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PD Editorial: California's cap-and-trade experiment

  • Mary Nichols, the state Air Resources Board chairwoman, said the cap-and-trade program isn't intended to raise revenue. (RICH PEDRONCELI / Associated Press)

California’s first cap-and-trade auction is a milestone in the fight against global warming. For the first time, a U.S. state is turning to the marketplace as a means of ratcheting back greenhouse gas emissions.

California has an ambitious goal: cutting back to to 1990 levels by the end of the decade. Sonoma County wants to cut further and faster — 25 percent below 1990 levels by 2015 — and progress is being made. Emissions in Sonoma County declined for the third year in a row in 2011, according to the Climate Protection Campaign.

But a single state cannot reverse the global effects of carbon pollution and climate change. Moreover, with an improving economy, demand will increase for energy, and people will drive more, making it harder to meet state and local goals.

Putting a price on greenhouse gases creates an incentive to meet the benchmarks. Cap-and-trade is a method of setting the price, using a market-based mechanism. If it works here, it could become a national model.

Under AB 32, a state law adopted in 2006, total allowable emissions will decline annually, returning to 1990 levels over the next eight years. Businesses that produce large amounts of carbon dioxide — oil refineries and power plants, for instance — have the option of reducing emissions or purchasing allowances at quarterly auctions.

Companies that reduce emissions can recoup costs by selling surplus allowances. An added dividend is the likely boost for Bay Area clean-tech companies that develop new methods for reducing emissions.

“By putting a price on carbon,” state Air Resources Board Chairwoman Mary Nichols said, “we can break our unhealthy dependence on fossil fuels.”

The cap-and-trade approach was used to reverse the effects of acid rain in Midwestern states that rely heavily on coal-burning power plants. One major difference with California’s emissions program is that carbon allowances are being sold at auction rather than distributed without charge.

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