Four Reasons California Cap and Trade Had An Extraordinary First Year

In California, we’ve just marked the one year birthday of the state’s landmark cap-and-trade program, a market-based approach to reducing the Golden State’s carbon pollution to 1990 levels by 2020. EDF thinks it’s a pretty big deal, and we’re not alone: the program weighed in at number one on Time’s top 10 green stories of 2013.

In lieu of cake and candles to celebrate the program’s first year and future potential, we’ve published the California Carbon Market Watch: A Comprehensive Analysis of the Golden State’s Cap-and-Trade Program, Year One. This report is our comprehensive assessment of cap and trade’s inaugural year, and our analyses and interviews with market experts conclude that a strong, healthy, and enduring carbon market has emerged.

We know that California’s program is still young and isn’t the world’s first emission trading program, or even the first in the U.S., so why are we so excited about this milestone? Here are the top four reasons we’re celebrating – and why the global community should, too:

1. It’s a well-designed program off to a promising start. California has held five allowance auctions to date and they’ve all run smoothly. All emissions allowances usable for compliance in 2013 were sold, auction participation has been strong and allowance prices have remained stable and reasonable. In addition to successful quarterly auctions, a healthy secondary market over the first year suggests that regulated companies are purchasing allowances and thereby incorporating the cost of carbon pollution into their strategic planning. This successful start is due to a commitment to building a solid foundation of principles carried out under the highest of market standards. 

2. With cap and trade in place, the California economy continues to recover. With a price signal now in place for emission reductions, regulated companies can flexibly decide how to reduce their pollution. In addition, clean energy companies and innovators are creating products and services that are transforming California to a clean energy economy. And money raised by the auctions will be invested in this clean energy future, and especially benefit communities hit hardest by climate change. These investments will boost clean tech in California, improve air quality, and create jobs.

3. The foundation is set for a strong, long-term program. In 2015, California’s cap will more than double in size to cover 85% of the state’s economy and include transportation fuels, thus ensuring carbon pollution reduction from its largest source – transportation. And, there is already discussion in the state capital about the program’s future after meeting its goals by 2020.

With these positive indicators, we’re confident cap and trade is here to stay. The continued success of this program will also show the world that cutting carbon can be done efficiently and affordably, while driving innovation and growing an economy that builds healthier – and more resilient – communities.

4. The world is watching…and is starting to act. The program is the most comprehensive and ambitious in North America, in both the sheer size of the state’s economy (the 8th largest in the world) and the numbers of sectors covered. Cap and trade is not only cleaning up California, it’s also serving as a model to build a comprehensive solution to the global climate crisis.

If we want to move the needle on climate change, it will take a global community to make it happen. The state’s carbon market is an important step, and we hope other jurisdictions will follow our lead to create market programs of their own. 

In the past year alone, there are promising signs of collaboration beyond California’s borders: the Golden State has formed a series of important partnerships including linkage with Quebec, a non-binding agreement with Oregon, Washington state and British Columbia to establish a regional climate plan, a Memorandum of Understanding (MOU) with China which launched seven of its own pilot trading programs last year, and a MOU with Australia to guide collaboration in addressing climate change.

With California as a shining example of what is possible, I’m confident that others will continue to join the fight. So, happy first birthday California cap and trade. May the years ahead be as bright as the first.

The article originally appeared on the EDF Voices blog and is reprinted with permission.