Although largely overlooked by the media, California recently launched its ambitious carbon-trading program, holding a successful auction of carbon permits that raised nearly $300 million. Of course, had the auction failed it likely would have made the front pages, but its little-noticed triumph shouldn’t obscure its significance as a major step forward for the carbon market. It is a success story with lessons for both policy-making and risk communication.
With the launch of its cap-and-trade program, California is now the world’s second-largest carbon market, second only to the European Union. The initial auction attracted participants from power utilities and other regulated entities, and total bids 
numbered three times the permits available. And, in contrast to the embarrassing technology breakdowns in the IPO market of late, California’s auction platform performed flawlessly.
The California program has several elements that congressional leaders might take a close look at as they think about a national carbon bill. It’s a simple and balanced approach that’s miles away from the Waxman-Markey monster that sank in the Senate two years ago. Eric Pooley of Environmental Defense also has some excellent suggestions for a business-friendly strategy for combating global warming here.
California’s success also offers several lessons on good risk communication. Here are three:
1. A focus on economic as well as environmental benefits. Fighting global warming is important but jobs and growth are, too. Together, they make a powerful message in favor of cap-and-trade. California officials consistently emphasize the ability of cap-and-trade to draw investment and create jobs. Here’s the statement from Mary Nichols, Chairman of the California Air Resources Board, on the auction results:
“The auction was a success and an important milestone for California as a leader in the global clean tech market. By putting a price on carbon, we can break our unhealthy dependence on fossil fuels and move at full speed toward a clean energy future. That means new jobs, cleaner water and air — and a working model for other states, and the nation, to use as we gear up to fight climate change and make our economy more competitive and resilient.”
Look for this message to get even stronger as the debate over a national carbon-cutting program unfolds.
2. A willingness to listen to critics. Policy-making often isn’t pretty, but with diligent work it can produce results. California’s program was controversial from the start. Many environmentalists were hostile to cap-and-trade in any form, and industry groups sought to weaken its provisions or delay its implementation, even filing a court appeal just a day before the auction.
But behind the battle lines constructive discussions did occur, and the CARB staff fine-tuned the program over nearly six years. The final result might not be to everyone’s liking but it is working – the auction results speak for themselves.
3. Leadership. There’s no substitute for a good leader who communicates well and doesn’t back off from a fight. By that measure, Mary Nichols gets high marks. Here’s what she had to say when the oil industry sought a free allocation of carbon permits under the state’s program:
“Easing the transition is one thing; leaving the entire industrial sector outside the arena where every other member of society, from forestry to municipal sewage treatment plants is taking aggressive measures to reduce their emissions is just plain unacceptable.”
Leadership is all about saying the difficult but necessary thing. California’s cap-and-trade plan wouldn’t have happened without it.
California has led the way on many environmental issues – from fuel-economy standards to green-building codes. Now it’s again leading the fight to curb carbon pollution and accelerate economic growth, point a way for other states and perhaps the federal government to follow.