California has the nation’s most ambitious system to reduce carbon emissions. It’s the model for Washington Gov. Jay Inslee’s carbon-reduction legislation in this state.

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SANTA CLARA, Calif. — On a balmy winter day, a tanker truck pulls up to a Rotten Robbie service station to deliver a load of gasoline that, once consumed by cars and trucks, will release more than 60 tons of carbon dioxide.

Ever since the invention of the internal-combustion engine, the atmosphere has been a free dumping ground for this greenhouse-gas pollution.

Not anymore in California.

A comparison: California versus Washington

Gov. Jay Inslee modeled his proposed Washington state cap-and-trade legislation after California’s program to reduce carbon emissions. But there are differences.


• California currently gives away — rather than auctions off — about half its pollution allowances, and state utilities are included in the free allowances.

• Under Inslee’s plan, allowances would not be given away. That could affect Puget Sound Energy, for example, which relies on coal and natural gas to generate nearly half its power.


• In the run-up to its first carbon auctions, California’s Air Resources Board spent three years conducting independent audits of major carbon generators to verify their emissions.

• Under Inslee’s proposal, Washington would have a much quicker timetable. If passed by the Legislature this year, auctions would begin in 2016. The state would require independent audits of companies that participate in auctions.


• California officials say their cap-and-trade system is a greenhouse-reduction program, and money from the sale of carbon allowances is reinvested in projects to reduce emissions. They decline to forecast how much money future auctions will bring in.

• Gov. Jay Inslee has pitched his legislation as a kind of “two-fer” that would tackle a big environmental challenge and raise about $1 billion annually for transportation, education and disadvantaged communities. Low-income residents and industries that struggle to compete due to the price of carbon allowances would be given some assistance.

Fuel marketers are now required to pay a price for their carbon emissions. The cost has been passed on to drivers, adding in January about 10 cents to each gallon of gas.

Oil-industry representatives in California have spent years trying to block this program and have tried to stoke motorists’ anger over a “hidden tax” on fuels. But initial reaction to paying extra at the pump has been muted because gas prices are so low right now.

“Quite frankly, from a consumer standpoint, they are totally unaware of it,” said Tom Robinson, whose family business owns 34 Rotten Robbie stations in Northern California. “But the question is, what’s going to be the larger impact going forward? ”

The new carbon costs are part of a cap-and-trade system in which the state limits total emissions, then runs quarterly auctions where the price polluters pay for carbon allowances is set. This is the highest profile step in California’s wide-ranging efforts to reduce greenhouse gases, with state emission limits tightened over time.

The state’s plan also includes rules to lower emissions released during the production, refining and use of fuels, and increasing conservation and alternative energy use.

Washington Gov. Jay Inslee is looking to California as a model for his plan to reduce carbon emissions in this state.

Scientists forecast that climate change stoked by carbon emissions will impose massive costs as sea levels rise, droughts increase and other effects intensify during this century. But around the world, it’s been tough to gain political support for underwriting the costs of a shift from fossil fuels.

California officials are hoping all the state efforts will help fashion a soft landing that will scale back emissions without throttling the economy and leading to a voter backlash.

Early on, things have gone pretty much as planned, with initial auction prices close to the minimum level set by the state.

“That’s not to say that prices couldn’t jump up, but I think it is very unlikely,” said Stanley Young, a spokesman for the California Air Resources Board, which oversees the program.

A study by the University of California, Berkeley’s Haas Energy Institute agreed that the most likely scenario was for carbon prices to remain near the minimum through 2020.

But those researchers noted a significant chance that stronger than forecast economic growth could increase energy use, and raise demand for allowances. That could send auction prices soaring, adding 60 cents or more per gallon to the price of gas.

Despite state steps to safeguard the market from manipulation, the study said some participants might still be able to game the system. They could buy up allowances to raise the auction prices so their holdings could be resold at windfall profits.

“You need a really big market, so no one player can hold up the market,” said Severin Borenstein, a University of California, Berkeley business professor who was the lead author of the study.

The complexities of a cap-and-trade program have prompted some to favor a straightforward tax, without any cap on emissions.

“A carbon tax is clearer and easier to understand,” said Yoram Bauman, a Seattle economist who heads up a Washington state initiative group that seeks to put a carbon tax on the 2016 ballot if the Legislature fails to act. That measure would be revenue neutral, cutting other taxes by amounts equal to the carbon tax.

Inslee said he opted for the cap-and-trade approach because he wanted to let the market determine the price of carbon. He also wants assurances that state emissions would actually decline.

Inslee’s legislation would start carbon auctions next year covering 85 percent of polluters. It has gotten a cool reception in the Legislature, where it faces long odds for passage in the Republican-controlled Senate.

But cap-and-trade is unlikely to die with the end of the legislative session.

A second carbon initiative may be launched to put Inslee’s plan on the November 2016 ballot. Chris Davis, Inslee’s adviser on carbon markets, said if the legislation fails, there’s interest among supporters for pursuing a ballot measure.


California’s cap-and-trade program began in 2006 when Republican Gov. Arnold Schwarzenegger won passage of a law requiring the state reduce carbon emissions by more than 11 percent in the following 14 years. He called for more than an 80 percent reduction by midcentury.

For California, this marked a sea change.

Amid the glitz of Hollywood and high-tech innovations of Silicon Valley, California still ranks as the nation’s third-biggest oil-producing state, and the industry fought back.

In 2010, Tesoro and Valero, two Texas-based oil companies that operate in California, helped launch a ballot proposition that would have suspended the law. Voters overwhelmingly rejected it.

The final rules for the California’s system, developed by the state Air Resources Board, give polluters options.

They can reduce emissions directly, or invest in projects such as planting trees to offset some of the carbon dioxide they generate, or secure pollution allowances.

When the auctions began in 2012, only a small percentage of polluters actually had to buy their allowances. Power generators and industries largely received free allowances.

Fuel providers were excluded until the beginning of this year.

“It wasn’t just throw the switch on. It was a long slow process,” said Young, the Air Resources Board spokesman.

The Western States Petroleum Association and other industry groups have fought to postpone the start date for fuel providers. They’ve sought to stir up public opposition, funding more than a dozen campaigns and coalitions.

They’ve also supported groups in Oregon and Washington opposed to pricing carbon.

Jay McKeeman, spokesman for the California Independent Oil Marketers Association, said the Air Resources Board has not done a good job of listening to industry concerns. He added that campaigns, such as “Fed Up at the Pump,” can generate more public involvement in the issue.

Simon Mui, a San Francisco-based scientist with the Natural Resources Defense Council, said the industry’s use of front groups is meant to create a misleading impression that there is a groundswell of consumer opposition.

“It’s their job to protect their interests. But we certainly feel from the environmental community that they stepped several levels too far over the line,” Mui said.


The oil industry is not united in opposition.

Shell, which operates refineries in both California and and Washington, supports the cap-and-trade approach to greenhouse-gas reductions.

David Hone, climate-change adviser for Shell, wrote in January that ‘putting a price on carbon is arguably the most important step that can be taken to limit warming,” and says the company prefers that approach rather than a tax.

Shell has years of experience trading in carbon markets through their participation in a European Union cap-and-trade program, so it has not been a big shift to begin bidding for allowances in California.

But for smaller local firms, this is all new territory.

“We went in with the idea that we would put our toe in the water. It went OK,” said Robinson, whose firm owns the Rotten Robbie stations. “And we basically understand how it works, and now it’s not so scary.”

In the years ahead, the state will gradually raise the minimum bids for the allowances, from the current price of around $12 a ton, by 5 percent a year above inflation.

Some fuel distributors are concerned they will have to tie up more money to purchase allowances and assume more risk in potentially volatile oil markets.

“There could be all sorts of unintended consequences and we are very leery,” said McKeeman of the oil marketers association.

Carbon content

The California oil industry also is sparring with the state over rules to reduce the carbon content of fuel by 10 percent over a decade.

The state will rate fuel providers for the greenhouse gases released in producing, refining, transporting and burning their products.

Those rules are similar to a measure Inslee may put in place in Washington through an executive order.

The oil marketers association has called it “the riskiest, and potentially the most costly” of California’s greenhouse-gas reduction measures. Some question whether there will be enough low-carbon options, such as cellulosic ethanol made from crop residues, wood or trash, to meet the mandate.

“It’s a great idea, and there was an assumption it (cellulosic ethanol) would be commercially available by 2012. But that forecast was incorrect,” said David Hackett, a California fuel consultant.

California officials say the low carbon standard is a key tool for further reducing greenhouse gases. They predict the rule will have very minor impacts on gas prices.

And officials say it’s already spurring development of new ways to produce less carbon-intensive fuels, as well as new offerings such as renewable diesel and biogas.

“We can see the innovation happening,” said Sam Wade of the California Air Resources Board.