(BN) California Approves Carbon Market Plan to Cut Pollution by 15%


California Approves Carbon Market Plan to Cut Pollution by 15%
2010-12-17 08:01:00.0 GMT

By Mark Chediak and Simon Lomax
Dec. 17 (Bloomberg) -- California, the most populous U.S.
state, is setting up its own cap-and-trade program for
greenhouse gases after President Barack Obama's plans for a
carbon market spanning the nation died in Congress.
The California Air Resources Board voted yesterday 9-1 in
favor of a cap-and-trade regulation that will force the state's
power plants, refineries, factories, cars and trucks to cut
their pollution roughly 15 percent by 2020. The regulation is
scheduled to take effect in 2012.
The approval is the "capstone" of the state's climate
policy and "will accelerate California's progress toward a
clean energy economy," Mary Nichols, chairman of the air
resources board, said yesterday. California will be a "magnet
for clean-tech investments," boosting the economy and job
creation, she said.
The cap-and-trade program is similar to the plan Obama
failed to get through Congress this year. The state will create
carbon dioxide permits, also called allowances, which can be
bought and sold. Pollution cuts will be enforced by reducing the
number of permits over time.
Carbon allowances worth $83 billion will be issued during
the nine-year span of the program, and secondary trading of the
permits by companies may boost the total value of the California
carbon market to $559 billion, according to Bloomberg New Energy
Finance estimates.
The pollution allowances, each representing 1 metric ton of
carbon dioxide, are likely to be worth $13 each in 2012, rising
to $54 by 2020, according to New Energy Finance.


The cap-and-trade regulation gives away carbon dioxide
allowances to utility companies such as PG&E Corp. and Edison
International to shield their customers from higher electricity
bills. Refiners such as Royal Dutch Shell Plc and ConocoPhillips
would also get some free permits to cover the pollution produced
from converting crude oil into gasoline, diesel and other fuels.
By 2015, the cap-and-trade program would expand to cover
carbon dioxide from the tailpipes of vehicles that run on
gasoline and other oil-based fuels. Refiners who would have to
buy the permits needed to cover those vehicle emissions are
likely to recover the cost through higher gasoline prices,
according to an October report from the Air Resources Board.
California's cap-and-trade program would also let companies
buy a limited number of offsets, which are pollution cuts from
unregulated sources such as farms, instead of using state-issued
carbon allowances to account for their pollution.

Carbon Offsets

U.S.-sourced offsets could be used to cover as much as 8
percent of a company's pollution. The board is still considering
whether to let another source of offsets into California's
carbon market -- projects that save tropical rainforests in
developing countries.
The proposed carbon market is authorized under California's
Global Warming Solutions Act. The state's Republican Governor
Arnold Schwarzenegger signed the law in 2006.
Schwarzenegger, who stopped by the air resources board
meeting yesterday to endorse the cap-and-trade regulation, said
the state's carbon market will "protect both the economy and
the environment."
It has the support of a "huge majority" of Californians
after a ballot measure that would have suspended the state's
global warming law was defeated last month, Schwarzenegger said.
In March, Schwarzenegger urged the environmental agency to
abandon a proposal to sell almost all the allowances in state-
run auctions and instead phase in the sales over time.
The board won't decide how many free permits go to
individual companies until next year, although its staff
released a proposal yesterday with some "preliminary

Edison International

Under one possible allocation formula, PG&E Corp.'s utility
Pacific Gas and Electric Co. would get 218 million permits
during the nine years of the cap-and-trade program, according to
data from the air resources board. Edison International's
Southern California Edison would get more than 265 million
permits and Sempra Energy's San Diego Gas & Electric would get
60 million permits.
The final details of the allocations are still being worked
out, PG&E spokeswoman Cynthia Pollard said yesterday in an e-
mail. Southern California Edison and San Diego Gas & Electric
didn't respond to phone and e-mail requests for comment.
The cap-and-trade regulation calls for companies to sell
the permits and use the proceeds to help reduce customer bills,
possibly through rebates.

'New Industrial Revolution'

While the regulation calls for the distribution of free
permits, it would force the state's companies to buy too many
allowances at auction, said Dorothy Rothrock, vice president of
government relations for the California Manufacturers and
Technology Association. The board is "sending a big signal" to
businesses that "costs are going to go up," making them
reluctant to invest in California, Rothrock said.
Environmentalists and other supporters of the California
cap-and-trade program have said it will create rather than cost
jobs. By approving the cap-and-trade program, California will
boost employment by "leading a new industrial revolution"
centered on "pollution-reducing technologies," such as solar
panels, Fred Krupp, president of the New York-based
Environmental Defense Fund, said in an e-mail.
By 2015, when the program is fully phased in, it would
regulate pollution sources responsible for nearly 400 million
tons a year of carbon dioxide. That's more than double the
emissions covered by the Regional Greenhouse Gas Initiative, a
state-run carbon market for power plants in the U.S. Northeast,
and almost one-fifth the current size of Europe's cap-and-trade
program, according to data compiled by Bloomberg.
California is working with New Mexico and the Canadian
provinces of British Columbia, Ontario and Quebec to establish a
regional carbon-trading program. The proposal would require the
states and provinces to set up cap-and-trade programs within
their borders and then link them together so they operate as a
single system.

For Related News and Information:
Top environment stories: GREEN <GO>
Stories about U.S. and climate: TNI US CLIMATE <GO>
Global emissions data: EMIS <GO>

--Editor: Charles Siler, Susan Warren, John Viljoen.

To contact the reporters on this story:
Simon Lomax in Washington at +1-202-654-4305 or
Mark Chediak in San Francisco at +1-415-617-7233 or

To contact the editor responsible for this story:
Sylvia Wier at +1-212-617-8958 or