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California takes lead in cap-and-trade carbon market

Marketplace Staff Dec 17, 2010

California takes lead in cap-and-trade carbon market

Marketplace Staff Dec 17, 2010


Kai Ryssdal: On the theory that California, despite its troubles, is still something of a national trend-setter, here’s a hot new product for you: carbon.

Companies are gearing up to be able to buy and sell the right to put greenhouse gases into the California skies. Last night, state regulators approved the second biggest carbon trading market on the planet. That’s after the one in the European Union. The technical term is cap-and-trade.

The idea’s not going anywhere in Washington, though. Congress has given up on a climate change bill. But Marketplace’s Scott Tong reports from the Sustainability Desk that carbon trading’s alive and well in a whole lot of other places.

Scott Tong: California is capping how much carbon dioxide electric utilities can spew out starting 2012. Then come refineries and industrial plants churning out stuff like cement. If a company exceeds its cap, it can buy pollution permits from another firm, or bankroll say, a wind farm. And California plans to let companies buy permits from other places too, Massachusetts or Quebec or Brazil.

Vicki Arroyo at Georgetown Law says to watch carbon markets, watch the states.

Vicki Arroyo: That’s been really the history for the last decade or so. We’ve had tremendous movement at the state and even local level.

California wants enviro bragging rights, but also to inject a financial steroid into its cleantech sector. You see, a penalty on carbon makes coal and gasoline pricier, and alternatives cheaper. Robert Stavins is an economist at Harvard.

Robert Stavins: That change in relative prices provides tremendous incentives for companies to create technologies that rely more upon renewable sources than fossil fuel sources.

He sees carbon markets popping up elsewhere — China, Japan, Australia. But political winds can shift; there’s no guarantee, for instance, that California will keep cap-and-trade forever.

For now, analyst Emilie Mazzacurati at PointCarbon says…

Emilie Mazzacurati: Market players are very much taking California seriously. We have actually already seen some transactions on the over-the-counter market.

Translation: companies and investors are already placing advance orders to buy pollution credits.

In Washington, I’m Scott Tong for Marketplace.

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