Cap-and-Trade in the Golden State

California’s cap-and-trade system is a policy that prevents the escalation of global warming and reduces health risks related to pollution by setting a limit on the amount of greenhouse gases emissions. The cap-and-trade policy has two components. The “cap” refers to the legal amount of greenhouse gases that can be emitted in one region, lowering the amount of pollutants released into the atmosphere overtime. The “trade” signifies that corporations can buy and sell their permits to emit greenhouse gases, meaning the fewer greenhouse gas emissions companies release, the less they have to pay. If they were to meet below their allocated limit, they can sell their unused quotas. Furthermore, cap-and-trade penalizes companies that exceed their allocated greenhouse gas emission limit. Therefore, this creates an incentive for companies to be innovative and meet the limit of greenhouse emission. Thus, it is no surprise that California’s Global Warming Solutions Act (AB 32), passed first in 2006, is incorporating the cap-and-trade program as a part of the AB Scoping Plan to reduce California’s gas emissions levels down to that of 1990 by the year 2020. This Bill is sponsored by the Environmental Defense Fund, who, in cooperation with California Air Resources Board (CARB), is responsible for enforcing the cap-and-trade system in California starting in January 2013. At its projected peak in 2015, the cap-and-trade program is expected to cover around 80 percent of the California economy.

The cap-and-trade program is often met with criticism. According to Professor Michael O’hare at UC Berkeley Goldman School of Public Policy, there are plenty of ways to avoid a cap, and it is uncertain if cap-and-trade can set the correct quota for greenhouse gas emissions. Furthermore, some critics argue that cap-and-trade is no different from a carbon tax and that cap-and-trade is harder to implement than a simple carbon tax that has similar functions and effects. However, cap-and-trade is a more efficient alternative to carbon tax. Although the relatively cap-and-trade program has room for revision, it will yield more effective results, making this program worthwhile in the long run. The carbon tax focuses mainly on reducing pollutants that result from fossil fuel burning, whereas cap-and-trade focuses on reducing all greenhouse gas emissions, and has shown to be successful in the United States in reducing acid rain-inducing sulfur dioxide and nitrous oxide emissions.

Cap-and-trade is a better system than carbon tax because it places a more definite amount on the limit of greenhouse gas emissions. Unlike the carbon tax, cap-and-trade also allows companies to gain money if they were to use less than their allocated quota for greenhouse gas emissions. This further motivates companies to reduce greenhouse gas emissions and encourages the development of green technology. Although cap-and-trade is a more complex policy to implement than carbon tax because it has to calculate and determine the exact amount of greenhouse gas emission limit to set. However, cap-and-trade is more consistent with policies already in place in the United States. Some critics argue that cap-and-trade program will lead to higher costs of 85% of energy such as oil, coal, and natural gas that people use in the United States and force consumers to use more expensive forms of energy. However, according to Professor Michael O’hare of the UC Berkeley Goldman School of Public Policy, this is the exact objective of the cap-and-trade program: To encourage the population to use less of these resources that cause damage to the environment, and opt for renewable energy.

Because of cap-and-trade, the rate of growth of green jobs in California has increased 10 fold compared to job growth rates in other sectors, and Californian investments in clean technology venture groups have seen a record high. Furthermore, cap-and-trade also encourages international cooperation. The cap-and-trade program in California is the most ambitious one in North America, and sets an example to the rest of the continent. California and Canadian provinces British Columbia, Quebec, Ontario, and Manitoba have joined together to develop a harmonized cap-and-trade system as a part of the Western Climate Initiative, a collaboration of independent Jurisdictions aimed to address the problem of climate change and reduce greenhouse gas emissions that includes five American western states and four Canadian provinces. As of January 1st, 2014, California is formally collaborating with Quebec on the cap-and-trade program. Thus, it is no surprise that cap-and-trade has been acclaimed by Times as one of the Top 10 Green stories of 2013.

Cap-and-trade is still a relatively new program in California but has yielded great impact. Although cap-and-trade is a great program aimed at reducing industrial greenhouse gas emissions, industries and corporations alone are not the only ones responsible for increased gas emission in California in the recent past. A staggering 38 percent of California’s carbon output comes from transportation. In addition to implementing the cap-and-trade program to keep corporations and industries in check, Californians also need to take action to reduce greenhouse gas emissions, for example, by utilizing public transit and encouraging car-pooling. The cap-and-trade is just one aspect of the AB 32 Scoping Plan; Californians also need to realize the impact of their carbon footprints and participate in California’s plan to reduce greenhouse gas emissions. Overall, California’s cap-and-trade is a new climate control policy that serves as an example to the rest of the United States.


Breakdown of California’s greenhouse gas emissions. Source: Andy Warner, KQED Science 2012