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California Global Warming Solutions Act passes

California has committed to bringing its greenhouse gas emissions down to 1990 levels by the year 2020, a 25% cut from today’s levels.

California is the world’s sixth largest economy and creates 2% of greenhouse gas emissions. More importantly, California frequently acts as a bellwhether for the rest of the United States on environmental issues.

The bill was the subject of some dramatic last-minute negotiations focusing on the use of market-based mechanisms to reduce emissions:

One of the main sticking points in negotiations over the legislation was the role of a so-called “cap and trade” program: If a company reduced its carbon emissions to levels below the mandated cap, it could sell its remaining “credits” to another business that was unable to reach the cap.

Gov. Arnold Schwarzenegger insisted that such a system be mandatory. Democrats urged that it be optional, concerned it could cause disproportionately more pollution in low-income communities. Schwarzenegger ultimately relented on that and other negotiating points, although both sides said a cap-and-trade system will likely be adopted.

We would have preferred to see Schwarzenegger prevail on this point, but are optimistic that the final outcome will still be a huge step forward. Pollution in low-income communities is of course a serious issue, but it is also the case that the poor will disproportionately suffer the effects of climate change.

Critics of the bill claim that California businesses will be placed at a competitive disadvantage by the new legislation, but in fact the economic consequences of inaction would be far more severe. The bill itself notes the potentially adverse effects of global warming on California’s largest industries, such as wine, tourism, and agriculture; the risk to coastal populations and businesses; the threat to its water supply; and the ongoing strain on its electricity system.

And proponents of the legislation rightly see a huge amount of economic opportunity in being on the forefront of this issue. Our friends at Ford Motor Company have frequently told us about the enormous amount of institutional learning and capability that has resulted from their own voluntary participation in a cap-and-trade system. Once again, California will be at the head of the curve.

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