California’s Air Resources Board (CARB) released draft cap-and-trade regulations (pdf) last week, which will be a central part of the state’s plan to reduce greenhouse gas emissions to 1990 levels by 2020. The agency’s proposal is a timely reminder to senators in Washington and negotiators at the upcoming climate talks in Copenhagen that ambitious, cost-effective emission reductions are within reach.
CARB’s rules are still preliminary and many sections remain incomplete. But the 132-page document provides new details on how the state is designing a market system that will require polluters to operate within a declining emissions cap. Initially, most of the requirements will apply only to the 600 largest sources of greenhouse gases in California. These power plants and industrial facilities are already reporting their emissions (see just released 2008 data here). The air board will issue GHG allowances — a portion of which will be distributed by auction — thus setting in motion a new market for pollution reductions. Since the total number of allowances will decline year by year, emitters will have to find ways to manage with less of them, primarily through operational efficiencies that cut greenhouse gases.
California envisions a narrowly prescribed role for offsets. Up to 4% of a company’s compliance obligation could be met with state-approved carbon credits from offset projects – a strategy emitters will use when it makes economic sense. This approach will provide an important avenue for cost savings while spurring innovations in emission categories (e.g., methane) that are not easily regulated.
The cap-and-trade rules will complement an array of existing state policies, including Governor Schwarzenegger’s recent executive order requiring one-third of the state’s electricity to come from renewable sources by 2020. A low-carbon fuel standard for transportation and energy efficiency programs for residential and commercial buildings are also part of the package. The overall plan commits the state to reducing greenhouse gas emissions from 596 million metric tons in the business-as-usual scenario to 427 million metric tons in 2020, or almost 30% less than what would otherwise occur.
California’s Global Warming Solutions Act passed the legislature in 2006. Three years of public consultations have brought the draft regulations to this point for a law that fully takes effect January 1, 2012. Substantial segments of the business community are ready to move forward. This regulatory process, which now heads towards agency approval in fall 2010, offers a valuable model that could help expedite federal legislation pending in Washington. The California experience is also one of the best examples of climate policymaking the United States can bring to Copenhagen.