On October 20, 2011, the California Air Resources Board (“CARB”) adopted a new set of rules, called “cap-and-trade,” implementing the requirements of AB32, California’s groundbreaking climate change law. Enacted in 2006, AB32 requires reduction in carbon emissions, usually credited as the cause of “global warming,” to 1990 levels by the year 2020. The new cap-and-trade regulations will be implemented in phases, with the State’s largest emitters required to meet the caps beginning in 2013; and remaining emitters, collectively about 85%, required to begin compliance in 2015.
Essentially, the cap-and-trade program began with the establishment of maximum emissions benchmarks or “caps” for each category of major emitting industry sector, derived from a three year study of emissions data from the largest industry sectors. Businesses will be allowed to emit up to 90% of those benchmarks (“Carbon Allowance”) in the first year. If a company operates efficiently, and below the “cap,” it may sell its excess as a Carbon Allowance on the market to industries unable to reduce their own carbon emissions.
While it sounds relatively simple, there will be additional government regulations involved, as well as private businesses who will benefit from the new system. While CARB will operate the market, it will have to retain auction hosts and monitors to operate the system which could handle as much as $10 billion in Carbon Allowances by the year 2016.
Moreover, there are perceived to be significant downsides to the system. Emitting industries are not overly enthusiastic, because of the increased regulation and higher emissions standards in the form of caps, which may make it more expensive for them to operate in California. According to the Legislative Analyst’s Office independent review, some industries will likely leave the State, and jobs be lost, as a result of the new “cap-and-trade” program.
Environmentalists are not wild about the system either, because they believe it does not reduce emissions, but merely transfers the right to emit. What is certain is that California is once more in the forefront of environmental regulation, for good or ill, in the nationwide effort to limit emissions of greenhouse gases.