On November 14th, California became the first state in the nation to implement a carbon dioxide carbon trading scheme, known as Cap and Trade. The system implemented by the California Air Resources Board has overcome legal and political challenges and now shares the spotlight with Quebec as the next wave of cap and trade programs – after the European Union’s Emissions Trading Scheme – to use such a market mechanism to drive down pollutants. In California, qualified bidders at the auction held on a secure web site, were cautious, settlement prices remained just above the minimum bid reserve price.
California’s program began in January 2012, when the State’s largest emitters were required to register their emissions. Every entity that emits more than 25,000 tonnes/year must participate, and then will be held accountable for slated emissions reductions through 2020 to reduce emissions levels to 1990 levels. (Quebec has pledged to cut emissions 25% below 1990 levels.) The California emitters include over 350 entities with some 600 facilities from refineries to, oil exploration companies, manufacturers, natural gas companies, food processors, and even universities.
The trading scheme began late in the 2012 to secure 2013 allowances. On November 14th, 23 million allowances – or permits/credits to pollute one metric ton of CO2 each – were sold, raising $233 million for the State of California.
Here’s a business case: Morning Star Company takes tomatoes from the Central Valley of California, and turns them into ketchup and spaghetti source and juice. The company produces about 200,000 tonnes of GHG emissions, about as much as the Pacific Island nation of Palau. For 2013, it was issued 192,500 emissions allowances. With current prices, if Morning Star elects to go to auction it will incur a $75,000 fee to do so. The following year, its allowance will drop.