California lawmakers voted to extend the state’s cap-and-trade program another 10 years on Monday night. The bill includes language that would gradually tighten restrictions on businesses, reducing the amount of greenhouse gases they’re allowed to put in the atmosphere by 40 percent by 2030.
California’s cap-and-trade market puts a limit on the amount of greenhouse gas (GHG) emissions that companies are allowed to put into the atmosphere, and it allows companies to buy and sell GHG credits. That means that a company whose business requires additional GHG emissions over the limit would have to buy credits in an auction. The more polluting that companies are collectively, the more credits are in demand, and the more costly it is to do business individually as a polluter.
The first cap-and-trade rules were passed in 2012 and went into effect in 2013. California has linked its market with Québec and has had moderate success with the program, although the most recent carbon auction in February saw low demand—regulated businesses only purchased 18 percent of the auctioned credits compared to the previous auction in November when 88 percent of the credits up for auction were sold. The money raised in the auctions goes to a greenhouse gas reduction fund.