In 2005, California Governor Arnold Schwarzenegger signed Executive Order S-3-051 setting long-term greenhouse gas (GHG) reduction targets, with a final target of 80% below 1990 levels by 2050. Nevertheless, the Executive Order did not say how to achieve these reductions. They were establish in 2006 trough California Assembly Bill 32, also called the Global Warming Solutions Act or simply AB32. It set a target of reducing GHG emissions in the State to 1990 levels by 2020. The AB32 bill provided for the State the organization to implement these reductions, including the option of market-based compliance mechanisms such as a cap-and-trade program. AB32 designated the California Air Resources Board (ARB), which depends on the California Environmental Protection Agency, to implement the legislation. The program that has resulted includes both a cap-and-trade component as well as a variety of complementary and direct regulatory measures. Another remarkable achievement of the bill is to set the Renewable Portfolio Standard to 33% by 2020, which means that the 33% of electricity consumption has to be generated from renewable sources by this time. That applies to the big utilities of the State and has converted California to leader of renewable generation in the country.
At the end of 2010 ARB adopted a cap-and-trade program to place an upper limit on statewide greenhouse gas emissions. This is the first program of its kind on this scale in the United States. The program had a soft start in 2012, with the first required compliance period to start 2013. Emissions are to be reduced by two percent each year through 2015 and three percent each year from 2015 to 2020. The rules apply first to utilities and large industrial plants, and in 2015 will begin to be applied to fuel distributors as well, eventually totaling 360 businesses at 600 locations throughout the State of California. Free credits will be distributed to businesses to account for about 90 percent of overall emissions in their sector, but they must buy allowances (credits) at auction, to account for additional emissions. The auction format used will be single round, sealed bid auction. A preliminary auction was held August 30, 2012, and the first actual quarterly auction took place on November 14, 2012.
In this Presentation, more details are provided about this leader bill to fight against climate change in the US: