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California approves carbon trading system to combat global warming

California has approved one of the broadest and most controversial components of its climate change law, pushing the state toward a low-carbon economy that relies less on imported foreign oil.

The California Air Resources Board voted unanimously today to adopt rules for a program that will use the trading of pollution permits on the open market to control carbon emissions from a wide cross section of industries, including oil and gas companies, electric utilities, transportation companies, farmers and cement makers.

"We've done something important," said Mary Nichols, the ARB's chairman. "We will look back at this as an important date in California's transition to a clean energy economy."

The cap-and-trade system, which will begin operating in January 2013, is a key component of the state's landmark climate change law, which aims to reduce carbon emissions to 1990's level by 2020.

The plan places a hard cap on the amount of carbon dioxide produced by 350 of the state's largest industrial polluters. The state then provides a limited amount of carbon pollution allowances that can be bought and sold on an open market.

Under the plan, companies that pollute less then their limit can sell their unused allowances to companies that pollute heavily, creating market incentives for everyone to reduce emissions voluntarily.

Ninety percent of the allowances will be given out to the companies. The remaining 10 percent will be sold on the open market, where some experts predict they could raise $500 million a year for the state. The money collected will go toward funding the state's climate change programs.

Environmentalists and clean energy advocates said the program will not only cut greenhouse gases but will spur innovation in the clean tech sector.

But businesses complain that the cap and trade program will mean higher electricity and gasoline prices for consumers, and that the regulation could prompt manufacturers and other large employers to relocate from California to other states where business costs are lower.

In a letter to the ARB, the California Chamber of Commerce, the California Manufacturers and Technology Association along with several other business organizations said that with the statewide unemployment rate in the 12 percent range, many California businesses cannot bear the added costs.

"In view of the fragile state of California's economy, this is the worst possible time to impose yet another energy tax on struggling businesses and consumers," the letter said.

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