The California Air Resources Board has imposed a limit on carbon dioxide emissions on California businesses. The limits will be lowered each year until 2020. Industries can obtain carbon credits, initially free but which later must be purchased, in order to emit more carbon dioxide than the regulations decree. See more of the story from the San Francisco Chronicle here.
These regulations will increase the cost of energy, hence the cost of doing business. These costs will be passed on to consumers.
The carbon credits can be bought at auction and traded. Experience in Europe and in other markets in the U.S. shows that these schemes are ripe for fraud. Back in 2010 it was found that 90% of the carbon trading volume in Belgium was due to fraudulent activities.
The U.S. used to have a climate exchange but that collapsed, see Carbon Credit Trading Collapses in US. In 2010, The Chicago Climate Exchange saw prices of carbon credits go from $7.50 per ton to a nickel per ton before it ceased operations. The Regional Greenhouse Gas Initiative, a consortium of ten Northeastern states, also collapsed last year.
Carbon trading is a wholly artificial market created by government edict rather than any real need for the product. Unlike traditional commodities, which sometime during the course of their market exchange must be delivered to someone in physical form, the carbon market is based on the lack of delivery of an invisible substance to no one. And it may have contributed to the current financial crisis. Major financial institutions such as Goldman Sachs, Barclays, and Citibank hosted carbon-trading desks.
The alleged rationale behind this scheme is that it will forestall global warming. But observational evidence shows that carbon dioxide has no significant effect on global temperature. Take a look at the graph below from a 1988 prediction made by climate guru James Hansen (h/t to Steve Goddard):
For more on Hansen and his predictions see: “Climastrologist” James Hansen versus reality
I predict businesses that can, will leave California. That will help reduce emissions. This will be an interesting experiment; one whose negative impacts will perhaps show the foolishness of imposing a national cap & trade scheme.