A market for global warming

By: The Californian opinion staff | Saturday, September 2, 2006 6:06 PM PDT ∞

Our view: Environment should benefit from state's vague plan to cut greenhouse gases, but economic effect uncertain

In some ways, California's new greenhouse gas emissions law is a symbolic gesture, but in many others, it is the groundbreaking measure Gov. Arnold Schwarzenegger hails it as.

The law, passed Thursday, leaves much to the imagination ---- and the state Air Resources Board's discretion ---- as to how California will reduce carbon dioxide output by 25 percent before the year 2020. But it also lets the free market work its magic on greenhouse gases ---- and that's the best way to reduce pollutants that are now almost universally agreed to be contributing to global warming.

The governor and leaders in the Legislature were smart to leave the exact details of how the state will reduce greenhouse gases out of the bill. They are not experts on the subject and would likely overregulate or underregulate the process, resulting in a law that either destroys California industry or does nothing to improve the environment ---- if not both.

Instead, the details will come during the next six years through a number of open hearings. Even the baseline, or cap, from which the state will measure greenhouse gas output will be defined in that process. Environmentalists, businesses and other experts can give input as the whole scheme is worked out.

The law also makes free market forces a significant part of any solution by allowing polluters to buy "credits" from nonpolluters in order to stay in operation.

For instance, imagine factories are allowed to pump 10 tons of carbon dioxide into the air each year. Suppose Factory A spews out 13 tons while Factory B produces only five. The owners of Factory A can pay the owners of Factory B to use three tons of the five tons they are not using, while keeping the total output below the 20-ton allotment for both factories.

Factory A pays a price for overpolluting and Factory B is rewarded for staying below the cap. The polluters are punished, nonpolluters rewarded. As the number of pollution credits available for sale dwindles, the price goes up, encouraging polluters to either cut greenhouse gas output or pay an even higher price to continue spewing carbon dioxide into the air.

Just such a system was put in place years ago to cut sulfur-dioxide emissions that cause acid rain in the Northeast. It's working ---- the U.S. Acid Rain Program has reduced more emissions faster than any other air pollution program.

The beauty is that California is not overly penalized for "standing alone" and leading on this issue. We can be the only state with stricter standards and our businesses can purchase credits from cleaner operations in other states on the cheap. With only one major buyer and a plethora of sellers, the price won't be high.

These "cap-and-trade" systems, as they're known, develop real teeth once other states join the bandwagon and the market for pollution credits gets more competitive. We suspect, and hope, that will happen. At that point, we won't be standing alone.

Those concerned about loss of jobs as a result of businesses leaving the state shouldn't sound the alarm bells quite yet. In addition to the 83,000 clean-technology jobs the California Environmental Protection Agency expects this plan to create, the law states specifically that the Air Resources Board must do all it can to prevent businesses from moving.

The governor and officials with the California EPA say their goal is to keep those businesses here because a polluter moving from California to Nevada will still contribute to global warming ---- defeating the purpose of the law.

What's more, after England started its cap-and-trade program in 2004 to reduce greenhouse gases, the economy there has grown 38 percent ---- far from the economic dive predicted by some critics.

The governor is right when he touts California's leadership role ---- on car emissions, stem cell research, higher education, etc. ---- and our system can become a model for the rest of the country. Ultimately, these new standards will be better for the Earth, will lead to more conservation and won't penalize California for leading on this vital issue.

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