California's carbon market may succeed where others have failed

  • Andrew Cullen/Brendon Bosworth/Graphics by iStock
  • Andrew Cullen/Brendon Bosworth/Graphics by iStock
  • Andrew Cullen/Brendon Bosworth/Graphics by iStock
 

Most weekdays, a long line of rail cars delivers thick slabs of steel to a factory about 40 miles east of Los Angeles. Deep in the bowels of California Steel Industries, the slabs are toasted until they glow white-hot and then rolled into thin sheets used to make shipping containers, metal roofing and car wheels.

The plant churns out more than 2 million tons of flat rolled steel each year, using enormous amounts of natural gas and electricity and releasing over 190,000 metric tons of climate-altering carbon dioxide annually. Now, California Steel and many other businesses have to pay for their carbon emissions under California's new cap-and-trade law, the first of its kind in the nation.

Last November, the company participated in the state's first auction of carbon allowances, purchasing an undisclosed number, each worth one metric ton of carbon dioxide and selling for $10.09. The online auction went fairly smoothly, says Brett Guge, executive vice president of finance and administration at the company. But for Guge, the long-term challenge is finding ways to meet California's ambitious greenhouse-gas reduction targets (down to 1990 levels by 2020) while remaining profitable.

The Golden State forged ahead with the carbon dioxide cap-and-trade program despite the U.S. Senate's 2010 failure to pass a national program. Given the state's history of implementing environmental regulations that later become national policy, a successful cap-and-trade system could serve as a federal model. If cap-and-trade in California "fails, or is perceived to have failed, then that could be the nail in the coffin for cap-and-trade consideration as a policy instrument in Washington," says Robert Stavins, a Harvard professor who studies climate policy.

While its overall impact on U.S. emissions won't be major, the California experiment makes several improvements to existing cap-and-trade strategies. It covers more sources of pollution than the five-year-old Regional Greenhouse Gas Initiative in the Northeastern U.S., which applies only to power plants. The European Union started the world's largest carbon cap-and-trade program in 2005, but it had a significant flaw: the initial stage of the program gave away too many free credits, resulting in some power companies raking in windfall profits by raising electricity prices even though they didn't have to pay for their allowances. It also contributed to low prices for carbon allowances, which provides scant incentive to cut emissions.

Mary Nichols, head of the California Air Resources Board, the agency steering the state program, is confident that California's effort will be different. The program covers 360 businesses, which represent about 600 facilities that each release more than 25,000 metric tons yearly -- enough to put a big dent in California's total carbon output. The EU's difficulty, Nichols notes, was that authorities didn't have an accurate measure of the total quantity of emissions initially. California, though, has had a greenhouse-gas reporting requirement in place since 2008.

"We knew (what polluters) were actually putting into the atmosphere," says Nichols. "That gave us the assurance that if we started a (cap-and-trade) program … we would be able to implement it in a way that would not cause the kinds of problems that occurred in Europe."

Fraud could be another obstacle, but experts agree the state is equipped to keep that to a minimum. The Air Resources Board uses third-party verifiers to check reported emissions, and has a system to track allowances and prove their authenticity. Companies that fail to supply enough credits to cover their emissions are fined by having to purchase four times the number of outstanding allowances. While not flawless, the program is unlikely to suffer from market manipulation and fraud, according to an analysis by the University of California, Los Angeles.

But even if the cap-and-trade system works as intended, its economic impacts are a big unknown. Because of its many regulations, high electricity rates and taxes, California is already a costly place to do business.

Guge is worried there won't be a feasible way to reduce the carbon dioxide output of his company's gas-powered furnaces, which account for 75 percent of the plant's total releases. Without reductions, his company will have to pay for more allowances as the cap tightens, but it's reluctant to pass those increased costs on to customers because that might put it at a competitive disadvantage.

Proponents of cap-and-trade hope the system will drive innovations, with new companies popping up to provide emissions-curbing breakthroughs. In late January, the Sacramento-based firm Clean Tech Advocates launched to do just that. It works to help clean tech developers get state funding, generated from the carbon credit auctions, for their projects, and its consultants help companies reduce emissions. Founder Patrick Leathers says that, over time, the auctions will bring in "billions of dollars," which will boost the state's clean tech industry and result in carbon-cutting solutions for companies dealing with cap-and-trade. Environmentalists -- and businesses -- are hoping he's right.

High Country News Classifieds
  • YELLOWSTONE TREASURES: THE TRAVELER'S COMPANION TO THE NATIONAL PARK
    Dreaming of a trip to Yellowstone Park? This book makes you the tour guide for your group! Janet Chapple shares plenty of history anecdotes and...
  • OLIVERBRANCH CONSULTING
    Non-Profit Management Professional specializing in Transitional Leadership, Strategic Collaborations, Communications and Grant Management/Writing.
  • SAGE GROUSE CCAA COORDINATOR
    The Powder Basin Watershed Council, headquartered in Baker City, Oregon, seeks a full-time Sage Grouse CCAA Coordinator. This position is part of a collaborative effort...
  • MARKETING COMMUNICATIONS MANAGER
    High Country News, an award-winning media organization covering the communities and environment of the Western United States, seeks a Marketing Communications Manager to join our...
  • EXECUTIVE DIRECTOR - OKANOGAN LAND TRUST
    Executive Director, Okanogan Land Trust Position Announcement Do you enjoy rural living, wild places, family farms, challenging politics, and big conservation opportunities? Do you have...
  • GREAT VIEWS, SMALL FOOTPRINT
    Close to town but with a secluded feel, this eco-friendly home includes solar panels, a graywater reuse system, tankless hot water, solar tubes, and rainwater...
  • EXECUTIVE DIRECTOR
    Powder River Basin Resource Council, a progressive non-profit conservation organization based in Sheridan, Wyoming, seeks an Executive Director, preferably with grassroots organizing experience, excellent communication...
  • COMMUNITY ORGANIZER- NORTHERN PLAINS RESOURCE COUNCIL
    Organize with Northern Plains Resource Council to protect Montana's water quality, family farms and ranches, & unique quality of life. Starts $35.5k. Apply now- northernplains.org/careers
  • BEAUTIFUL, AUTHENTIC LIVE YULE LOG CENTERPIECE
    - beautiful 12" yule log made from holly wood, live fragrant firs, rich green and white holly, pinecones and red berries. $78 includes shipping. Our...
  • CRAZY HORSE MEMORIAL DIRECTOR OF PROGRAMS FOR THE INDIAN UNIVERSITY OF NORTH AMERICA
    Crazy Horse Memorial, in the Black Hills of South Dakota, is currently accepting applications and nominations for the Director of Programs for The Indian University...
  • CRAZY HORSE MEMORIAL® MANAGER OF RESIDENCE LIFE FOR THE INDIAN UNIVERSITY OF NORTH AMERICA®
    Crazy Horse Memorial is currently accepting applications for the Manager of Residence Life for The Indian University of North America. This position is responsible for...
  • EXECUTIVE DIRECTOR
    Are you an art lover who dreams of living in the mountains? Is fundraising second nature to you? Do you have experience managing creative people?...
  • EXECUTIVE DIRECTOR
    The Public Lands Foundation, a non-profit organization supporting the multiple-use management of public lands managed by the Bureau of Land Management, seeks an experienced leader...
  • COLD WEATHER CRAFTS
    Unique handmade gifts from the Gunnison Valley. Soy lotion candles, jewelry, art, custom photo mandalas and more. Check out the website and buy Christmas locally...
  • EXECUTIVE DIRECTOR
    North Cascades Institute seeks their next Executive Director to lead the organization, manage $4 million operating budget, and oversee 60 staff. Send resume/cover letter to...
  • EDITOR-IN-CHIEF
    High Country News, an award-winning media organization covering the communities and environment of the Western United States, seeks an Editor-In-Chief to join our senior team...
  • LENDER OWNED FIX & FLIP
    2 houses on 37+ acres. Gated subdivision, Penrose Colorado. $400k. Possible lender financing. Bob Kunkler Brokers Welcome.
  • HISTORIC LODGE AND RESTAURANT - FULLY EQUIPPED
    Built in 1901, The Crazy Mountain Inn has 11 guest rooms in a town-center building on 7 city lots (.58 acres). The inn and restaurant...
  • POLLINATOR OASIS
    Seeking an experienced, hardworking partner to help restore a desert watershed/wetland while also creating a pollinator oasis at the mouth of an upland canyon. Compensation:...
  • ELLIE SAYS IT'S SAFE! A GUIDE DOG'S JOURNEY THROUGH LIFE
    by Don Hagedorn. A story of how lives of the visually impaired are improved through the love and courage of guide dogs. Available on Amazon.