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Last updated on April 18, 2014 at 11:27 EDT

California Approves Carbon-Trading Plan

December 18, 2010

California has approved an extensive carbon-trading plan aimed at cutting greenhouse emissions.

State regulators passed a “cap-and-trade” framework that allows companies to buy and sell permits, giving them an incentive to emit fewer gases.

The goal is to create the second-largest market in the field.

State officials hope that the scheme will become a trend through the U.S., but opponents say that it may harm California’s growth and lead to higher electricity prices.

California’s Air Resources Board approved the new rules late on Thursday.  The group is part of a landmark state climate bill that passed by the legislature in 2006.

The scheme means that California will allocate licenses to pollute and create a market where they can be traded, starting in 2012.

A company that emits the fewest emissions than its permit allows will be able to sell the extra capacity to a dirtier firm.

By making over-polluting more expensive, the scheme will help provide incentives to develop greener technology.

Over time the total amount of greenhouse gas emissions will be reduced.  California wants to cut emissions levels by 2020.

Although all firms will eventually need to buy greenhouse gas allowances, most of the permits will be given away in the first three-year period.

However, BBC’s Rajesh Mirchandani in Los Angeles said that many businesses fear they will suffer in an economy that is struggling to emerge from recession.

Dorothy Rothrock of the California Manufacturers and Technology Association told Reuters, “There are definitely going to be some costs incurred right up front for these companies.”

Governor Arnold Schwarzenegger argues that growth in emerging green technologies will offset the costs of cap-and-trade.

“Since 2006 or so green jobs have been created 10 times faster than in any other sector,” he said.

California already has strict climate-related regulations, including renewable energy mandates for utilities, and touch fuel-efficiency standards for cars.

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