California began
auctioning permits Wednesday for greenhouse gas emissions, launching one of the
world's most ambitious efforts to cut heat-trapping gases from industrial
sources.
The California Air Resources Board said it began selling the
pollution "allowances" in a closed, online auction expected to create
the world's second-largest marketplace for carbon emissions.
Under the program, the state sets a limit, or cap, on
emissions from individual polluters. Businesses are required to either cut
emissions to cap levels or buy allowances through the auction from other
companies for each extra ton of pollution discharged annually.
The board said the results of the auction - what price is
paid for a ton of carbon, and how many companies participated - would be released
Nov. 19.
The cap-and-trade plan is a central piece of AB32, the
state's landmark 2006 global warming regulations.
The auction was being closely watched nationally, as the
world's ninth-largest economy institutes a program that has eluded lawmakers in
Washington.
Only the European Union has implemented a similar plan in
terms of scope, and it currently operates the world's largest carbon
marketplace. A much less inclusive cap-and-trade scheme covers only electricity
producers in the northeastern United States.
Failure of the California
program would be a devastating blow to carbon control efforts nationally, said
Severin Borenstein, a professor at the University
of California, Berkeley, an expert
on energy economics.
"Cap and trade is still probably the most likely way we
eventually could get to a national carbon mitigation program," Borenstein
said.
For the first two years of the program, large industrial
emitters will receive 90 percent of their allowances for free in a soft start
meant to give companies time to reduce emissions through new technologies or
other means.
The cap, or number of allowances, will decline over time in
an effort to reduce greenhouse gas emissions year-by-year.
If a business cuts emissions below its cap, it could profit
by selling its extra allowances at a later auction.
Firms can also generate credits by investing in forestry and
other projects that remove carbon from the atmosphere. Those credits can
satisfy up to 8 percent of a company's mandated emissions reductions
Some businesses targeted by the program have argued the
increased costs will drive jobs out of California.
Executives also argue it could result in increased emissions by businesses in
neighboring states that boost production to grab business.
"Raising costs in California
will allow out-of-state firms to lower prices and take market share," said
Shelly Sullivan of the AB32 Implementation Group, a business coalition that
supports greenhouse gas reductions but opposes the auctioning of allowances.
"As it stands now the auction equates to a tax for
these businesses to continue to operate in the state," Sullivan said.
"Those costs will be passed through to consumers."
The California Chamber of Commerce has filed a lawsuit challenging
the air board's authority to sell the allowances to generate revenue for the
state. It claims the sale of allowances is an illegal tax because taxes need a
two-thirds vote by the Legislature.
Stanley Young, a board spokesman, said cap-and-trade will
withstand legal scrutiny.
"This market-based approach to cutting greenhouse
emissions gives businesses the flexibility to best decide how to reduce their
emissions," Young said.
The board estimates that about $1 billion could be raised
from the sale of allowances in fiscal year 2012-13. About 23 million allowances
will be sold for 2013 emissions, and 39.5 million allowances were being
pre-sold Wednesday for 2015 emissions.
There is some uncertainty about how the money will be used. California
law dictates only that it go into a special greenhouse gas reduction account,
and any programs that use the funds be consistent with the goals of AB32.
California
officials hope a successful rollout of the cap-and-trade system will embolden
other states to follow suit and spur economic growth by strengthening the clean
technology business sector.
Not all businesses are opposed to the plan. Mike Mielke of
the Silicon Valley Leadership Group - which has 375 members, including tech
titans IBM, Apple, and Cisco - said lots of technology firms see opportunity in
the new carbon market.
"Cap-and-trade sends a clear market signal with a price
on carbon," Mielke said. "A growing portion of our membership is
clean technology, and that's a growing sector because of AB32."
Copyright 2012 The Associated Press.
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