Cap and trade seems to be working in California

smokeby jasonbolonski

Why a Low Carbon Price Can Be Good News for the Climate

This week, without much fanfare, some the most important climate news in years came out of California. The world’s second largest carbon market (after the European Union) opened in the state as part of California’s ambitious program to cap and reduce greenhouse gas emissions. The carbon auction went off smoothly and quietly — precisely the results the California Air Resources Board, which administered the auction, was looking for.

The cap-and-trade program is the centerpiece of California’s Global Warming Solutions Act of 2006, also known as AB 32 — a suite of clean energy solutions that has proved to be the engine of an astounding economic transformation that drove statewide growth at twice the rate of the U.S. economy during the peak of the Great Recession (2008-2010). Thanks to AB 32, California is leading the nation in clean energy investment, capturing the lion’s share of billions of dollars in cleantech venture capital, and boasting more jobs and businesses in the clean economy than any other state. Californians understand this: according to a recent Los Angeles Times poll, 63% of state voters support the law, saying the state needs to break from “outdated energy policies,” reward companies that produce energy from wind, solar and other renewable sources, and decrease U.S. dependence on foreign oil.


The process is just starting but the early indications are that the markets are pricing carbon quite low. This indicates that many businesses feel they can eet the goals without having to buy credits.

This is similar to what was seen when cap and trade was used for sulfur emissions to reduce acid rain. A low price was then met with large emission decreases.

But what is also being seen are large cost savings by companies working to get their energy needs lower. When a market provides proper incentives, it is amazing what can be done.