California’s CO2 market enjoys strong first year in 2013

High CO2 prices and strong business engagement praised in report from influential Environmental Defense Fund

(Pic: Dougtone/Flickr)

(Pic: Dougtone/Flickr)

By John McGarrity

California’s emissions trading scheme has largely been a success in its first year of trading and a “shining example” that carbon trading can help solve climate change without harming economic growth, the US Environmental Defense Fund said in a review today.

The USA’s biggest state by economic output boasts the highest carbon prices in the world after five successful auctions and a thriving secondary market for credits, in marked contrast to the EU’s larger scheme, which has required major surgery by policymakers to raise prices and make it relevant.

California’s cap-and-trade system, is not without its critics, however, who claim that the scheme could be in surplus for years to come and allows environmentally dubious offsets to be used by major emitters such as power plants and heavy industry.

But the Environmental Defense Fund (EDF), an influential observer of carbon trading and climate policy, has garlanded the scheme for being “well-constructed, strong, and adaptive,” as California’s economy continued to recover from near-bankruptcy and recession at the turn of the decade.

“The first year results are highly encouraging and proof positive that we can successfully harness the power of the marketplace to solve climate change without sacrificing economic growth,” said EDF President Fred Krupp.

He added: “In a year marked by gridlock and polarization, the Golden State is a shining example of climate leadership.”

Green investments

Besides the success of auctions and its secondary market, EDF said that prices had been robust without reaching a level that would seriously harm industry in California as it recovered from economic crisis.

Prices at auction have traded between $10 and $16 last year, stronger than prices in the EU’s scheme, which currently trade at $8 but fell below $4 in 2013.

Proceeds from auctions had also been invested wisely in schemes such as low carbon transport and energy efficiency that will play a central role in the state’s target to cut carbon emissions to 1990 levels by 2020, the end-of-year review said.

This involves a 25% reduction in greenhouse gas emissions across the state.

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Although emissions trading in California has been widely viewed as successful in its first year, the year ahead will be pivotal for the cap and trading the report said.

Participants in the scheme will have to surrender allowances to account for their carbon pollution, and California’s car-dependent economy must prepare for the inclusion of fuels from 2015.

“Key questions remain regarding auction proceeds investment, offset supply, and future linkage,” EDF added.

Last year some green groups questioned whether the use of forestry offset credits from developing countries should be used by California’s polluters, citing concerns about how projects in the Amazon are monitored and verified and the extent of benefits for local communities.

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The state’s emissions trading scheme is part of the wider Western Climate Initiative that includes some Canadian provinces, and at the start of this year California linked with Quebec’s cap-and-trade system.

On the eastern seaboard of the USA, state cap-and-trade schemes are much less ambitious than that in California, an outcome that has been driving other methods to deploy finance to low carbon projects.

Today New York’s state governor Andrew Cuomo said US$210 million would be provided  in funding for the NY Green Bank, which was launched to drive clean energy deployment in order to build a more resilient state and create jobs.

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