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In this Tuesday, Aug. 21, 2007 file photo, the sun sets behind an oil refinery on Rosedale Highway, in Bakersfield, Calif. On Wednesday, Nov. 14, 2012, California s largest greenhouse gas emitters will for the first time begin buying permits in a landmark cap-and-trade system meant to control emissions of heat-trapping gases and spur investment in clean technologies. The program is a key part of California s 2006 climate-change law, AB32, a suite of regulations that dictate standards for cleaner-burning fuels, more efficient automobiles and increased use of renewable energy. (AP Photo/The Bakersfield Californian, Casey Christie)

As the rest of the country stays mired in the messy debate over climate change, California is taking a huge leap forward. On Wednesday -- assuming a last-minute lawsuit doesn't prevent it -- the state will begin requiring a large number of businesses to pay for the greenhouse gases they emit. The system will bring us cleaner air and big job-creating investments in the Bay Area's cleantech industry.

This market-based system of auctioning permits is the result of a 2006 law signed by Arnold Schwarzenegger, and regulators need to ensure that it works properly. If things go smoothly, few will even notice that the system known as cap-and-trade exists. But if it fails in any significant way -- if energy prices jump, if many jobs are lost, if polluters game the auction -- it could further set back a national effort to reduce greenhouse gas emissions.

Absurd arguments over the very fact of climate change have steered the national debate away from what's necessary: putting a price on carbon pollution, whether through a cap-and-trade system or a tax. Direct taxes are unpalatable, so California needs to get its system right.

The auction will involve 600 facilities, including oil refineries, power plants and cement companies, that will have to purchase permits to continue polluting. The more pollution, the more they need to pay. The state has set an overall cap on the amount of pollution allowed, and it will be lowered each year.

The billions of dollars in proceeds from the auctions must be used to reduce emissions -- for example, on energy-efficiency upgrades to public buildings -- which will also help create cleantech jobs.


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Polluters that reduce emissions will be able to buy fewer permits or to sell extras to others, so there's an incentive to pollute less. That's where the Bay Area jobs will come from. Polluting companies will be a guaranteed market for cleantech innovators developing new technologies to cut emissions. And while some polluters may eliminate jobs because of the limits, those jobs should be replaced by better ones in cleantech.

The complex auction will require close scrutiny to ensure it's not being gamed. A committee advising the state Air Resources Board, which is in charge of the system, recommends making as much auction information public as possible, including details of bids and sale prices and who is buying the permits.

That can prevent market manipulation to spike permit prices. One company, for example, could buy lots of permits so that they become scarce -- which would increase prices -- and then resell them to other companies for a profit. Full transparency would make that hard to accomplish.

A fair auction is essential for California's market for carbon emissions to work for cleaning the air, slowing climate change -- and showing the rest of the country it can be done.