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The Carbon Market
California tries to implement cap-and-trade

Berkeley Political Review, December 28, 2011

 By Wil Mumby

On October 20, 2011, the California Air Resources Board unanimously agreed to adopt a cap-and-trade measure as part of AB 32, the Global Warming Solutions Act. This statewide cap-and-trade initiative acts as the centerpiece for this bill, originally passed under Governor Schwarzenegger in 2006 in an effort to reduce statewide pollution and contributions to climate change.

AB 32 as a whole aims to reduce greenhouse gas emissions to 1990 levels by 2020 through a number of environmental regulations. Environmental groups hope that cap-and-trade will play a major part in reaching this goal by placing a cap on carbon emissions for the largest polluters starting in 2013. The Air Resources Board will then regulate the carbon market, allowing companies to buy or sell carbon credits based on their levels of emissions.

Thus, cap-and-trade offers a rewards system for businesses that reduce their emissions below the limit. In due course, this strategy aspires to introduce an effective restriction on emissions while still maintaining market-friendly dynamics.

Professor Christian Traeger, of the UC Berkeley Department of Agricultural and Resource Economics, believes that this measure needed to be implemented, based on its greater efficiency in handling abatement than most current regulations. This means that cap-and-trade arguably helps cut down on emissions for less money than a straight carbon tax program. However, even with strong support amongst progressives, there remain serious concerns about what kinds of impacts cap-and-trade may have on the economy. These fears emerged in 2010 with the big business-backed Proposition 23, which attempted to overturn AB 32. Even though this endeavor failed, the threat of economic instability and business backlash remains worrisome to some given that California faces chronic structural budget deficits.

One of the key fears is that cap-and-trade will lead to job losses. There is mounting concern that with too many environmental regulations, corporations will gradually lay off their workers to save profits. Economists also worry that jobs will “leak” to other states where regulations may not be as prevalent.

A 2009 study conducted by Dr. Carol Zabin, the Director of Research at the UC Berkeley Labor Center, reveals some of the projected economic impacts of AB 32. The study, Addressing the Employment Impacts of AB 32, California’s Global Warming Solutions Act, acknowledges some of the job risks, estimating that about 3 million jobs in the California economy will be affected by the implementation of the new regulations on the heaviest emitters. However, it is also clear that these are heavily concentrated blue-collar jobs in manufacturing, construction, and energy industries. These workers have great ties to unions that can help support them in the shifting dynamics of these companies. Dr. Zabin indicates that retraining and adjustment to accommodate the transitions to lower emissions technology are crucial to protecting the jobs of these vulnerable people.

Another possibility for job protection or creation emerges in the burgeoning green technology industry. While employment at corporations affected by cap-and-trade may falter, new opportunities for green jobs will likely emerge. Dr. Zabin’s study highlights that green businesses, while still a small portion of California’s economy, are growing and hold a lot of potential for new job opportunities. She believes that AB 32 may help spur further growth in these areas. Overall, her study states that “job loss is predicted to be small or may not occur.”

Ultimately, only time will tell whether cap-and-trade will become a story of success or failure in California. However, if California manages to effectively implement this new environmental policy and starts making a real impact on greenhouse gas emissions, it may provide a model for the rest of the country and the world to adopt. After all, true progress in combating climate change can only be made at a global level.

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