California re-embraces carbon market

SAN FRANCISCO Mon Jun 13, 2011 7:51pm EDT

SAN FRANCISCO (Reuters) - A new, court-ordered analysis of California alternatives for regulating greenhouse gases shows that a carbon cap-and-trade market is still the "correct" choice, the state's top climate regulator said on Monday.

The cap-and-trade plan that would let factories trade rights to emit greenhouse gases, allowing the ones that cut the most to profit most, is one of the highest profile and most contested planks of an environmental effort watched around the world.

A court ordered the state to consider alternatives to cap and trade, and the Air Board released its report on Monday while appealing the ruling that it did not thoroughly look at other ways to curb emissions from big sources.

"The analysis that led us to conclude that a cap-and-trade program was the correct alternative choice is fundamentally sound, and I think that this document lays that out quite clearly," Air Resources Board Chair Mary Nichols told the Reuters Global Energy and Climate Summit.

Governor Jerry Brown has yet to weigh in on whether he believes a carbon market is an essential component of the state's effort to reduce its emissions to 1990 levels by 2020.

But Nichols and Brown share a history -- Nichols also headed the Air Board under Brown when he was governor three decades ago. "He trusts the ARB and he trusts me," she said.

The Air Resources Board will vote on the carbon market plan on August 24, Nichols said.

The 120-page policy analysis published on Monday examined five approaches to cut emissions, including a carbon tax, direct regulation of power plants and big factories, and a cap-and-trade system.

The report concludes that a cap-and-trade system would cut emissions in the most cost-effective way and would set clear caps on emission to let the state hit its targets.

"A fee or tax addresses environmental goals or emissions limits indirectly," the document said. "Thus, there is uncertainty about whether the emission reduction target would be met."

Direct regulation would be administratively challenging, and both taxes and regulation would drive some business to move out of the state.

Implementing a carbon tax, in addition, may be "politically infeasible" since it would likely require the "extremely unlikely" support of two-thirds of the state legislature, regulators said in the document.

A lawyer for the group challenging the Board in court declined to comment, as she focused on the court case, while traders in the carbon market embraced it as a sign the market would move ahead.

(Reporting by Peter Henderson and Rory Carroll, editing by Gerald E. McCormick, Gary Hill and Lisa Shumaker)