The Cap-and-Trade Program is a key element of California’s strategy to reduce greenhouse gas (GHG) emissions. It complements other measures to ensure that California cost-effectively meets its goals for GHG emissions reductions.
The Cap-and-Trade Regulation establishes a declining limit on major sources of GHG emissions throughout California, and it creates a powerful economic incentive for significant investment in cleaner, more efficient technologies. The Program applies to emissions that cover approximately 80 percent of the State’s GHG emissions. CARB creates allowances equal to the total amount of permissible emissions (i.e., the “cap”). One allowance equals one metric ton of carbon dioxide equivalent emissions (using the 100-year global warming potential). Each year, fewer allowances are created and the annual cap declines. An increasing annual auction reserve (or floor) price for allowances and the reduction in annual allowances creates a steady and sustained carbon price signal to prompt action to reduce GHG emissions. All covered entities in the Cap-and-Trade Program are still subject to existing air quality permit limits for criteria and toxic air pollutants.