Our view: Cap and trade program shows power of markets
California’s experiment with a market-based solution to reduce carbon emissions took a step toward becoming a reality Aug. 22, when the latest round of bidding for cap-and-trade permits went off without a hitch.
In fact, the permit auction drew close to $1 billion, creating perhaps as much as $640 million in revenue for the state. Sale of the permits allows oil refiners and heavy industrial users to buy their way out of meeting the state’s target of a 40 percent carbon reduction below 1990s levels by 2030. The proceeds are invested in clean energy projects that help meet the target.
Cap and trade has been effective in reducing power plant emissions that caused acid rain. The theory behind cap and trade has been applied to fisheries worldwide and is being applied on an experimental basis to a water market in west Ventura County.
The successful permit auction puts California at the forefront of states that are moving to reduce the potentially dramatic effects of climate change.
To climate skeptics on the right, we’d argue that many of the nation’s biggest corporations, even oil and gas companies, and the Department of Defense are beginning to factor climate change into their strategic plans.
Critics on the left want California to simply shut down or regulate out of existence oil refineries, food processors and foundries, but that’s not any way to run the world’s sixth largest economy, one that thrives on being diversified and produces plenty of oil for “farm to tank” gasoline.
There are still many hurdles for California to have a marketplace for permits that’s fully functioning. First, the state has got to be disciplined in the sale of permits so that it does not flood the market in its quest for revenue; the permits must retain some value over time and not simply be diluted into oblivion.
Second, there needs to be an effective way for private sector participants to actually trade permits, so that market participants can truly put a value on carbon emission credits and exchange them on the open market.
POWERING UP ALTERNATIVES
The fact that California’s independent system operator was able to easily manage the power disruption caused by the Aug. 21 solar eclipse is another sign of how advanced the state has become in integrating solar power into its grid.
The grid’s ability to navigate the eclipse impact could have a bigger impact on the latest report on the proposed Puente Power Project in Oxnard. The Cal ISO report suggested that battery backups, solar power, quick start plants and a facility in Goleta could replace NRG’s proposed 262-megawatt Puente station.
The catch here is that Cal ISO was not charged with identifying the cost effectiveness of the alternatives. Eventually, alternatives to Puente will exist; if innovation in energy supplies continues at the current pace, those alternatives could become much more viable.