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California Holds Its First-Ever Carbon Cap-And-Trade Auction

Los Angeles air pollution

California has launched an emissions cap-and-trade program with its first–ever carbon permit auction. The program aims to reduce greenhouse gases from the state’s big carbon dioxide emitters by 20 percent over the next 8 years. If it works well, California’s cap-and-trade program could serve as a model for other states in the US, for the US federal government, and for other countries. California has the 8th largest economy in the world.

In the online auction, the state’s large manufacturers and energy companies were able to place bids for permits that give them permission to emit a certain amount of carbon dioxide. In January 2013, the companies will start working within a market-based system with the aim of reducing emissions.

In the auction, the state’s largest emitters paid $10.09 per metric tonne for the right to emit, which raised $233 million. This price was said to be below expectations. Analysts and brokers has predicted a price in the range of $11.75 to $12.50 a tonne; however, overall participation in the auction was above expectations.

It is hoped that California’s emerging carbon cap-and-trade program will show the way for wider US action on climate change, especially if it proves that the state’s economic growth can be decoupled from carbon emissions growth. It should also help to further stimulate business activity in the emerging clean technology (cleantech) sector. Given the history of innovation and entrepreneurship in Silicon Valley, California has the potential to lead the world in that regard.

Do you think other US states, or the whole country at the federal level, will eventually follow California’s lead and start a cap-and-trade progam?

Image CC licensed by Steven Buss: Los Angeles

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