The Los Angeles Times | December 16, 2010
By Margot Roosevelt

California regulators Thursday are expected to adopt the nation's most comprehensive carbon trading regime, creating a market-based way to lower greenhouse gas emissions at a time when similar efforts have stalled in Congress.

The program is the centerpiece of the state's 2006 global warming law, which aims to slash carbon dioxide and other planet-heating pollution to 1990 levels by 2020. That would amount to a 15% cut from today's level.

The cap-and-trade system "will help drive innovation, create more green jobs and clean up our air and environment," said California Air Resources Board Chairwoman Mary D. Nichols, adding that it "provides flexibility" to industry and takes "into consideration the current economic climate."

Carbon dioxide emissions, mostly from burning fossil fuels, are trapping heat in Earth's atmosphere, spurring changes in the climate. Scientists say California has begun to experience the effects, with hotter temperatures, rising sea levels and the melting of the Sierra snowpack, which provides fresh water for cities and farms.

Under the state's cap-and-trade plan, emissions from the 600 biggest industrial facilities, including cement manufacturers, electrical plants and oil refineries, would be capped in 2012, with that limit gradually decreasing over eight years in an effort to encourage energy efficiency and renewable sources of power.

Companies would be granted "allowances" for each metric ton of greenhouse gas they emit, and they could trade unused allowances among themselves to cut costs.

California's climate regulations already include rules to increase the fuel efficiency of cars, cut the energy intensity of gasoline and require that a third of the state's electricity come from solar, wind and other renewable sources.

After 40 public hearings in which companies complained that the proposed rules were too onerous, the air board loosened key aspects of the final draft, citing the recession-plagued economy. Critics, however, say the plan is too weak.

In its most controversial decision, the board ignored the advice of a panel of prominent economists it had convened earlier this year, which advised auctioning most of the greenhouse gas allowances from the start, rather than giving them out for free.

The state could use the proceeds from selling allowances to offer consumers incentives to invest in energy efficiency, and to combat the effects of industrial pollution in poor neighborhoods.

The air board would give free allowances during the first three years, then phase them out for most industries. But cement makers and oil companies, considered prone to moving operations out of the state, would be granted free allowances for eight years.

That grace period angered some environmentalists. "Cap-and-trade was always meant to be the industry-friendly way to reduce emissions," said Bill Magavern, the Sierra Club's California director. "But the oil industry is posting big profits and does not need assistance from the state."

Another controversial aspect of the plan allows companies to offset up to 49% of the emissions they are required to cut by investing in reductions elsewhere. Companies could buy offsets from facilities that reduce ozone-depleting chemicals, from livestock farms that capture methane from manure, from urban tree-planting programs, and from timber outfits whose operations increase carbon storage in forests.

Last week, a coalition of 47 conservation groups led by the Center for Biological Diversity and the Sierra Club called on the board to exclude forest projects that employ clear-cutting from the offset program. "We should not try to clear-cut our way out of climate change," they wrote. The plan, they added, "explicitly invites forest clear-cutting as a carbon offset project [and] incentivizes the conversion of natural forests into tree farms."

However the Nature Conservancy and several other environmental groups endorsed the forest offsets, saying that landowners would have to demonstrate to independent auditors that they are managing their forests to store more carbon, and therefore avoiding some of the greenhouse gas emissions that come from timber harvesting.

Shelly Sullivan, a spokeswoman for the climate law's Implementation Group, an industry coalition, warned against tightening the rules, adding that industry opposes any auctions of allowances, even in later years.

Although several states and Canadian provinces have said they might eventually join in California's trading system, "neither the federal government nor other states are committed to join a cap-and-trade program, so in essence California will be going it alone," she said. "If cap-and-trade costs are not also shared by other states, there is great potential for economic harm, jobs loss and lower investments in the state."

Next year, the air board will decide on rules to link its trading system to programs in New Mexico, British Columbia, Ontario and Quebec, which are part of the Western Climate Initiative, a group of 11 U.S. states and Canadian provinces. That trading group could eventually link to the Regional Greenhouse Gas Initiative, a group of 10 Northeastern and Mid-Atlantic states that have capped carbon dioxide emissions on power plants. Midwestern states are also developing a trading program.