Board on Thursday voted to adopt final rules that will regulate carbon emissions across a broad cross section of the state's economy, including oil and gas producers, utilities and transportation companies, farmers and the building industry.

"We will look back at this as an important date in California's transition to a clean energy economy," said Mary Nichols, the air board's chairwoman.

Dubbed the economic equivalent of "a moonshot" by its backers and a "job killer" by detractors, the "cap and trade" system adopted Thursday sets limits on the amount of carbon dioxide that can be produced by 350 of the state's largest industrial polluters starting in January 2013.

The state will issue a set number of "carbon allowances." Companies that pollute less than their limit can sell their unused allowances to companies that pollute heavily, creating market incentives to reduce emissions.

The program will create the nation's largest market for trading pollution allowances. Congress in 2009 rejected legislation that would have created a federal cap and trade system.

In California, 90 percent of the allowances will be given out free, but 10 percent will be sold on the open market, which some say could raise $500 million a year for the state's climate-change programs.

Proponents say cap and trade will not only reduce greenhouse gases but will spur innovation in the clean-technology sector.

Fred Krupp, president of the Environmental Defense Fund, said the vote is a historic event and shows that California can move in a big way toward cutting carbon pollution.

As the world's eighth largest economy, much of California's future growth will emerge from development of clean technologies, he said.

In a joint statement emailed to the media, the American Lung Association in California, the Union of Concerned Scientists and other top public health and environment groups lauded the air board's vote, saying the new regulations will lower health care costs caused by breathing polluted air.

"We believe this program represents a major milestone that will set California on a course to fundamentally shift the way we use energy and resources," the groups said.

Businesses counter that the measure will increase electricity and gasoline prices and could prompt manufacturers and other large employers to move to states where business costs are lower.

In a letter to the air board, the California Chamber of Commerce, the California Manufacturers and Technology Association and several other business organizations said that with the statewide unemployment rate at 12.1 percent, many businesses cannot bear the added costs.

"In view of the fragile state of California's economy, this is the worst possible time to impose yet another energy tax on struggling businesses and consumers," the letter said.

That sentiment was shared by Mike O'Kelly, who owns Morning Glory Dairy in Susanville. O'Kelly said he's worried that the cap and trade program will inflate the cost of his electricity and fuel.

"It's really crazy to think you can throw a tax on PG&E and think PG&E will go, 'Oh, I'll pay it and not pass it on to you and me,' " he said. "The consumers of that energy … will all have to pay the difference."

Lisa Bowman, an employee for ConocoPhillips, said she's worried the new regulations could force her employer to relocate or shut down its Southern California refinery.

"There's not a lot of jobs out there," she said. "If this refinery disappears, where am I going to retire to?"

A key component of California's Global Warming Solutions Act of 2006, or Assembly Bill 32, the cap and trade program has been subject to legal and political challenges.

In May, a San Francisco Superior Court judge placed a temporary halt on the program, saying the state did not a conduct an adequate review of alternative approaches to reducing climate change. But the move was reversed in September by the California Supreme Court.

The state's climate change initiatives also withstood a major test in Proposition 23, an oil industry-led voter initiative that sought to roll back AB 32's implementation. In November 2010, voters rejected Proposition 23 by a 22-point margin.

Dan Sperling, a member of the Air Resources Board, said the agency is sensitive to the concerns of the business community but it's also important to focus on the economic innovation that will follow.

"We are charting new ground," added board member Lydia Kennard. "It's never been done before and the world is looking at us."