When auctions are thought of, they are typically associated with the purchase of material objects or people indulging in narcissistic impulses. Therefore I found it pleasing when I discovered that one auction distanced itself from the status quo. In California, in an effort to reduce the state’s greenhouse gas emissions by 2020, they decided to auction off 100% of its carbon dioxide and other emissions permits.
Essentially, a cap was placed on the source of pollution and the right to produce more pollution could be traded. Under this theory of cap-and-trade, government tries to establish a baseline level of emissions that any given source is entitled to emit and put in place a declining gap over time. But how the source, beit a large industrial source or an electricity generator chooses to reduce emissions is completely up to them. If it is very expensive for the particular source to control, it can acquire the rights, or “allowances” from other sources that do not have to spend as much to cover emissions. Eventually, the goal is that every source will be able to acquire allowances through auctions carried out by the California Air Resources Board. The idea is to have a price for these allowances that is approximately close to the cost of controlling these gasses. Over time, an auction system will be established whereby four times per year, a car will conduct an auction and these allowances will be available for sale. It is a very simple system, but very controversial as well. On one side of the coin, plenty of people in the industry and those worried about the economy are very concerned that cap and trade operates like a tax on carbon. Some who disagree with cap and trade are proponents of the idea that no regulation should exist on carbon emissions at all. There is also concern that cap and trade could force industries to leave the state. This suggests that if it is not imposed nationally, then the industries within California which are subject to cap and trade may just leave the jurisdiction and find someplace where they don’t have to deal with cap and trade. On the other side of the equation are those that believe that cap and trade programs are not effective enough to reduce the emissions of CO2 into the atmosphere and that the systems may be too vulnerable to manipulation. Nevertheless the California cap and trade program went into effect last year, targeting industrial sources and electricity generators and by 2015, it will be expanded to include natural gas suppliers, transportation fuels and small industrial sources – which will be the bulk of major emissions reductions to be obtained by cap and trade is anticipated to happen. Only time will tell if this program will be a economic and environmental success story.
Gavin R. Grant