California's cap-and-trade program

Abstract

A market-based mechanism to incentivize investment in cleaner and more efficient technologies is recognized by most economists as an important tool to reduce GHG emissions. While economists frequently disagree about which market- based mechanism should be used, a cap-and-trade program or a carbon tax, CARB has chosen the former because of its firm limit on emissions, flexibility for businesses, and political feasibility. In California, such a mechanism is only one component of the overall effort to mitigate climate change under AB 32, with direct regulations accounting for a much greater reduction in GHG emissions. California has long been an international leader in policies to improve air quality and in recent years has added climate change policy to its leadership role. The design and implementation of the California cap-and-trade program have presented many challenges, but CARB is committed to the eventual success of the program.