NATION
Op-Ed

Let's make a climate deal, California

Let out-of-state polluters voluntarily sign on to California's cap-and-trade system

It has been almost 25 years since the United States joined much of the world in Rio de Janeiro and tentatively agreed to do something to reduce the pollutants associated with global warming and other climate disruption. Since then, though, the U.S. has been a laggard in taking major action. Now, with a United Nations climate summit underway in New York and the next U.N. climate conference scheduled for December 2015, the U.S. can make up for lost time — with California's help.

All it would take is for the Golden State to allow voluntary opt-ins to its existing carbon cap-and-trade program, creating a de facto national system with the stroke of a pen.

With California's blessing, the U.S. could leapfrog its own inaction and find itself once again at the forefront in the race to address climate change. All without painful and costly political arguments. What we need is a successful, accessible, competitive way to regulate carbon emissions: California has built it, so why not let others come?

Cap and trade, a tried-and-true system invented in the United States, requires entities that emit pollutants to “cap” them at established maximums, which decrease over time. Polluters that are efficient in cutting emissions and that stay below their quotas may find themselves with surplus allowances to “trade” — which is to say, to sell — to those having more trouble meeting their goals. The incentives flow to the efficient — the more they reduce, the more allowances they can sell and the more money they can make. The net environmental effect is that overall pollution comes down as the race to be a seller ensues.

California passed AB 32 in 2006, committing itself to reducing its carbon emissions to pre-1990 levels by 2020. As part of that effort, it put a carbon cap-and-trade program into effect in January 2013. There is a regional cap-and-trade program in the Northeast, but to open it up to outsiders would require agreements with many parties. California, on the other hand, has the most up-to-date system, and given its green proclivities, it isn't hard to imagine it inviting polluters anywhere in the U.S. — or beyond — to voluntarily join the system and follow its rules going forward.

How would a national and possible even international opt-in work? Currently, California's law covers only companies operating within California. So companies operating outside California would have to enter into corollary agreements with the state to reduce their emissions anywhere in the U.S. along the same trajectory as California-based companies. Opt-in companies would act as if they were covered by California's framework. Carbon accounting and the trading market would remain in California, regardless of where the actual pollution reductions occur — like a bank account kept in one state by someone who lives in another.

Why would any entity volunteer to be regulated, let alone by a state where it does not operate? Forward-looking companies are already planning for climate change because they know it poses vivid risks to their operations. Most major polluters already have emission reductions plans in place because they believe mandatory reductions will come in time, and they crave regulatory certainty. Acting sooner rather than later would convey a competitive advantage, as all early adopter steps tend to do.

Besides, ample evidence exists that companies will volunteer for climate regulation. From 2003 to 2010, the Chicago Climate Exchange (CCX) operated a voluntary but legally binding cap-and-trade system that included participation by DuPont, American Electric Power, Honeywell; cities such as Oakland; Portland, Ore.; and Chicago; and states such as New Mexico. In its heyday, the Chicago exchange had more greenhouse gas emissions capped voluntarily than California's current system does, even more than Germany, which is under mandatory regulation.

And during the debate over the 2009 Waxman-Markey bill in Congress, which would have established a national cap-and-trade system, many leading companies, including CCX members, lobbied hard for passage of the bill. So there is an demonstrable appetite for regulatory certainty and a belief in cap and trade as an acceptable tool.

Operationally, yes, some hurdles will need to be overcome, and California would probably want to charge a fee for admission to cover its additional administrative and accounting costs. But there are no major impediments to harmonizing data and fair emissions accounting; those systems are well advanced. Silicon Valley should be able to expand the trading system. There may be some legal interstate commerce issues, but these could be worked out, especially given that each participant is a volunteer and therefore by definition not being coerced.

And opting in is not foreign to California's system. It mandates participation only for certain industries and entities, but others within the state can volunteer to be covered. Presumably the same rules could be easily applied to entities from outside the state. Then, as federal regulations firm up, the California system, with its added participants nationwide, will be up and running, relieving other states from the trouble of developing their own programs.

And as companies gain a level playing field for taking action, the competitive juices will flow and the nation will gain the benefits of energy efficiencies, new technologies and rebuilt infrastructure that are the highly productive economic byproducts of addressing climate change coherently, in a market-based system.

While the law of the land catches up to climate change — as it must — visionary companies could avail themselves of the state-of-the-art thinking California has already applied to the cap-and-trade system, and they would find themselves well ahead of the game. And so would the rest of the nation and the world. California — open the door.

Paula DiPerna has participated in global climate policy negotiations since 1992. She was president of the international division of the Chicago Climate Exchange and vice president for international affairs at the Cousteau Society.

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