California Cap-and-Trade Deemed a Success

California kicked-off it's long awaited cap-and-trade auction of greenhouse gas permits last week, and state regulators are deeming it a success.

The state's carbon marketplace had over 23 million allowances up for grabs, and all of them were purchased at $10.09 per permit.

97 percent of the said  allowances were bought by "compliance entities," which are companies that must reduce their greenhouse gas emissions according to CA state regulations.

California's global warming law - AB 32, signed by Gov. Arnold Schwarzenegger in 2007, requires the state to cut greenhouse gas emissions by 30 percent by 2020 and 80 percent by 2050, and generate 33 percent of energy through renewable sources (such as projects in wind and solar power San Diego to San Francisco) by 2020. This law makes CA the first state to require a broad range of businesses to reduce their greenhouse gas emissions.

The idea of cap-and-trade is simple: there is an overall "cap" for CA's greenhouse gas emissions, and companies within the state must buy or sell credits to account for how much they pollute. Those that pollute more must either clean up or pay more. 

In this most recent auction, one permit for a ton of carbon sold for $10.09 - which is just a bit more than the $10 minimum set by state regulators, and a lot under the ceiling that was set at $91.13. All in all, approximately $233 million was generated for the state.

Those for the cap-and-trade system, mostly environmentalists, claim that the auctions marks the moment when the US finally addressed climate change.CA has set regulations and financial incentives to pressure industries to reduce their use of fossil fuels, which most likely contribute to climate change and global warming.

Opponents of the system, mostly businesses - in particular those working in oil and power plants and large factories that burn large amounts of fossil fuels, claim that cap-and-trade is a "hidden tax" that will lead to higher utility bills and gas prices.

There are three additional policies to cap-and-trade that set CA apart from other states as a leader in green economy: 1) a low-carbon fuel standard that limits the sale of carbon-intensive fuels, 2) the 33 percent renewable electricity standard by 2020, and 3) the clean-car mandates for automobile producers.

President Obama has also put in place several policies to address climate change, including increasing the national gas-mileage standards to 54 mpg by 2025 and requiring the EPA to create greenhouse gas emission standards for power plants by 2013. Although Congress has refused to pass any climate change related laws, the federal government will now have the chance to watch CA and see if the rest of the country can learn from their so-far-successful system.