A Tip of the Hat to California’s Cap
By: Anne Lapera
In 2013 California initiated its groundbreaking cap and trade system as one mechanism to mitigate greenhouses gas (GHG) emissions produced in the state. Despite predictions by opponents of the cap and trade system and the broader California Global Warming Act that California’s proactive stance on climate change would create job loss and lead to economic downturn, in its first year this system has proven to be successful without harming the state’ economy. Emily Reyna, the Senior Manager, Partnerships and Alliances for Environmental Defense Fund’s (EDF) US Climate and Energy Program, discussed how the California cap and trade system works and what has made it so successful with Bard Center for Environmental Policy during a National Climate Seminar.
What is Cap and Trade? Cap and trade is a market-based approach to reducing GHG emissions by limiting the amount of GHGs that can be emitted (cap) by business, but allowing companies to sell their excess allowances or purchase more allowances if they exceed their limit (trade). The cap becomes stricter every year and in 2015 the industries not \currently falling under the system including transportation fuels, natural gas, and other types of fuels will also go under regulation. This system will keep reducing GHG emissions over time without negative impacts to the environment.
Why is California Successful?
The EDF provides four main reasons for the success of California’s cap and trade system. First Emily Reyna claims “it’s a well-designed program off to a promising start”. In the first year California has conducted five auctions that have all been successful. In addition, prices were constant, participation was high, and all emission allowances were sold.
Second, California’s economy continues to recover from the 2008 financial crisis even with the continuation of the cap and trade program. Reyna argued that in contrast to the expectations of critics, the free market system allows companies to determine how to reduce their pollution and reduces strain with the purchase of allowances. The cap and trade system has created and stimulated the incentives for an expanded clean energy market. Clean energy entrepreneurs have been able to thrive and contribute to the economy both by creating products and offering alternative services. These new innovations will have positive environmental impacts, increase green technology, and create jobs.
Third, the system is constructed to increase in both size and effectiveness over time. In addition to regulating natural gas and fuel from the transportation sector, the state has also been discussing extending the program past the 2020 goals. This clearly laid out regulatory path enables companies to plan to conform and gives them the flexibility mechanisms including both the purchase of credits and offsets to make a smooth transition over time.
Finally, the program is viewed by many as precedent setting, continuing California’s history of policy innovation and leadership. The program is so successful that other states such as Oregon and other countries including Canada are linking into California’s cap and trade system in an effort to address climate change, thereby widening the scope of this system.
Reyna explained that given all of the positive achievements, California’s cap and trade will not only address climate change at the state level but also spread internationally to contribute to global efforts to address climate change. The EDF is also confident that cap and trade not only successfully addresses climate change but also thrives in difficult economies and even contributes to their improvement.