California Greenhouse Gas Plan to Boose Efficiency, Launch Market

October 15, 2008
Dow Jones & Company, Inc.

Californians will have to use energy more efficiently, use more
renewable energy and employ new technologies to cut the state's
greenhouse-gas emissions by about 15% by 2020, according to a proposal to
reduce greenhouse-gas emissions released Wednesday.

The plan, developed by the California Air Resources Board, would
expand energy-efficiency programs, require utilities to use renewable
sources for 33% of the power they sell and develop a cap and trade program
that would allow polluters to buy and sell emission allowances.

"Despite a difficult economy, it is important that we move forward on
our environmental goals," California Gov. Arnold Schwarzenegger said in a
statement. "I am pleased that in California we have put together a plan for
reducing our greenhouse gas emissions that also boosts our economy."

Under the cap and trade program, greenhouse-gas emitters that
represent 85% of the state's emissions would have to cut their emissions
over time, by increasing the efficiency of products, such as cars and
trucks, and processes, like industrial production and livestock management.
Polluters, from power plants to dairy farms, would be able to buy and sell
emission allowances with other California emitters and with counterparts in
10 other U.S. states and Canadian provinces that plan to launch a regional
carbon market in 2012.

Emissions from power plants, including plants in other states that
provide electricity to California, and large industrial facilities would be
capped starting in 2012. Emissions from cars and trucks, refineries and
other fuel processors, and commercial and residential fuel users would be
capped starting in 2015. Emissions from those sources, which represent about
85% of the state's total emissions, would be capped at 365 million tons of
carbon dioxide a year.

California's cap and trade program could serve as a model for a
federal program, the California Air Resources Board said. State officials
will work to ensure that California carbon allowances will "have value" in
an eventual federal cap and trade program, the agency said.

Like the regional cap and trade program, called the Western Climate
Initiative, California's would allow the use of offsets, or carbon credits
tied to emission-reduction projects that can be verified, the ARB said.
Emitters could use offsets, which are generally cheaper than emission
allowances, to comply with 49% of their required emission reduction, the ARB

The plan, which is required under California's 2006 climate-change
law, includes a "low-carbon fuel standard" in which refiners must cut the
carbon content of the gasoline and other fuels they produce to cut carbon
emissions by 16.5 million tons.

Requiring more fuel-efficient vehicles would cut 31.7 million metric
tons of carbon equivalent, while requiring more efficient appliances and new
buildings would cut an additional 26.4 million tons. Mandating that
one-third of all power used comes from renewable sources like solar, wind
and geothermal, would cut 21.2 million tons, according to the Air Resources
Board's plan.

California consumers would pay more for gasoline, electricity and
other energy, but those costs would eventually drop as emissions were cut,
the ARB said.

California produces nearly 470 million tons of carbon dioxide
equivalent a year. It is the world's 15th-largest emitter of greenhouse
gases, representing about 2% of global emissions. The U.S. produces more
than 7 billion tons of CO2 equivalent a year.

Cars, trucks and other vehicles produce 38% of the state's greenhouse
gas emissions and are the largest source of emissions. The power sector is
second- largest, producing 23% of emissions, followed by refineries, cement
plants and oil and gas production which produce 20%.

The ARB's plan calls for emission cuts of 27.3 million tons of carbon
from sectors of the economy not subject to emission caps, such as forests,
landfills and oil and natural-gas producers and shippers.

Being able to buy and sell allowances and credits in a regional market
will keep down the costs of complying with the new regulations, the ARB
said. The carbon market will also create a "price signal" that will
encourage development of new emission-reduction technologies, influence
consumer behavior in the products they purchase and encourage businesses to
make products with the lowest carbon footprint, the ARB said.

Despite having to pay higher energy costs, the average California
household will save $400 to $500 a year by 2020 as a result of the proposed
energy- efficiency requirements, the ARB said. Businesses will save money
too, and transportation costs for both businesses and consumers will drop,
the agency said.

Without the regulations, California's greenhouse-gas emissions could
balloon to 596 million tons of CO2 by 2020

The ARB board will review the proposed regulations for approval at a
meeting in December. Once they are approved, the regulations will be
developed over the next two years for implementation starting Jan. 1, 2012.

-By Cassandra Sweet, Dow Jones Newswires; 415-439-6468;