The biggest effects of California’s cap-and-trade law may be felt elsewhere
The Economist
Nov 24th 2012
SACRAMENTO | from the print edition
IT HAD been a nervous few days. So the California Air Resources Board (CARB), which is running the state’s new cap-and-trade scheme for greenhouse-gas emissions, can be forgiven for celebrating its first big test in eccentric fashion. Barely an hour after details of the first auction of emissions permits were revealed, staff filled a conference room in their downtown Sacramento office to inflate a large blue radio-controlled fishlike balloon bearing the words “Success Shark”.
The auction was indeed a success, largely because it was not a failure. The online platform participants used to make their bids held up, and an independent review found no evidence of dodgy practices. More important, a last-minute lawsuit filed against CARB by the California Chamber of Commerce did not appear to deter participants: the 23.1m allowances for next year, each covering the emission of one tonne of carbon dioxide or equivalent, were oversubscribed by three-to-one. They sold for $10.09, nine cents above the reserve price and less than analysts had expected. The lawsuit will rumble on.
When the law takes effect, on January 1st, California’s carbon market will be the world’s second-largest, behind the European Union’s. Like the EU scheme, California’s programme aims to reduce aggregate carbon emissions by issuing allowances to pollute up to a certain limit, which will be lowered over the years. The allowances, at first given away or auctioned, can later be freely traded.
CARB says it has learned from the failings of the EU’s effort, such as an oversupply of permits and fraud in offset projects. This has not insulated it from critics who say it has no right to raise revenues from a scheme that would work just as well if all the allowances were given away. (10% of the 2013 batch will be auctioned; more in later years.)
California’s law aims to cut emissions to 1990 levels by 2020. Cap-and-trade accounts for less than one-fifth of that reduction; the rest will come from energy efficiency and falling demand. The law’s biggest impact, though, could be felt elsewhere. CARB likes to suggest that California’s lead may be followed by other states and regions (Quebec will join next year), and America as a whole. Barack Obama has even begun talking about climate change again. Many will be watching California closely.
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