California gives green light to carbon trade

SACRAMENTO Fri Dec 17, 2010 8:25am EST

Century City and downtown Los Angeles are seen through the smog December 31, 2007. REUTERS/Lucy Nicholson

Century City and downtown Los Angeles are seen through the smog December 31, 2007.

Credit: Reuters/Lucy Nicholson

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SACRAMENTO (Reuters) - California on Thursday approved rules for a multibillion-dollar carbon market, in what proponents hope and detractors fear will be a turning point for the United States toward building a national program to address global warming.

After Congress failed to pass a climate change law last year, California is the vanguard of the nation's effort to address global warming and its bid to build alternative energy and related industries.

California has mandated that a third of its electricity come from renewable sources like solar and wind. It is also encouraging "low carbon" auto fuels, like some biofuels and natural gas, and on Thursday approved rules for the carbon market.

"This is what makes us the leader," Governor Arnold Schwarzenegger, who signed the state's climate change law in 2006 and helped convince voters to crush a ballot box challenge to it last month, told regulators.

California is struggling with a budget shortfall, but it is creating "green" jobs and garnering the lion's share of venture capital investment thanks to its environmental efforts, he said.

The rules adopted by the Air Resources Board, the state's climate change regulator, limit emissions of carbon dioxide and other greenhouse gases and let power plants, factories and eventually refiners and others to trade permits to pollute in a program generally known as cap-and-trade.

California will become the second-largest carbon market in the world, following a European system. Point Carbon, a Thomson Reuters company, forecasts the market will grow from $1.7 billion in 2012 to nearby $10 billion in 2016, with prices rising from $10 a metric ton in 2012 to $18 per ton in 2016.

Environmentally, California's move could rank with U.S. efforts decades ago to clean up air and water, said Gary Gero, President of the Climate Action Reserve. "We will say this was when the United States started seriously building a program for climate change," he said.

Calls to force companies to buy permits at auctions have largely been rebuffed due to the weak economy. Most permits will be given away, especially in the first three-year period.

Factories and power producers will be able to bear some of the burden for cutting emissions with credits for projects that soak up carbon, known as offsets. There is already a market in such offsets, and prices have jumped in the last several weeks to about $8 a ton, traders said.


"The world is watching what California is doing," said Louis Blumberg, director of the California Climate Change Team at the Nature Conservancy environmental group.

A substantial number of manufacturers still view the program as a disaster that will raise costs and hurt the state's competitiveness. Companies will have to buy more and more permits at auctions as the multi-year program continues.

"This is going to dampen their enthusiasm to grow and invest in California," Dorothy Rothrock, head of government relations at the California Manufacturers and Technology Association, told the board.

A number of studies have shown the net effect on the economy of cap-and-trade will be modest, but it could be disruptive in the short term.

Some environmentalists also criticized the plan, taking aim at offset creation rules that let lumber companies level stands of trees, called clear cutting, if they preserve other stands and raise total carbon held in a project area.

"To me, clear cutting looks a lot like deforestation," Sierra Club member Karen Maki testified.

Canadian provinces Ontario, Quebec and British Columbia are working to join California in 2012. They are members of a group called the Western Climate Initiative, and some California backers hope to join forces with a small U.S. Northeast plan and a developing Midwest program.

(Editing by Stacey Joyce)

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Comments (6)
California Republican Governor Arnold Schwarzenegger is termed-out in his second term as the chief executive of California where 13% of the U.S. population lives in a protracted recession with 12.5% unemployment. He entered office via a re-call of Democratic Governor Gray Davis. California’s government has for decades been dominated by progressive Democrats with their labor union, immigrant and environmentalist core constituencies. These core California progressive voting blocks have neutered all of Schwarzenegger’s conservative notions of governance, leaving his popularity rating at 32%. 68% of Democrats disapprove of Schwarzenegger, along with 55% of Republicans and Independents. The California State Legislature has an approval rating of 13% — similar to the U.S. Congress (PPIC Dec. 2010).

Schwarzenegger has been wholly converted to the environmentalist “green agenda” – global warming, green economy, green energy, etc. He has blindly supported the green side of every environmental issue in California – except for the Central Valley’s farmers vs. wildlife water supply debacle. Before the recession in 2006, the Governor supported, and California voters naively approved, the California Global Warming Solutions Act of 2006 (Assembly Bill 32). AB 32 would impose costly 2012 reductions in state greenhouse gases for unproven global warming benefits. All new environmental regulations increase the unit production costs and corresponding consumer prices of all goods, services, energies and activities. AB 32 would further punish California businesses and families with more taxes, energy expenses and unemployment as we enter the third year of an historic national economic recession.

Schwarzenegger also rallied against a November 2nd State Proposition 23 that would suspend implementation of AB 32 greenhouse gas controls until the state’s unemployment rate is reduced to below 5.5%. Prop 23 failed as a ballot measure – thus, the costly AB 32 climate law stands for implementation in 2011.

In spite of the Prop 23 defeat, Arnold Schwarzenegger should “man up” to help California’s struggling economy by suspending the Prop 32 climate law compliance mandates under its Section 38599 citing exception for “… extraordinary circumstances, catastrophic events, or threat of significant economic harm” (Calif. Health & Safety Code, Div. 25.5, Chapter 488, Part 7, et. seq.) As governor, Schwarzenegger has twice this year declared a “state of emergency” in California due to continuing state budget deficits of over 20%, chronic unemployment and other financial difficulties.

A study by the Governor’s own Small Business Advocate reports that small businesses pay more than $134,000 each in annual California regulatory costs – significantly in green regulations. Estimates are that the total cost of California regulations is about $493 billion annually – the equivalent of 3.8 million jobs. AB 32 could cost the state an additional 1 million in job losses with its cap-and-trade system to reduce greenhouse gases to 1990 levels.

Governor, what is clear in California is that partisan ideologies and cultish environmentalism have replaced prudent science and economic realities in climate policy. What is also clear is that radical environmentalism no longer offers any product or service in support of our future security and prosperity. Militant environmentalism and green-obsessed bureaucrats have become an “axis of antagonism” that we can no longer afford.

Dec 17, 2010 10:19am EST  --  Report as abuse
DrJJJJ wrote:
If California was intellectually honest about reducing carbon emissions, they would simply reduce the state freeway speed limit and reduce emissions probably 10%+ overnight, for next to nothin, saves lives, reduces oil consumption, it’s proven and fair!! Data galore folks backing me up! Vehicle emissions spike dramatically above 60mph and mpg drops like a rock! They’d leap frog years in emission reductions!! Anyone want to guess what the avg freeway speed might be in CA? That’s what I thought! KISS! Why haven’t they done this-is there that much dope flowing in CA or is about attacking business and industry by old militant flower children?

Dec 17, 2010 11:49am EST  --  Report as abuse
bobw111 wrote:
Carbon trading is a great “schem” (AKA hoax) being foisted upon a well intentioned buy really ignorant populace.

If you hate “big” anything remember that all this trading will be among the largest “stakeholders”, and the costs will all be paid (as always), by the people at the bottom.

No corporation pays any tax. Period. It only collects taxes for the government, and charges you a fee for doing so.

If you don’t believe me, remember it all gets rolled up into their cost of doing business and the cost of their products that you buy.

Thinking your going to solve environmental problems by setting up a system where slick traders can make money trading artificially valued “credits” around is ridiculous.

If you really want to carbon use in California, charge an annual $2,000 to $1,000,000 dollar “carbon use fee” on EVERY privately owned vehicle in the state, with the highest fees in the densest population areas.

Watch public transit use sky rocket, and the air “magically” clear.

Radical, but effective…

Dec 17, 2010 1:48pm EST  --  Report as abuse
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