California's New Cap-and-Trade Emissions Trading Program is Second Largest in World

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California's cap-and-trade program, six years in the making, starts today, with auctions for permits to pollute starting this morning and the results announced next Monday.

The basic details are as follows:

It's the second largest carbon trading program in the world, after the EU's—which probably isn't surprising to learn if you remember that California's economy is alone in the world's top 10.

The auction part isn't to see who wants the right to pollute more next year—nearly all of the pollution allowances in the program for 2013 have already been given to utilities and industry in the state—rather the auction is to determine what price the market will bear for the carbon.

Auctions will be held four times a year through 2020, with the total amount of carbon pollution allowed to be emitted declining over time—and as such, should drive up the cost of polluting, thereby encouraging industry and utilities to choose non-carbon emitting ways of doing business.

The money from the auctions will go towards state-level investments (though the details of that are TBD), with 25% of proceeds used in ways that target disadvantaged communities.

Right now only large polluters are included in the program, but that will expand in years to come.

One looming question: Will the California program be able to avoid the price volatility that has plagued the EU experience with carbon trading? There's a price floor of $10/ton established, intended to ensure that even when prices fluctuate polluting is still more expensive than not polluting.

Tags: California | Carbon Dioxide | Carbon Emissions | Global Climate Change | Global Warming Solutions

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