What is California’s Cap & Trade program?

The California Air Resources Board and industry stakeholders worked together to design the California cap and trade program.

The Cap and Trade program is a strategy to limit California’s GHG emissions. Under this program an overall limit on emissions will be capped in certain sectors. Those sectors under the cap will be able to trade allowances to emit GHG. The Cap and Trade program will monitor the trading of these permits. The overall goal is to reduce pollution without hurting businesses. The program is set to launch in 2012.

The Costs

Many critics of the Cap & Trade program state that this will raise energy costs for consumers. A few people suggest that this will create favoritism towards some businesses while alienate others depending on how much they contribute to political campaigns. Will is conflict of interest end up weakening competition hence raising energy costs?

The simple fact is that this will not lower the cost of doing business. Since when does any addition expense accomplish that. It would be counter intuitive to thing so. And staying in this line of thinking it would be equally so, to imagine that is will not raise the cost of living in California.

Supporters argue that companies will work hard to reduce their carbon foot print to limit the need for allowances. This gives them the ability to invest allowance sales into more energy efficient products that will in turn reduce consumer bills. Do we know of a company that passes a surplus in profit margins to its customers?

The Bigger Question

Will it actually work?

In the past caps were set so high that companies had no problem reaching them. This program was designed to address that issue. In the six-year-old European Union market carbon allowances traded at $21 per metric ton of carbon dioxide. This is $3 more than the current price on emissions in California.

This program will help put California on the path to meet its goal of reducing GHG emissions to 1990 levels by the year 2020, and ultimately achieving an 80% reduction from 1990 levels by 2050.

Read more on the cost of living in California