| SAN FRANCISCO
SAN FRANCISCO May 30 When California launched
the country's most ambitious carbon trading scheme 18 months
ago, officials hoped that neighboring states equally worried
about climate change would quickly follow its lead, expanding
the nascent market.
On Monday, those states may finally get the nudge they need
to jump into the $20 million a day California market for
emitting carbon dioxide when the Environmental Protection Agency
releases much-anticipated new rules that will force deep cuts in
greenhouse gas emissions from existing power plants.
Those rules are expected to allow state officials broad
leeway to implement curbs across the entire power system, rather
than limit cuts to individual plants, Reuters has reported.
The rules will "make cap and trade more feasible and more
attractive" to states like Oregon and Washington, said Stanley
Young at the California Air Resources Board (ARB).
The measures come amid growing signs that governors and
state legislatures are finally overcoming their reticence to
take on a complicated program amid a long and deep recession -
noticing, perhaps, that California's cap-and-trade scheme has
enjoyed an untroubled roll-out over the past year and a half.
Carbon prices in California, which caps carbon emissions and
gives companies the ability to purchase and trade emissions
permits, have been low and steady, avoiding the kind of wild
gyrations that undermined Europe's cap-and-trade system, the
world's first, launched in 2005.
The California market's chief architect, Mary Nichols of the
ARB, praises the placid price, which has barely wavered from
around $12 per tonne since last summer: It's "a boring
Encouraged by low prices, local businesses who must buy the
permits to account for excess output have bought all the current
year permits offered in each of the state's seven quarterly
auctions, which have generated $750 million for clean energy
Legal challenges to the program from the political left and
the right are petering out, and the state is on track to meet
its target of producing 33 percent of its electricity from
renewable sources like wind and solar by 2020.
By the end of the decade, emissions should drop to 1990
levels, according to a report this month - bang on target.
GOVERNORS LOOK IN
Last month, Washington Governor Jay Inslee signed an
executive order calling for the creation of a carbon market in
the state, although he will still need sign off from the state
legislature before it can be implemented.
Last year, Oregon Governor John Kitzhaber joined California
Governor Jerry Brown, British Columbia Premier Christy Clark and
Inslee to sign an agreement that called for "meaningful
coordination and linkage between states and provinces across
North America" in fighting climate change.
Midwest states, which once envisioned a regional carbon
trading system of their own, may revive those plans, officials
have said, offering the opportunity to sell them on joining the
Golden State's market.
California is already set to link its market with the
Canadian province of Quebec later this year, showing that
geographical proximity is unimportant when it comes to carbon
While the addition of Quebec will only increase the market's
size by about 20 percent, California officials say it set an
important precedent for how to link two markets.
'TOUGH SLEDDING' FOR BROKERS
California utilities like Pacific Gas & Electric
and Southern California Edison have embraced the
program. Earlier this year, PG&E paid out its first "climate
dividend," reimbursing its customers for higher electricity
bills due to the cap and trade program.
Oil refiners such as Chevron have been less
enamored, warning that gasoline prices will rise and plants may
be shut as carbon prices climb. Adding transportation fuels to
the program next year may boost pump prices by about 12 cents
per gallon, according to Emilie Mazzacurati, managing director
of climate change consultancy Four Twenty Seven.
A boon to the state, the scheme's tame prices have made it
difficult for brokerages like Evolution Markets and BGC
Environmental Brokerage, and Amerex Brokers to
capitalize on the still tiny market.
Brokers say they are determined to stick with the market,
believing their patience will be rewarded in the coming month
when demand for permits on the secondary market increases ahead
of the market's planned 2015 expansion.
"It's been tough sledding but we expect to see liquidity
pick up later this year," said Lenny Hochschild, managing
director of Evolution Markets' Carbon America's Group.
(Editing by Jonathan Leff and Bernadette Baum)