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Cap-and-Trade in California
California’s cap-and-trade regulation will impact the choices Southern
California Edison makes about which sources of energy it adds to its
portfolio in the coming years.
To comply with the Global
Warming Solutions Act
of 2006, known as AB 32,
and reduce California’s
greenhouse gas emissions
such as carbon
dioxide to 1990 levels,
the state has placed a cap
on emissions that will be
reduced by two to three
percent each year through
2020.
As the cap is reduced, the state will need to
reduce its emissions. One way is to reduce
the amount of fossil fuels it burns. If
companies can’t reduce their greenhouse gases,
they will have to purchase permits called
allowances to cover their remaining emissions.
Companies, including Southern California Edison,
will have a choice of reducing their emissions or
purchasing allowances—for example, at auctions.
This will mean that the price of allowances
is determined by the market, providing an
incentive to companies to lower their emissions.
Proceeds from the sale of some allowances will
be returned to some California utility customers
to offset the increase in electricity costs
resulting from the cap-and-trade program.
One allowance authorizes a company to
emit one ton of carbon dioxide. Each year,
the California Air Resources Board distributes
allowances equal to the number of tons of
emissions California can produce.
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