The eyes of the world are on California as it prepares to roll out the nation's first economywide cap-and-trade program, a cornerstone of the state's efforts to reduce greenhouse gas emissions and shift to an environmentally sustainable economy.
So on Thursday, the state will stage a trial run of the online auction of emissions permits for roughly 150 major emitters of greenhouse gases to give the state time to work out any glitches before the official November 14 launch of the program.
"This is the first time the program will be put through it's paces," said David Clegern, a spokesman for the California Air Resources Board. "It's a chance to kick the tires, and it's a chance for us to run the system in real time and see how it works."
California's landmark global warming bill, known as AB 32, was signed into law by former Gov. Arnold Schwarzenegger in 2006.
"Cap-and-trade has been years in the making, and been a very public process," said Alex Jackson of the Natural Resources Defense Council. "Thursday's exercise is the final dress rehearsal."
No money will change hands, but the practice session gives auction participants, including utilities and oil refineries, an opportunity for a "hands-on" session with the auction platform and the ability to practice bidding for California carbon allowances.
Under the new cap-and-trade system, California will distribute annual allowances to industrial entities like power plants, oil
The state will set a limit on the amount of greenhouse gases each affected entity is allowed to emit. Companies that reduce their emissions below their cap can sell or "trade" their unused allowances to companies that exceed their limits. One example: if an oil refinery that emits 100,000 tons of carbon has credits for 90,000 tons, it either has to go on the market and buy credits for the extra 10,000 tons or lower the emissions. If it reduces its emissions to below its cap, say to 80,000, then it could sell the unused permits to someone else.
The program is significant because the market will set a price on carbon for the first time. And if the system works as designed, the most efficient companies will be financially rewarded, polluters will pay and greenhouse gases will be dramatically reduced. California's cap-and-trade system has been years in the making, and is designed to work with other states, Canadian provinces and even other nations.
"They want to get this right," said Jon Costantino, a senior adviser with the Sacramento law firm Manatt, Phelps & Phillips and a former climate change planning manager at the Air Resources Board, known as CARB. "Can the system handle all of the transactions? Are there any glitches that need to be worked out?"
Initially, CARB planned to sell or auction off the permits. But objections from affected industries -- and the state's stubbornly high unemployment rate -- led to a decision to "soft start" the program.
Until 2015, most affected industries will receive the majority of their allocations from the state for free, but will have to purchase additional allowances or use offset credits to cover all their emissions. There's no cap on individual facilities; the cap is for total emissions statewide for all of a company's facilities. Over time the total cap decreases, making allowances scarcer and providing an incentive to find cost-effective ways to cut emissions.
The auctions are expected to generate billions of dollars in revenue for the state, unleashing a heated debate about how to spend them -- with proposals ranging from returning the money to consumers to paying for high speed rail and energy upgrades at public schools.
Contact Dana Hull at 408-920-2706. Follow her at Twitter.com/danahull.