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California Adopts Historic Cap-and-Trade Plan

A pair of power plants in Antioch
A pair of power plants in Antioch
The state is the first in the nation to place firm limits on greenhouse gases that cause climate change

California became the first state in the nation to place firm limits on greenhouse gases emitted by refineries, power plants and major manufacturers.

The California Air Resources Board on Thursday unaninmously approved North America’s first cap-and-trade program following years of hearings, debate and legal maneuvering. The historic new air pollution rules will be phased in beginning in 2013.

“California’s vote proves that climate action is still possible in the United States on a big scale, even though Washington is gridlocked,” Fred Krupp, president of the Washington-based Environmental Defense Fund, said in an interview. “It puts another engine into place that’s going to drive carbon emissions down.”

Many environmentalists and businesses in the clean technology sector support the program, but oil and gas companies and some manufacturers oppose it. Some environmental justice groups also oppose the program, saying it could cause pollution to become increasingly concentrated in poor neighborhoods.

The cap-and-trade program will affect the hundreds of companies that are responsible for 85 percent of the greenhouse gases released in California. It is part of a sweeping set of regulations designed to help the state reduce its greenhouse gas emissions required by AB32, the California Global Warming Solutions Act.

Former Gov. Arnold Schwarzenegger signed AB32 into law in 2006.

Under the cap-and-trade program, companies will receive a certain number of free permits, called allowances. Each allowance will enable a company to release one ton of carbon dioxide or its equivalent in other greenhouse gases. The number of free allowances provided to the companies will vary by industry.

Companies could increase their emissions by purchasing additional allowances from the state through a bidding process or from other companies that have more allowances than they need.

But the state will reduce -- or cap -- the number of those allowances that are available every year.

Companies may also invest in projects that help remove carbon from the air, such as reforestation campaigns, or that provide other environmental benefits to offset up to 8 percent of their emissions.

All of the money California raises through the sale of the allowances will be reinvested in climate change-related programs to help the state meet the goals of AB32.

The program begins in 2013 for power plants, utility companies and large industrial facilities, including cement and glass manufacturers and oil refineries. Other companies will be affected beginning in 2015.

PG&E’s rates are expected to rise slightly because of the new rules.

The cap on each industry’s annual emissions will decrease by 2 or 3 percent every year until 2020, when California aims to limit total statewide emissions to the equivalent 427 million metric tons of carbon dioxide, which is 50 million metric tons less than was released in 2008.

“Our society is going to have to use less gasoline,” CARB commission Chairwoman Mary Nichols said during Thursday’s eight-hour hearing in Sacramento. “Cap and trade provides a reasonable and flexible approach to gear our economy towards cleaner sources of energy.”

The cap-and-trade program could develop into a regional effort encompassing other western states and parts of Canada, according to CARB staff members. Nichols said it could serve as a national model.

China, Australia and the European Union are among the governments moving toward the adoption of similar programs. Last year, the U.S. Senate rejected a cap-and-trade program backed by President Barack Obama.

California's nascent cap-and-trade program is expected to help drive the market for renewable energy and energy efficiency projects, benefiting the booming clean technology sector that is based nationally in the Bay Area.

“We know from talking with companies both small and large that AB32 has really been a driver of innovation and investment,” said Susan Frank, Director of the California Business Alliance for a Green Economy, which represents clean technology companies. “Companies are actually moving to California because of the regulatory environment.”

But petroleum companies say cap and trade could prompt them to abandon their operations in California and set up shop in other states and countries instead.

“We work with the environmentalists, but we also need jobs,” Steve Swader, the operator of ConocoPhillips Santa Maria-based sulfur plant, said at Thursday’s hearing. “We’ve been told that if we’re no longer able to make a profit, we will cease to operate a refinery.”

Swader was among scores of ConocoPhillips workers to address the commission on Thursday, eventually drawing a terse response from Nichols, who pointed out that the company reported $14 billion in profits last year.

“They should do something about the problem of global warming,” Nichols said during the hearing. “They’re treating us here in California as if we are just a rustbelt state -- and I don’t think that’s right.”

Nichols said she had more sympathy for smaller manufacturers that will be affected by the regulations, such as the state’s five glass plants. In the early 1980s, California was home to 19 glass plants.

“We’re having a really hard time with this; nobody’s arguing about clean air,” said Charles McIntyre, a third generation glass worker and president of the West Coast Protective League, a union that represents workers who manufacture glass, paper, plastic, metal and other products.

“These manufacturers are spending millions of dollars every year to meet different requirements and different standards. Well it’s getting to a point to where you are going to put people out of work,” McIntyre said during the hearing.

The cap-and-trade program has been among the more controversial elements of AB32. It is designed to account for 20 percent of the state’s greenhouse gas emissions reductions by 2020.

In addition to reducing emissions, the cap-and-trade program is also expected to improve air quality. Many of the industrial operations that release carbon dioxide also pump cancer- and smog-causing particles through their smokestacks and exhausts.

Earlier this year, several environmental groups sued to prevent the state from adopting the cap-and-trade program. The groups argued that the program would benefit big polluters who buy up allowances in order to continue operating in environmentally polluted and low-income neighborhoods. Most of the benefits of cap and trade, the groups claimed, would be experienced in wealthy areas.

A court granted an injunction against the program, but later lifted it.

In response to the groups' concerns, CARB established a monitoring program and staff pledged to update commissioners on the impacts of cap and trade in different parts of the state.

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