State holds auction for pollution credits

November 14, 2012 6:26:23 PM PST
It's California's controversial contribution to the fight against climate change. Businesses that can't meet the state's new cap on pollution, can now trade with those that can. The goal is to reduce global warming, but the cap-and-trade program could translate to big money for cash-strapped California, perhaps as much as $1 billion in the first year alone.

In an eBay-like auction, California took bids for pollution credits from the state's major industrial facilities like oil refineries. Under the landmark legislation, spelled out in AB32, the credits from the cap-and-trade program allow businesses to emit a certain amount of greenhouse gasses.

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 of the rest of the nation," said Tim O'Connor from the Environmental Defense Fund.

The number of pollution credits will gradually diminish 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, that costs money.

"As their prices of doing business goes up, that's going to be passed down to consumers," said Shelly Sullivan from 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 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 also just leave the state.

"That 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 slow the effects of global warming and clean up the air, no matter the cost.

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

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

The non-partisan Legislative Analyst Office warned on Wednesday that the $1 billion that the state is expecting from this cap-and-trade program is a little too optimistic and that it could be off by as much $400 million.


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