First major cap and trade market for greenhouse gas approved in California

The California Air Resources Board has approved the first program in the United States that’ll cap greenhouse gas emissions and charge polluters for the carbon dioxide they release. The state board voted as national efforts to counter global warming are at a standstill.

Voters last month beat down a proposition to suspend AB 32 - the state's landmark climate law: it lost by 22 percentage points. With that obstacle gone, little could stop a four-year plan to create what's known as a cap-and-trade market. At a public hearing in Sacramento, climate market consultant Josh Margolis told the Air Resources Board that carbon traders are ready to go. "This is something attributable to what you have done," Margolis said. "Which is given folks the expectation that there will be a price on carbon and they need to revise their operations in such a way to reflect that."

Tea party activists and skeptics about human effects on global warming turned out. So did business owners, who urged the Air Resources Board to keep a close watch on the economic impacts of creating a market for carbon.

Auto dealer Juan de la Cruz pointed out that creating a price for greenhouse gas emissions raises the value of alternative fuels – and also lowers the value of existing cars. "With the economy as bad as it is, people are already holding onto their old cars," he told air resources board members. "Under cap and trade they are likely to keep them even longer which means no cut in emissions and a lot less business for a lot of car lots."

But even in the Inland Empire, where the recession has hit hard, the City of Riverside's David Wright told regulators that the city has found support for action to combat global warming. "We poll our customers to see what they'd like – do you support all of the goals of AB 32, environmental responsibility – and they do," Wright said. "And they also support rate increases for that, slower smaller rate increases but sustained."

That political climate signals the increasing importance of energy efficiency policies promoted by state and local agencies, and by utilities - as the Natural Resources Defense Council's Kristin Eberhard pointed out. "The reason for that of course is energy efficiency gets you the cheapest reductions available," she said. "It helps customers as well as businesses within the state save money. So we just want to make sure that we are getting all of the energy efficiency that we can under this program."

The program will begin with utilities and industrial sources of emissions in 2 years, then expand to include fuel distributors. The larger goal is to cut greenhouse gases within 10 years to the level the state was producing 20 years ago. After Governor Arnold Schwarzenegger made an unscheduled visit to thank everyone present, resources board chair Mary Nichols called for a vote.

"It really is an extraordinary piece of work," she said.

Nichols acknowledged that all parties involved had made compromises. The state will distribute free credits to major emitters – policy wonks worry that's a windfall. An auction will make available a few more credits for companies unable to fit under their cap. "I think we've made very careful good judgments about the extent to which we're following the advice of our advisors who would have wanted a pure auction versus the advice of most political people who would have wanted us to do as little as possible."

The air resources board approved the skeleton of a carbon trading scheme 9 votes to 1. Plenty remains to be fleshed out. A compromise allows carbon emitters to offset their pollution with projects like forests. Environmentalists want the board to make sure the rules are tightly written. In midafternoon, Nichols and San Diego Supervisor Rob Roberts – both of whom voted yes - joked about what lies ahead.

"We're obviously gonna…this is not – what did Winston Churchill say?" Roberts turned to Nichols. "This is the end of the beginning," Nichols said. "And I think this is very apropos because this is going to take a lot of work," Roberts replied.

That work will fall on the shoulders of incoming Governor Jerry Brown: he and his climate policy team will continue to build the market for trading greenhouse gases next month.