California Climate Policy: Good for the Environment, Good for Business

10/20/2011 04:03 pm ET | Updated Dec 20, 2011

By Ann Carlson and Dan Emmett

Every major meteorological organization in the world agrees that 2010 was the hottest year on record, continuing a dangerous trend. Texas is experiencing the worst drought in its history. Lack of rain has created massive food shortages and human catastrophe on the horn of Africa. Glacial melting is causing a sea level rise that will threaten coastlines and hundreds of millions of people worldwide. Yet the globe continues to pour heat trapping greenhouse gases into the atmosphere in record amounts and U.S. policy to reduce domestic emissions is virtually dormant.

But California is bucking the national trend. While the rest of the nation does little to combat climate change, California is showing the country -- indeed the world -- how to craft sophisticated climate policy that will cut greenhouse gas emissions while spurring technological innovation and energy efficiency. The California Air Resources Board (CARB) is expected to vote tomorrow to finalize an economy-wide cap-and-trade program that will put the finishing touches on an ambitious and thoughtfully designed plan to roll back the state's greenhouse gas emissions to 1990 levels by 2020. The board's actions are the final step in implementing AB 32, the state's landmark clean energy law, championed by both Republican and Democratic governors and resoundingly endorsed by the state's voters in 2010 when they rejected Proposition 23.

We believe that not only has the state embarked on sound environmental policy but that CARB's plan will provide an important signal to California businesses that investments in clean energy and energy efficiency have the support of the state. We are already clean technology leaders. That leadership pays real economic dividends: we lead the country in venture capital financing for clean energy, receiving more than half a billion dollars in investments in the second quarter of this year alone. With the full implementation of AB 32, investments should accelerate as the state lets investors, businesses and inventors know that it is committed to a strong clean energy economy.

The cap-and-trade program is one part of a broader, comprehensive policy that includes: a renewable portfolio standard requiring the state's utilities to invest in clean energy like solar and wind; targets for energy efficiency that reduce energy use while saving consumers money; standards for cleaner fuels; and tough auto efficiency standards that are now part of national policy. The cap-and-trade program provides businesses with needed market stability by making emitters of dirty fossil fuels pay the price for the environmental harms they cause. Many will choose instead to move away from using dirty fuels, shifting to alternative clean energy, reducing energy usage through the installation of energy efficiency measures and figuring out innovative solutions to reduce and eliminate carbon emissions without restricting economic growth. By harnessing market forces the cap-and-trade program will promote innovation in the clean tech sector, allowing investors to determine how best to cut greenhouse gas emissions at the lowest cost.

Experts at the Emmett Center on Climate Change and the Environment at UCLA School of Law have carefully evaluated whether the state's proposed cap-and-trade program is well-structured and designed to avoid market gaming and manipulation. After all, we don't want a new form of market exchange that can cause the kinds of abuses that led to the 2008 housing crisis. They concluded that CARB has done an excellent job structuring the cap-and-trade program to maximize transparency and liquidity, two crucial components of a well-functioning market. They've made several recommendations for strengthening the program even further and CARB is already acting on some of those recommendations. No system is foolproof, but we think the chances of market abuse are minimal.

With the adoption of all of the components of California's climate change policy, we believe CARB will cement the state's place as one of the world's leading locales for clean tech innovation and investment as well as the home of the country's most efficient mainstream and cutting edge businesses. But California has always been willing to share its successes in environmental policy and we hope that the implementation of AB 32 will show the rest of the country that effective policies to reduce greenhouse gases are smart for the environment and smart for business.

Ann Carlson is the Shirley Shapiro Professor of Environmental Law and the Faculty Director of the Emmett Center on Climate Change and the Environment at UCLA School of Law. Dan Emmett is founding principal and Chairman of the Board of Douglas Emmett, Inc., a real estate investment firm based in Santa Monica.