California stages successful cap-and-trade trial

California stages successful cap-and-trade trial

California officials have completed a successful trial of its much-anticipated carbon trading scheme, which will be launched in November in an attempt to put a price on emissions from industrial facilities and power plants.

The state's Air Resources Board staged a mock greenhouse gas auction late last week, in which heavy emitting companies pretended to bid for carbon permits in order to test out the system ahead of its official launch.

California will roll out the platform for real on Nov. 14, when more than 400 companies will be able to buy and sell tradeable carbon credits through quarterly auctions.

A statewide cap on carbon emissions will then be imposed from 2013, before being gradually lowered year-on-year, providing firms with a financial incentive to curb their greenhouse gas emissions.

Under the scheme, which is largely modeled on the EU's emissions trading scheme, companies will have to hold carbon allowances to cover their own emissions, forcing them to purchase additional emissions if they exceed their cap.

In the first year of the scheme the board plans to give away the vast majority of credits, auctioning just 10 percent in order to put a price on carbon.

However, the amount of free carbon permits will be reduced each year so by 2020, 50 percent of allowances will be auctioned, providing a clear price signal for firms to invest in low emission technologies.

According to local reports, Air Resources Board board officials said the dress rehearsal ran smoothly, buoying hopes that the November launch will be a success.

Around 150 companies submitted bids during the simulation, although the agency did not release any pricing numbers or trading volumes, and no money changed hands.

However, the Board is still facing pressure from politicians to give away all of the credits for free, over fears the cap-and-trade scheme will have a negative impact on businesses and result in higher energy bills. 

Assemblymember Henry T. Perea and Senator Michael J. Rubio have argued that the state can achieve its carbon reduction goals without conducting allowance auctions.

Photo of power plant provided by Kinetic Imagery via Shutterstock