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California’s Cap and Trade Policy Takes Effect This Week, Ramifications Unknown

A controversial green initiative in California that has been years in the making will begin to show its teeth this week.

Approved by California voters in 2010, California is the first state to mandate emission auctions for carbon allowances in the country.  Dubbed as the ‘cap and trade’ program, California will begin to charge industrial facilities that exceed 25,000 metric tons of carbon dioxide emissions a year with credits at quarterly auctions.  A minimum price, set by the state, currently stands at $10 per credit.   Around 300 businesses operating over 600 locations in California will be affected by the new regulation, including many power plants, cement manufacturers, and oil refineries.  While the discussions have been ongoing amid the concerns over the new credits, they will surely heat up this week and into 2013 as the policy goes into effect.

Reviews have been mixed among the masses; while many people value the necessity of not destroying the environment from an overabundance of carbon dioxide, others remain concerned about how this will damage the sustainability of the manufacturing sector.

Ralph Cavanagh, head of the energy program at the Natural Resources Defense Council, believes that companies will be able to adjust in time to the new regulations.  Cavanagh states, “The same apocalyptic claims about cap and trade for carbon dioxide [today] were made about cap and trade for sulfur dioxide in the 1990s.  And pretty much everyone acknowledges now that was a success.”

The cap and trade policy is seen as a strong step towards environmental prosperity by supporters.  Instead of focusing on the present difficulties of CO2 reduction, they envision the new regulations as a challenge to discover new reduction technologies and find additional creative solutions to quell strong emissions.  To them, this is an attainable call to action, not a means to cry foul.

On the other hand, Catherine Reheis-Boyd, president of the Western States Petroleum Association, sees that vision as incomplete because of long-term vitality.  She states, “[Companies] are making investment decisions on whether to stay in the state, and they’re looking out 10 years and saying, ‘Are you kidding me?’”

Reheis-Boyd’s concern doesn’t entirely stem from needing to make reductions, but rather, the necessity of the state to charge as much for carbon credits as they intend. As I stated earlier, the state was the one to set the price for carbon allowances, giving little to no voice to the ones being charged.

In terms of dollars and cents, early estimates have the cap and trade program generating between $660 million-$3 billion in auction proceeds this year alone, according to UPI and InsideClimate News.  Looking down the road, some estimates have this program generating upwards of $8 billion for the state by 2020.

While the state is extremely encouraged for the potential to generate revenue, they are taking the concerns of people like Reheis-Boyd very seriously.  As of now, no other state is planning to implement a change of this magnitude, and officials are keen to not burn any industrial bridges.  In saying so, California has decided to offer free allowances for companies on the first 90% of emissions exceeding 25,000 metric tons of carbon dioxide this year.  These allowances give companies at least one year worth of breathing room to combat emission standards.  California has given these companies two options at this point; a company can either pay for the additional 10% of emissions they produce, or they can reduce the 10% right away and prevent any out of pocket expense.  While this is a solid concession on the Californian government’s behalf, there has been no indication that these free allowances will last beyond this year.

For many of the affected companies, moving operations out of the state is always a possibility.  While that’s not cheap in its own right, it would eliminate the necessity to comply with California energy policy.  Only time will tell if California businesses deem new regulations damaging enough to consider that extreme, or if California policymakers will continue to accommodate the demands of industry.

One thing is certain – in this instance, California is serving as a guinea pig for the nation in terms of innovative new policies for cutting greenhouses gases.  One has to believe that President Obama is keeping a keen eye on this policy to see if it could be implemented on a national scale in the years ahead.

Kristopher Settle
Energy Curtailment Specialists, Inc.

Kris can be found on Twitter and Google+.

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