California creates second-largest cap and trade market, to start next year

Still looking around for the best writeup, but this seems pretty good:

The California Air Resources Board yesterday [Oct. 21] gave its final approval to the state’s cap-and-trade system, which sets limits on carbon emissions starting next year.

CARB unanimously approved details of the regulations over the objections of industry groups, the San Francisco Chroniclereported, with the board’s major actions focusing on the allocation of carbon allowances.

Under the plan approved yesterday, the state will limit carbon emissions from its 350 or so biggest emitters starting in 2012, with enforcement starting in 2013. The carbon cap will drop every year until 2020. Over this time, CARB expects the program to prevent 273 million metric tons of carbon emissions.

The regulations will cover electric utilities and large industrial plants first, later expanding to cover fuel distributors. Each company covered by the program will need to hold allowances for carbon that they emit over the cap, and companies will be able to trade these allowances in the marketplace. This will create the world’s second-largest carbon market behind that of the EU, with about $10 billion in allowances traded by 2016, according to the Los Angeles Times.

Initially 90 percent of allowances will be free, with companies needing to buy the other 10 percent. From there some industries will see the percentage of free allowances drop to about 30 percent. Emitters will also be able to meet up to eight percent of their required emissions reductions through carbon offsets.

In a letter to the board, industry groups and the California Chamber of Commerce called the 10 percent purchase requirement an “unjustified, job-killing tax,” and they said California would lose business to other states and countries. Water agencies are also covered by the regulation, and they told the board that the program would increase water rates.

....

Environmental justice groups had argued that cap-and-trade would increase pollution in low-income neighborhoods near high-emitting facilities, because polluters could simply buy the right to increase pollution.

The board yesterday responded to these concerns by approving an adaptive management plan, which would monitor the air quality of neighborhoods near regulated facilities, the APreported. If pollution does increase, the CARB said it would respond.

Last week Bank of America Merrill Lynch announced it is entering the nascent California carbon trading market with an agreed option to buy several million tons of offsets from TerraPass, through 2020.

Just to add a few comments: limits in 2012 with no enforcement until 2013 sounds to me like the program really starts in 2013. OTOH, the market is already getting moving (see the last sentence from the article), so that's good.

I believe the free allowances are grandfathered from past emissions. That would also be anti-competitive, because new entrants would have to buy allowances. No wonder the Chamber wants them to be all free.

The part about water agencies complaining is news to me. Guess I should look that up.

The enviro justice groups' lawsuit is a huge mistake. This response is cutting it close to the law though - I hope it works out.

Together with Australia's carbon tax and the European Union's cap system finally getting beyond its intentionally-easy stage, we're seeing some incremental progress. We need far far more than incremental progress, but we shouldn't forget that it's happening, either.

Good writeup of the original California program here, by an offset critic who thinks California's system isn't too bad. I believe the finalized program is only marginally different.