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California cap-and-trade greenhouse gas emissions bidding begins

November 14, 2012 12:00:00 AM PST
California started auctioning off pollution credits Wednesday. It's all part of the state's pioneering cap-and-trade program. Supporters say it's going to reduce greenhouse gas emissions. Critics say it's going to cost consumers money.

In an eBay-like auction, California took bids for pollution credits from the state's major industrial facilities like oil refineries.

Under landmark legislation spelled out in AB32, the credits from the cap-and-trade program allow businesses to emit a certain amount of greenhouse gases.

Bidding started at $10 per metric ton, which could net the state budget $1 billion in the first year.

The new approach aims to stabilize, if not reduce, the effects of global warming.

"We think today is a really monumental step forward for California and really a beacon of hope for the rest of the nation," said Tim O'Connor, director of Environmental Defense Fund California Climate and Energy Initiative.

The number of pollution credits gradually diminishes and could get more expensive as the allowances become scarce. The goal is to have the same levels of greenhouse gasses in 2020 that we did back in 1990.

Companies are forced either to buy more credits if they pollute over their limit, or use more green technology so they pollute less. Either way, it costs money.

"As their price of doing business goes up, that's going to be passed down through to the consumers," said Shelly Sullivan, executive director of the AB 32 Implementation Group.

The California Air Resources Board estimates when the oil industry is phased in in 2015, gas prices will go up by 18 cents a gallon. One study found electricity prices would go up an average of $5 to $11 a month in the summer for consumers.

Food processors say they'll have to pass on about $34 million of increased utility costs, which could be reflected at the grocery store. Or they could just leave the state.

"Which means job loss, business leakage, which means businesses are moving to other states that don't have such stringent regulations," said Sullivan.

Environmentalists point out the goal is to slow the effects of global warming and clean up the air, no matter the cost.

"I certainly think the program as designed has a number of cost-control features and is designed to promote innovation," said Tim O'Connor. "The program is not going to result in skyrocketing costs."

A lawsuit aims to stop the state from making money from the auction.

The non-partisan Legislative Analyst warned Wednesday that the billion dollars the state is expecting from cap-and-trade may be too optimistic. The figure could be off by as much as $400 million.


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