California Adopts Historic Cap-and-Trade Program for Greenhouse Gas Emissions

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Last night, California made history by enacting the nation’s first statewide, comprehensive cap-and-trade program aimed at reducing greenhouse gas emissions. As the cornerstone of California’s ambitious effort to implement Assembly Bill 32 (“AB 32”)— the Global Warming Solutions Act of 2006—the cap-and-trade program was unanimously approved by the California Air Resources Board (“CARB”) on October 20, 2011.

KEY PROGRAM FEATURES

AB 32 requires the state to reduce overall emissions to 1990 levels by 2020. The cap-and-trade program, intended as a flexible, market-based mechanism to reduce greenhouse gas emissions, is a controversial method to achieve this goal. The program sets a fixed limit on greenhouse gas (“GHG”) emissions from major sources (the “cap”) and reduces those emissions by gradually lowering the aggregate cap each year. Regulated businesses are issued allowances at the start of the program, and may purchase and sell those allowances, as well as offset credits, at auction or in private transactions (the “trade”).

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