California Board Green Lights Cap-and-Trade Program

December 16, 2010

The California Air Resources Board (ARB) endorsed on December 16 a cap-and-trade regulation, marking a significant milestone toward reducing California's greenhouse gas emissions under its Assembly Bill 32, Global Warming Solutions law. ARB's cap-and-trade regulation is seen as a key measure to achieve the 2020 greenhouse gas reduction targets of AB 32, California's climate change law which took effect in 2006. The newly passed regulation sets a statewide limit on the emissions from sources responsible for 80% of the state's greenhouse gas emissions. It also establishes a price signal needed to drive long-term investment in cleaner fuels and more efficient use of energy.

Companies are not given a specific limit on their greenhouse gas emissions, but must supply a sufficient number of allowances (each covering the equivalent of one ton of carbon dioxide) to cover their annual emissions. Each year, the total number of allowances issued in the state drops, requiring companies to find the most cost-effective and efficient approaches to reducing their emissions. By the end of the program in 2020 there will be a 15% reduction in greenhouse gas emissions compared to today. If achieved, it would reach the same level of emissions as the state experienced in 1990, as required under AB 32. ARB is a department of the California Environmental Protection Agency. See the ARB press release.