California proposes trading program to cut emissions

California officials on Tuesday issued the nation’s first blueprint for a broad-based cap-and-trade plan, an innovative and controversial effort to use market forces to control global warming.

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FOR THE RECORD:
Cap-and-trade program: An article in Wednesday’s Section A on California’s cap-and-trade program quoted Greg Karras, senior scientist for Communities for a Better Environment, as saying that the program was “institutionalized environmental justice.” Karras called it “institutionalized environmental injustice.” —

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The ambitious program would cap most of the state’s greenhouse gases, including those from more than 600 power plants, refineries, cement plants and other big factories. It would allow companies to buy and sell emission allowances among themselves to reach an overall goal of cutting planet-warming pollutants 15% below today’s levels by 2020.

The state’s action comes as Congress wrestles with a cap-and-trade bill for planet-heating emissions. Legislation passed by the House is stalled in the Senate.

“California is first out of the box,” California Air Resources Board Chairman Mary Nichols said.

Regulators estimated that California’s program could cost industry as much as $8 billion a year by 2020 if carbon trades at its current price on the European market of $20 per ton. European nations have operated a cap-and-trade program for the last five years.

But industry groups warned that the state’s push to control greenhouse gases could cost more than twice as much, and burden consumers with more expensive electricity, gas, housing and consumer goods.

The measure is a signature issue for Gov. Arnold Schwarzenegger, who has pushed for flexible market-based solutions to environmental problems. He praised the proposal as a way to “drive innovation and generate green jobs.”

The 135-page rule, designed with input from national academic, industry and environmental experts at 21 public workshops this year, is likely to influence the shape of eventual federal regulations.

But the current draft leaves several controversial elements unresolved: how many emission allowances to auction off, rather than give away for free, and how to spend the revenue.

Those issues are being debated by a committee of experts headed by Stanford economist Lawrence Goulder, which is to report to the air board early next year.

Environmental groups are divided over the virtues of carbon trading, with groups such as the Environmental Defense Fund and the Natural Resources Defense Council supporting a market approach and others charging that it lets industries off the hook, especially in highly polluted areas such as Los Angeles.

Greg Karras, senior scientist for Communities for a Better Environment, which has filed a suit to block the cap-and-trade option, called it “institutionalized environmental justice,” adding that it would encourage “the most entrenched polluters, including oil,” to continue emitting toxics and smog-forming pollutants, which are associated with carbon emissions.

California’s push comes amid growing alarm over the likely effects of global warming on the state, the nation and the planet. Sierra Nevada snowpacks are diminishing, sparking drought and water shortages. Central Valley orchards are suffering declines, and the habitats of local animals and birds are changing.

In a report last April, “Indicators of Climate Change in California,” the Office of Environmental Health Hazard Assessment found that the state’s higher temperatures, rising sea levels and increasing wildfires are consistent with climate changes occurring globally.

The state’s proposed cap-and-trade program would take effect beginning in 2012, complementing other rules adopted under AB32, the state’s , to limit carbon dioxide from automobile tailpipes and the carbon content of fuels. The law requires greenhouse gases to drop to 1990 levels by 2020.

Nichols called the cap-and-trade draft a “milestone . . . to address our state’s contributions to climate change, as the eighth-largest economy in the world.” And she pointedly contrasted it with the upcoming gathering of 190 nations in Copenhagen next month “for another conference at which no international treaty will be signed.”

But the plan could face further court challenges. “Serious legal questions about the Air Resources Board’s right to conduct an auction and spend the revenue have not been settled,” warned the AB32 Implementation Group, an industry coalition.

Environmentalists want all permits to be auctioned, with the money spent on clean energy projects and on communities heavily affected by air pollution. Industry prefers that most allowances be given out for free. And the California Legislature, short on funds, may weigh in.

One controversial provision would allow industries to purchase “offsets,” such as contributing to the preservation of a forest or the capture of methane from a landfill, to meet 49% of their obligations to reduce carbon dioxide emissions.

Companies prize offsets as an alternative to installing often-expensive pollution controls, or, in the case of utilities, to building solar and wind farms to replace fossil fuel plants.

But Bill Magavern, California director for the Sierra Club, warned that the draft rule “allows polluters far too liberal use of offsets to buy their way out of reducing their emissions.”

Six other Western states and four Canadian provinces have joined with California in a Western Climate Initiative with an eye toward linking in a regional cap-and-trade program.

Meanwhile, if a federal bill passes, California’s program, along with a cap-and-trade program in the northeastern U.S. that covers only power plants, would probably merge with a national program. But Nichols said the state could be free to require more emissions cuts in some cases.

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