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California Air Resources Board adopts final cap-and-trade rules

By Jhoanna Frances S. Valdez

California Air Resources Board adopts final cap-and-trade rules
California Air Resources Board adopts final cap-and-trade rules

California regulators have approved the state's cap-and-trade program, a key element in the state's climate change plan which represents the world's biggest carbon trading program after the European Union's Emissions Trading System.

The California Air Resources Board late last week adopted the program which requires the state to reduce greenhouse gas emissions to 1990 levels by 2020.

"Cap-and-trade is another important building block in California's effort to create a clean and vibrant economy. It sends the right policy signal to the market, and guarantees that California will continue to attract the lion's share of investment in clean technology," said the agency's chairman Mary D. Nichols.

"When the nation addresses the growing danger of climate change, as I believe it must and will, California's climate plan will serve as the model for a national program," she added.

The regulation will cover 360 businesses representing 600 facilities and will be implemented in two phases. The initial period starting 2013 will be for major industrial sources including utilities, while 2015 onward will be for distributors of transportation fuels.

These sources are responsible for 85 percent of California's greenhouse gas emissions, the Air Resources Board said.

The agency will be providing most of the allowances to all the industrial sources during the initial period (2013-2014) using a calculation that rewards the most efficient companies, while ensuring a gradual transition.

Those companies that need additional allowances to cover their emissions can purchase them at regular quarterly auctions the California Air Resources Board will conduct, or buy them on the market.

The first auctions of allowances are slated for August and November 2012.

The agency said that while companies are not given a specific limit on greenhouse gas emissions, they must supply a sufficient number of allowances - each the equivalent of 1 ton of carbon dioxide - to cover their annual greenhouse gas output.

Eight percent of a company's emissions can be covered using credits from CARB-certified offset projects.

Emission measure

The cap-and-trade program is one of more than 70 measures being carried out under California's Global Warming Solutions Act of 2006 also known as A.B. 32.

The law includes stringent oversight and enforcement provisions and is designed so that California may link with programs in other states or provinces within the Western Climate Initiative, including British Columbia, Ontario and Quebec.

Last year, the United States Senate rejected a cap-and-trade program backed by President Barack Obama.

The Environmental Defense Fund, a nonprofit environmental advocacy group, said California's efforts to establish a carbon program is crucial at a time when the international market has put in place policies such as Australia's carbon tax that will gradually transition to a national cap-and-trade system; China's inclusion of a domestic carbon market in its current five-year plan; and the European Union's impending coverage of aviation emissions in its carbon scheme.

"California joins other forward-thinking countries that are adopting similar policies to secure their economic and energy futures. We now have the beginning of the most comprehensive carbon market in North America and underscore the fact that sensible climate policy is still within reach in the United States," Environmental Defense Fund's director for California climate and energy initiative Tim O' Connor said in a statement.

Meanwhile, the California Chamber of Commerce opposed the program, saying the agency's actions will drive up costs for consumers in California as businesses pass along the $2-billion tax included in the cap-and-trade plan.

"CalChamber believes this is an illegal tax that will negatively impact businesses and consumers at a time when they can least afford it," the chamber's policy advocate Brenda M. Coleman said in a separate statement.

"Imposing a tax on business via CARB's proposal does nothing to maximize environmental benefits required under A.B. 32 and it is not needed to ensure the stringency of the overall cap. In fact, the tax proposed by CARB contradicts the A.B. 32 requirements of minimizing costs and maximizing benefits for California's economy in the design of emission reduction measures. The tax will negatively affect all California businesses and increase costs that will be passed down to consumers," Ms. Coleman added.

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