California Launches Cap-and-Trade Market to Cut Carbon Pollution

California held the first auction for its cap-and-trade market on Wednesday, November 14, selling allowances under a cap in order to reduce the greenhouse gases that lead to climate change. 

The state will release details about the number and price of allowances sold on Nov. 19.  Funds generated from the auction will be used for state programs that are consistent with the goals of AB32, the state's climate change law. 

The cap on carbon pollution will initially cover electric utilities and large industrial facilities, and in 2013 will be set about 2 percent below the emissions level forecast for 2012.  The cap will decline about 2 percent in 2014 and another 3 percent annually from 2015 to 2020. California's market will eventually include more sectors of the economy, including fuels and natural gas in 2015.

The effort was highlighted in a joint statement by Oregon Gov. John Kitzhaber, Washington Gov. Chris Gregoire, California Gov. Jerry Brown, and British Columbia Premier Christy Clark, who work together through the Pacific Coast Collaborative.  The four leaders issued the following joint statement:

“Confronting climate change requires concerted effort within each jurisdiction and across the region on several, interconnected fronts.

First, we need to move forward together on policies that will drive investment in home-grown renewable energy and energy efficiency projects – jobs we can’t outsource.

Second, we must better account for the environmental impacts associated with using fossil fuels that are detrimental to the health and well-being of our communities – and future generations.

Third, we need to protect our taxpayers’ investment in infrastructure by making sure these investments are resilient and account for climate risk.

And we must also look at how best to consider and then account for the cost of carbon and our costly reliance on carbon-intensive energy sources. California’s cap and trade program, which launches today, and British Columbia’s carbon tax are two examples of tools that help more accurately price energy resources and continue the transition to a 21st century energy infrastructure.”

States participating in the Regional Greenhouse Gas Initiative (RGGI) also congratulated California on its first auction.

In the northeast, RGGI has demonstrated that a market-based approach can be used to reduce carbon pollution while improving the economy.  During the first three years of the program, which reduces carbon emissions from power plants, participating states created 16,000 new jobs and $1.6 billion in net economic benefits as a result of its "cap and invest" approach, according to an independent report released in November 2011. The program has invested virtually all of the allowance proceeds it has received – more than $1.08 billion as of the most recent auction – back into the economy through energy efficiency and other initiatives.

While California's program is not the first cap-and-trade system in the U.S., it will be the largest. If it is as successful as advocates predict, the program will demonstrate the approach can work in the world's ninth-largest economy and provide a possible blueprint for action by the federal government or other U.S. states.

California is planning to link its market with Quebec’s in 2013 through the Western Climate Initiative.