Aiming to push California toward long-term investment in cleaner fuels and more efficient use of energy, state officials adopted a cap-and-trade program as part of the state’s climate change law last week.
Passed by the California Air Resources Board on Thursday, the cap-and-trade program is part of an overarching bill that aims to bring greenhouse gas emissions to 1990 levels by 2020.
The program ““ the first of its kind in the nation ““ will jump start national and regional efforts to provide guidance and stability for businesses and promote development of the renewable energy sector, said Glen MacDonald, director of the UCLA Institute of the Environment and Sustainability.
The cap-and-trade program targets about 600 facilities responsible for most of the state’s greenhouse gas emissions, including the University of California.
Under the cap-and-trade program, facilities will be issued a set of emissions allowances annually, covering about 85 percent of the state’s average emissions.
Each allowance, or permit, is the amount of greenhouse gases a company is allowed to emit and is equivalent to one ton of carbon dioxide.
Facilities will be required to present a sufficient number of permits to cover their annual emissions at the end of the year.
Under the program, businesses will look for the least expensive way to cut emissions or will purchase allowances to cover their excess emissions, said UCLA law professor Ann Carlson.
For businesses, the program will attach a value on carbon to figure out how to reduce their use of carbon over the next 30 or 40 years, Carlson said.
Businesses can purchase more permits or sell unused permits in quarterly auctions held by the Air Resources Board.
The first permit auctions will be held in August and November 2012. Facilities will have to turn in their permits and comply with regulations put in place by the start of the program in 2013. Over time, the total number of permits available will decrease.
By the end of the program in 2020, the state will receive between $4 and $6 billion in revenue from the auctions, which is likely to be used for more clean energy initiatives, said Stanley Young, spokesman for the California Air Resources Board.
The UC is different from the average utility or large business being regulated because it is a nonprofit public university that both produces and consumes energy, said Nurit Katz, UCLA sustainability coordinator.
UC officials are working with the California Air Resources Board to find the best way to apply the legislation to the university, she added.
MacDonald said universities that produce energy for their students without making a profit on the energy should not be treated the same way as commercial producers.
“There has to be some consideration of the public sector, such as universities, in terms of their greenhouse gas reduction, and there still needs to be a bit of work done on the regulation in that regard,” Macdonald said.
The Air Resources Board has directed its staff to recognize improvements the UC is making for energy efficiency in an effort to address how the UC system will comply to the rules of the program, Young said.
MacDonald said another key concern is that it may be cheaper for companies to take operations elsewhere since California is the only state enacting the cap-and-trade program, which could cause jobs and revenue to leave the state.
The program has been designed to gradually introduce mechanisms to prevent shock to the economy, Young said.
For example, the Air Resources Board will manage the allowance auctions to guard against shortages and price swings, and the total number of allowances will decline every year. Carlson also said the legislature can temporarily suspend the implementation of the climate change law if things get out of hand.
“There will be a lot of investment in energy efficiency and green technology because businesses know they are going to have to clean up their act over the next decade,” Young said.