California unveils draft cap-and-trade rules

SAN FRANCISCO, Nov. 25 (Reuters) - California released on Tuesday draft rules for its landmark greenhouse gas cap-and-trade plan that will be the most ambitious United States effort to use the market to address global warming.

State law requires California to cut its carbon dioxide and other greenhouse gas emissions to 1990 levels by 2020. Measures will range from clean vehicle and building rules to the cap-and-trade system that lets factories and power companies trade credits to emit gases that heat up the earth.

Federal rules under debate by Congress could eclipse and pre-empt regional plans, but California and other local governments see themselves as the vanguard of addressing climate change, especially in light of slow national action and setbacks for international talks scheduled in Copenhagen next month.

The draft released on Tuesday shows California, seen as an environmental trend-setter, may take on even more than expected in its first round of cap-and-trade, which will start in 2012.

Gasoline and residential heating fuel suppliers could be included in the first cap-and-trade phase, which had been expected to focus on big pollution sources like power plants and refineries.

"California is the first out of the box," Mary Nichols, state Air Resources Board chair, told reporters on a conference call. The draft rules kick off a comment period that will lead to final regulation next fall.

A less comprehensive Northeastern United States regional trading system is already under way, focusing on carbon dioxide emissions by big emitters. California by contrast plans to include nearly every source of emissions to reach its goal.

California businesses regularly criticize the plan as going too far too fast – and costing too much. Whether the net effect of the plan will be a new green economy or disaster for overburdened businesses is still hotly debated.

Outsize attention
New estimates of plan costs, including suggestions on how much support to give industry, won't be available until an independent advisory group issues a report next year.

The draft avoids what may be the toughest issue – how much to rely on auctions of credits, which would require power companies and the like to buy permission to pollute. The emitters want allowances given to them, especially early on.

But Ms. Nichols said California had shown a strong preference for moving to auction as quickly as possible and that its 2006 global warming law provided clear guidance while politicians in the United States Congress were still raising support for a bill.

"Congress started this, you know, as a political exercise to see how many allowances you had to give out to which groups to get them to buy into the program. They didn't have a climate bill," she said.

"We know how many emissions we have to reduce. The question is how do we do it in a way that costs less," added Ms. Nichols, whose Air Resources Board was appointed by state law as the main regulator deciding on how to cut greenhouse gases.

The cost of a ton of carbon dioxide initially could be around $10, based on how other programs operated, she said. That is about half the current European price. The average American has carbon production of about 20 tons per year, according to the Union of Concerned Scientists.

The cap-and-trade system will account for only about a fifth of California reductions but it draws outside attention, in part because the state, with the largest United States economy and population, is part of the 11-member Western Climate Initiative, which includes American states and Canadian provinces.

China, too, will watch California's action, partly by virtue of the state's partnerships with Chinese provinces, said Derek Walker, climate change director of the Environmental Defense Fund California.

"In many ways this is similar to what you are hearing from international circles now. Everybody is coming to the table with their opening bets," he said. But unlike most, California has committed to cuts and now is working out the details.
California unveils draft cap-and-trade rules

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