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California Cap-and-Trade: An Effective Strategy to Reduce GHG Emissions

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by Marie.J.Nishanthi D Sami, Hari Hara Krish
3 August 2012

In October 2011, the California Air Resources Board (CARB) unanimously adopted USAï¾Ãƒâ€šÃ‚Æ’??s first state-administered cap-and-trade regulations, a landmark set of air pollution controls to address climate change. It is the centrepiece of AB 32, Californiaï¾Ãƒâ€šÃ‚Æ’??s historic climate change law that mandates a reduction in carbon pollution to 1990 levels (427 million metric tons of carbon dioxide equivalent, MMTCO2e) by 2020. The CARBï¾Ãƒâ€šÃ‚Æ’??s cap-and-trade program is consistent with the design of another regional cap-and-trade mechanism, Western Climate Initiative (WCI), which is a collaboration of seven western states and four Canadian provinces. Under the cap-and-trade program, the CARB sets an emission target, or cap for any specific type of pollution. Each industry covered under the system is then allocated an individual cap based on its emissions. These caps are accounted for through a system of emission allowances. Emission allowances can be bought, sold or traded by entities that fall under the program to help them meet their emission cap. The principle behind cap-and-trade is that it will create market incentives for companies to find the most cost effective strategies to reduce any covered emissions.

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