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California Approves Carbon Trading Scheme
The world’s 8th largest economy, the US state of California, has approved an extensive cap-and-trade carbon trading scheme to cut greenhouse gas emissions.
The aim is to create a framework to let companies buy and sell carbon permits thereby providing an incentive to emit fewer greenhouse gases and reduce Californian carbon output 15% by 2020 compared to current levels. The Californian carbon market is predicted to be the second-largest carbon market globally after the European Union’s Emission Trading System.
"This program is the capstone of our climate policy, and will accelerate California's progress toward a clean energy economy," said CARB Chairman Mary D. Nichols. "It rewards efficiency and provides companies with the greatest flexibility to find innovative solutions that drive green jobs, clean our environment, increase our energy security and ensure that California stands ready to compete in the booming global market for clean and renewable energy.
Analysts have predicted the Californian carbon market will reach US $10 billion in size. Carbon allowances will trade for US $10 a tonne in 2012 rising to $18 in 2016. The New York Times estimates by 2020 that the 2.7 billion allowances on the market will go for $15 to $60 per metric ton of CO2.
The scheme will cover 360 businesses and be deployed in two phases: in 2012 all major industrial sources and utilities will be covered and by 2015 distributors of transportation fuels, natural gas and other fuels will be added.
A cap and trade scheme works by creating carbon permits which are allocated to companies as allowances to emit greenhouse gases. Over time the total amount of carbon permits allocated to companies, that is the amount of greenhouse gas allowed to be emitted or the “cap”, is reduced thereby reducing (in theory) the amount of greenhouse gas that is released into the atmosphere. It creates a mechanism for companies to “trade” carbon permits when they emit fewer greenhouse gases than their carbon permits allow therefore incentivizing cleaner and more sustainable business operations and ‘green’ technology.
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