SACRAMENTO, Calif. Despite fierce opposition from much of the business community, Californias grand experiment in taming global warming begins in earnest Wednesday, when oil refiners, cement manufacturers and other large industrial polluters pay for the amount of carbon emissions they put into the air.
The computerized auction marks the beginning of Californias cap-and-trade market. The market is the centerpiece of AB 32, the states 2006 law aimed at reducing greenhouse gases.
A lot of eyes are on us, said Harold Pestana, a senior manager at Pacific Gas and Electric Co.
Cap and trade will force affected companies to scale back their pollution or purchase allowances to get into compliance.
State officials and environmentalists say the market-based approach gives companies flexibility in how they reduce emissions.
Many affected businesses call it a cleverly disguised tax that will cost them upwards of $1 billion in the first year. The expense will balloon in 2015, when refineries will have to buy more credits to cover greenhouse gases spewed by cars and trucks.
Its going to be a huge burden, said Shelly Sullivan of the AB 32 Implementation Group, a business coalition. That turns into a multibillion-dollar energy tax on the states economy.
Her group, which includes the California Chamber of Commerce and the California Manufacturers & Technology Association, has petitioned Democratic Gov. Jerry Brown to abort the auction.
Everything is still on schedule; were moving forward, said spokesman Stanley Young of the California Air Resources Board, the agency running the auction.
Carbon trading isnt new. Polluters in the European Union have been subject to a greenhouse gas market since 2005, and a similar program covers power plants in the northeastern United States and eastern Canada.
But until its arrival in California, its never been tried on a large scale in America.
More than 62 million allowances each representing the right to emit a ton of carbon will be offered for sale in a three-hour window starting at 11 a.m. MST.
The auction will be a low-key affair. It will be run electronically, with a half-dozen staffers monitoring the bidding behind closed doors at agency headquarters in Sacramento.
The agency says potential buyers arent allowed to publicly discuss their purchasing plans, out of fear that disclosure could skew the market. Results of the auction, including pricing and volume, wont be revealed until next Monday.
Some analysts believe many potential bidders will sit out Wednesdays auction. Another auction is set for February, and there will be regular auctions each year. Besides, companies needing carbon credits will be able to buy them on the open market and dont have to go through the state.
The per-ton price, which had been around $20 over the summer, has fallen to around $12, according to Bloomberg business news.
Low prices could undermine the states goal of curtailing emissions. If carbon is cheap, theres less incentive for industries to reduce their pollution. Thats why the Air Resources Board has set a $10 minimum on bidding in the states auction.
While businesses complain about costs, environmentalists say a strong carbon price will pay dividends for the economy: It will give polluters an incentive to invest in green technologies to clean up their smokestacks.
The market will work like this: California has set an overall ceiling on the amount of carbon that can be emitted. The cap will decline by 2 percent to 3 percent a year. By 2020, emissions are supposed to fall to 1990 levels.
The affected companies include more than 400 of Californias industrial heavyweights. They will get 90 percent of their emission allowances free in the first two years, but the percentage of freebies will decline in future years.
Business groups say California could achieve its goals of curtailing carbon without holding an auction. The state, they say, could simply give away all of the emissions allowances for free, and then enforce the cap. As companies move toward compliance, they will buy and sell the allowances among themselves and a price will emerge for carbon.
But state officials reject that argument. The Air Resources Board says an auction is needed to jump-start the market and make sure a competitive price for carbon is established.
California was hoping the market would cover multiple Western states, but that didnt pan out.