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California Cap and Trade

On January 1st, 2013, California will become the first state in the United States to implement a cap and trade program on carbon emissions for companies in the state.

Similar to other cap and trade programs, California will set an overall ceiling on carbon emissions and assign allowable emission amounts for individual polluters, and charge for excessive emissions. Portions of the allowances will be allocated to utilities, manufacturers and others, and the remainder will be auctioned off. An interesting component of this cap and trade program is the number of allowances issued by the state will be reduced over time, which is intended to force a reduction in carbon emissions.

The goal of the cap and trade program is to reduce carbon emissions to the levels they were in 1990 by 2020, which is a reduction of approximately 30 percent. A desired consequence of the implementation is obviously success, but it is not only for the state’s benefit, but to show cap and trade programs work and can be replicated around the country. However, there are extremely significant risks associated with the cap and trade program, and California would like to avoid those. Many worry the program could damage the state’s fragile economy by driving out carbon emitting companies, while others are concerned companies will find loopholes and outmaneuver the system, causing the state to fall short of the emission reduction targets.

Cap and trade programs are nothing new, especially in California. President Obama’s first budget proposal included a cap and trade program to cut national greenhouse gas emissions by 14 percent by 2020. However, in 2010, the plan was blocked in the Senate, and unsurprisingly, oil and coal companies were heavily involved through lobbying.

If California’s cap and trade program works, it will be difficult to deny it could work across the nation. As a test case, this is incredibly important for not only the economy, but also the environment.

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