On Jan. 1, [California] will become the first state in the nation to charge industries across the economy for the greenhouse gases they emit. Under the system, known as “cap and trade,” the state will set an overall ceiling on those emissions and assign allowable emission amounts for individual polluters. A portion of these so-called allowances will be allocated to utilities, manufacturers and others; the remainder will be auctioned off.
Over time, the number of allowances issued by the state will be reduced, which should force a reduction in emissions.
To obtain the allowances needed to account for their emissions, companies can buy them at auction or on the carbon market. They can secure offset credits, as they are known, either by buying leftover allowances from emitters that have met their targets or by purchasing them from projects that remove carbon dioxide or other greenhouse gases from the atmosphere, ...
The outsize goals of California’s new law, known as A.B. 32, are to lower California’s emissions to what they were in 1990 by 2020 — a reduction of roughly 30 percent — and, more broadly, to show that the system works and can be replicated.
The risks for California are enormous. Opponents and supporters alike worry that the program could hurt the state’s fragile economy by driving out refineries, cement makers, glass factories and other businesses. Some are concerned that companies will find a way to outmaneuver the system, causing the state to fall short of its emission reduction targets.
“The worst possible thing to happen is if it fails,” said Robert N. Stavins, a Harvard economist.