Landmark Greenhouse Gas Cap-and-Trade Program Adopted in California

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California's Global Warming Solutions Act of 2006 (AB 32) directed the California Air Resources Board (CARB) to adopt regulations that would reduce the state's greenhouse gas emissions (GHGs) to 1990 levels by the year 2020. AB 32 authorized CARB to adopt regulations that use "market-based compliance mechanisms," among other means, to achieve that goal. Accordingly, on December 17, 2010, CARB adopted the Cap-and-Trade Program (Program) aimed at reducing the GHG emissions of electricity providers, large industrial sources, carbon dioxide suppliers, and fuel suppliers and distributors. The landmark Program will take effect on January 1, 2012, and promises to dramatically change "business as usual" in California.

The Program is intended to reduce emissions at the same time as driving down costs by establishing a declining cap on emissions from covered sources, allocating emissions allowances, and providing for the auction, trading, sale, and banking of allowances. This system encourages long-term investment in cleaner fuels, rewards companies for energy efficiency, and provides companies with flexibility in determining how they will operate within their emissions budget.

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