UPDATE 1-California gives green light to carbon trade

* California will be No. 2 carbon market after Europe

* Trade to start in 2012

* Program will expand in 2015 to include transport fuels

* Point Carbon forecasts nearly $10 bln market in 2016
(Adds byline, hearing details)

By Peter Henderson

SACRAMENTO, Dec 16 (BestGrowthStock) – California on Thursday
approved rules for a multibillion-dollar carbon market, in what
proponents hope and detractors fear will be a turning point for
the United States toward building a national program to address
global warming.

After the U.S. Congress failed to pass a climate change law
last year, California is the vanguard of the nation’s effort to
address global warming and its bid to build alternative energy
and related industries.

California has mandated that a third of its electricity
come from renewable sources like solar and wind. It is also
encouraging “low carbon” auto fuels, like some biofuels and
natural gas, and on Thursday approved rules for the carbon
market.

“This is what makes us the leader,” Governor Arnold
Schwarzenegger, who signed the state’s climate change law in
2006 and helped convince voters to crush a ballot box challenge
to it last month, told regulators.

California is struggling with a budget shortfall, but it is
creating “green” jobs and garnering the lion’s share of venture
capital investment thanks to its environmental efforts, he
said.

The rules adopted by the Air Resources Board, the state’s
climate change regulator, limit emissions of carbon dioxide and
other greenhouse gases and let power plants, factories and
eventually refiners and others to trade permits to pollute in a
program generally known as cap-and-trade.

California will become the second-largest carbon market in
the world, following a European system. Point Carbon, a Thomson
Reuters (TRI.N: ) company, forecasts the market will grow from
$1.7 billion in 2012 to nearby $10 billion in 2016, with prices
rising from $10 a metric ton in 2012 to $18 per ton in 2016.

Environmentally, California’s move could rank with U.S.
efforts decades ago to clean up air and water, said Gary Gero,
President of the Climate Action Reserve. “We will say this was
when the United States started seriously building a program for
climate change,” he said.

Calls to force companies to buy permits at auctions have
largely been rebuffed due to the weak economy. Most permits
will be given away, especially in the first three-year period.

Factories and power producers will be able to bear some of
the burden for cutting emissions with credits for projects that
soak up carbon, known as offsets. There is already a market in
such offsets, and prices have jumped in the last several weeks
to about $8 a ton, traders said.

WORLD WATCHES CALIFORNIA

“The world is watching what California is doing,” said
Louis Blumberg, director of the California Climate Change Team
at the Nature Conservancy environmental group.

A substantial number of manufacturers still view the
program as a disaster that will raise costs and hurt the
state’s competitiveness. Companies will have to buy more and
more permits at auctions as the multi-year program continues.

“This is going to dampen their enthusiasm to grow and
invest in California,” Dorothy Rothrock, head of government
relations at the California Manufacturers and Technology
Association, told the board.

A number of studies have shown the net effect on the
economy of cap-and-trade will be modest, but it could be
disruptive in the short term.

Some environmentalists also criticized the plan, taking aim
at offset creation rules that let lumber companies level stands
of trees, called clear cutting, if they preserve other stands
and raise total carbon held in a project area.

“To me, clear cutting looks a lot like deforestation,”
Sierra Club member Karen Maki testified.

Canadian provinces Ontario, Quebec and British Columbia are
working to join California in 2012. They are members of a group
called the Western Climate Initiative, and some California
backers hope to join forces with a small U.S. Northeast plan
and a developing Midwest program.

(Editing by Stacey Joyce)

UPDATE 1-California gives green light to carbon trade