How California’s cap-and-trade program for carbon emissions works

California’s cap-and-trade program, established by the Global Warming Solutions Act of 2006, promotes the state’s goal of reducing greenhouse gas emissions to 1990 levels by 2020. The program created one of the largest carbon credit markets in the world and one of two in the United States.

It sets a collective emissions cap on about 450 of the state’s largest polluters, including power generators, refineries and cement plants, which emit more than 25,000 tons of greenhouse gases a year, and requires them to obtain an allowance or a carbon offset for their emissions. The cap and the pool of allowances decline each year, while offsets - based on projects that sequester carbon in forests, for example - can cover up to 8 percent of their emissions.

The program also sets up a complex protocol for forest owners to establish offsets they can sell to polluters subject to the cap. Each offset represents 1 metric ton of greenhouse gas removed from the atmosphere by trees, which must be sustained for 100 years.