California ready to cut greenhouse gases. Next, doing it.

California's historic effort to remake global-warming regulations in the United States is at last starting to take off its training wheels.

When then-Gov. Arnold Schwarz­en­egger signed the Global Warming Solutions Act in 2006, his purpose was not only to establish the most rigorous regime of greenhouse-gas emissions reductions in the US, but also to prove to a reluctant nation that the "cap and trade" policies rejected by Washington are not an economic catastrophe waiting to happen.

The success or failure of that law will have national – and even international – ramifications, as other states and Washington itself look to see if California can avoid the doomsday scenarios laid out by critics: lost jobs, higher energy costs, and dubious environmental gains.

Slowly, the first answers are starting to emerge.

The five-year slog has revealed both the surprising willingness of some industries to take part in the process and the dogged determination of others to impede it at virtually every step. The report card is mixed. While all the rules are now in place and there are signs that the law has kindled greater action against global warming statewide, full implementation has been pushed back a year, to 2013, because of the lingering effects of the recession. Lawsuits could also undermine its effectiveness.

"The state has done the lion's share of the work in spelling out what needs to be done to reach the goals, and it's a pretty amazing story to see how far the auto companies have come in doing their part," says Simon Mui of the Natural Resources Defense Council, an environmental group. "But the oil companies are still dragging their feet and fighting tooth and nail."

Specifically, the global warming law, known as AB 32 (Assembly Bill 32), mandates that California reach 1990 levels of greenhouse-gas emissions by 2020 – a 25 percent cut from current levels.

To reach that goal, AB 32 essentially provides a stool with four legs: instituting a cap-and-trade program, lowering carbon content in fuel, increasing fuel efficiency in vehicles, and pushing communities to become more energy efficient.

The effort to roll out each of the four main components of AB 32 has met with varying degrees of success and resistance. Texas oil companies even tried to repeal AB 32 in its entirety by funding a ballot initiative, which failed. Taken together, the developments of the past five years show the complexity of attempting such sweeping greenhouse-gas regulations all at once.

1. Cap and trade: still ironing out the kinks

The most controversial element of AB 32 is cap and trade – the mechanism that places an annually declining cap on greenhouse-gas emissions and allows polluters to buy and sell carbon allowances. Figuring out exactly how that will work took three years and was generally seen as a rough ride.

To ease the fears of those who worry that businesses will flee to other states, California is allowing state regulators to give out nearly half their allowances to polluters free of charge. Moreover, those that are sold will cost $10 per one metric ton (2,200 pounds) of emissions. Environmentalists say handing out free allowances undermines cap and trade, and that $10 is far too cheap. The futures market puts the price tag at $20.

1 | 2 | 3

Next