The Golden State green lights cap and trade

California's cap-and-trade program kicks off in 2012. Photo: Rich Niewiroski.

California’s carbon market is on its way. The state’s Air Resources Board on Thursday approved rules for the country’s first large-scale cap-and-trade program.

The program represents a capstone in the state's efforts to slash greenhouse gas emissions as mandated by the 2006 California Global Warming Solutions Act. Commonly known as AB32, the law requires California to cut emissions to 1990 levels by 2020.

Slated to begin in 2012, the carbon market will cover 360 businesses and include about 80 percent of emissions in the state, including those from the utility, industrial and transportation fuel industries.

Under the approved rules, 90 percent of emission allowances would be given away initially, with that number decreasing over time. In 2012, the value of emission allowances is expected to be between $2.5 billion and $7.5 billion. By 2020, they could be worth up to $22 billion.

“The cap-and-trade program provides California with the opportunity to fill the growing global demand for the projects, patents and products needed to move away from fossil fuels and to cleaner energy sources,” Mary Nichols, the Air Resources Board chair, said in a statement.

But some businesses, such as the AB32 Implementation Group, have expressed concerns that a cap-and-trade program, especially one that includes auctioning of permits, could hurt the state’s economy and drive businesses to other states.

Others say a carbon trading market will provide a boost to the state’s clean tech sector. In a letter to the Air Resources Board this week, the California Business Alliance for a Green Economy said a cap and trade system “levels the playing field between dirty and clean energy, provides business owners with new opportunities to grow their businesses, and spurs the transition to a low carbon economy."

A series of reports commissioned by Next 10, a San Francisco-based non-profit research organization, found that a carbon trading market will have minimal impact on California’s economy.

State regulators took another step towards meeting AB 32 mandates this week when the California Public Utilities Commission unanimously approved a program intended to boost small and mid-size renewable energy development in the state.

Called a Renewable Auction Mechanism, the 1,000-megawatt program requires the state’s three biggest utilities to buy renewable energy from projects generating up to 20 megawatts of electricity. The investor-owned utilities will hold auctions twice a year and enter into power purchase agreements with developers that put in the lowest bids.