By Rory Carroll
SAN FRANCISCO Nov 14 California is set to
unveil a new weapon in its fight against global climate change
on Wednesday when it holds its first sale of carbon emissions
permits - a landmark experiment that it hopes will serve as a
model for other U.S. states and the federal government.
The state's carbon auction is a key step in the initiation
of its "cap-and-trade" program, a policy where the state sets a
limit, or cap, on the amount of heat-trapping gases released by
manufacturers, oil refineries, electric utilities and other
large emitting businesses.
Those companies can then either reduce their emissions or
purchase carbon permits, also known as "allowances," on the open
market from companies that have extras - the "trade" part of cap
and trade. The number of allowances in the system will decline
Environmentalists have long advocated cap-and-trade as a
market-based means of limiting greenhouse gas emissions. Thirty
European countries have been using it since 2005, and markets
are operating or in development in Australia, China, Japan,
Kazakhstan, New Zealand, Quebec and South Korea.
With Superstorm Sandy drawing attention to climate change
and a strong Democratic showing in last week's election, carbon
emission limits could again be on the national political agenda
in the United States. But past efforts to implement
cap-and-trade nationally have faltered in the face of opposition
from congressional Republicans and others who say it will
increase energy costs.
The California Chamber of Commerce on Tuesday filed a
lawsuit to stop the California auction of emissions permits,
contending that the state had exceeded its authority in making
the program a revenue-generator. Sale of carbon allowances is
expected to generate at least $1 billion a year.
The cap-and-trade program, which initially covers 350
businesses, is a key component of AB 32, California's landmark
2006 law, which called for the state to cut its greenhouse gas
emissions back to 1990 levels by 2020. That's a reduction of
about 15 percent.
"The cap-and-trade auction is a huge milestone for
California because it kick-starts a program that is the
strongest and boldest move yet in the U.S. to protect public
health and the environment from climate change," said Fred
Krupp, president of the Environmental Defense Fund.
California is responsible for about 3 percent of global
greenhouse gas emissions, so influencing others to follow suit
and eventually link to the California market will be critical to
the program's success.
"Our overall impact is small," said Mary Nichols, chairwoman
of the California Air Resources Board, the agency implementing
the program. "What we do will not solve the problem. But we want
to demonstrate that this type of system can work."
Cap-and-trade supporters believe California's market is
launching during a favorable time politically.
Environmentalists were buoyed by the re-election of state
Senator Fran Pavley, the author of AB 32 who survived a tough
challenge in a redrawn Southern California district. Democratic
electoral gains last week, which are likely to give the party a
super-majority in the state legislature, also may bolster
support for the program.
The re-election of President Barack Obama ensures the
federal government will not interfere with the program. And it
is possible that legislation creating a carbon tax or national
cap-and-trade program could be introduced in the coming years.
But California's market is still highly controversial and
lawyers on all sides expect the state Air Resources Board to
face challenges in court.
The companies that operate California's 13 oil refineries
have been vocal opponents of the program, arguing that it could
lead to the closure of five to seven refining facilities.
Oil company opposition is likely to increase when the
program expands in 2015 to cover emissions from distributors of
transportation and home heating fuels.
Wednesday marks an important day for the new market, but it
may take years before its success or failure can be truly
"It's a very long-term effort," said Richard McNeil, an
attorney with Snell & Wilmer, which represents California
"I think you'll see some tumultuous times market-wise and I
think you'll see additional legal challenges. The big question
is - will we ultimately see the benefits? It will be a while
before anyone can answer that."