California Plays Key Role in Cap-and-Trade Debate

When the Senate walked away from energy reform this year, it seemed to spell the end of cap-and-trade as well. But the idea—which calls for a market that lets companies buy and sell pollution allowances—is still alive at the state level. In 2007, 10 Eastern states developed a cap-and-trade system for power plants. Now a group of three states and three Canadian provinces, members of a coalition called the Western Climate Initiative (WCI), have agreed to launch the world’s most comprehensive pollution market, one that incorporates transportation and nearly all other businesses. At least 10 other states are mulling a similar commitment—either through the WCI or a burgeoning Midwest group. Half the U.S. population could soon be living in a cap-and-trade economy.

But there’s an unlikely stumbling block to that realization: California. The state’s participation in the WCI depends on its landmark 2006 climate legislation, which is scheduled to go into effect next year. A proposition on the ballot this fall, however, would freeze the bill until unemployment drops to 5.5 percent for four consecutive quarters, something that’s happened only three times in the last 40 years. And Republican gubernatorial candidate Meg Whitman, who argues that regulation could cost jobs, has also pledged to suspend the bill for a year. If either Whitman or the ballot proposition succeeds—and right now, voters seem split on both—the WCI would lose its most influential member, and a back door to energy reform could close.