SACRAMENTO, Calif. (AP) -- California air quality regulators began hearing testimony Thursday as they considered adopting the nation's most sweeping greenhouse gas regulations involving financial incentives for power plants and other major polluters to cut emissions.
The Air Resources Board was expected to approve a key piece of California's 2006 climate law, called AB32, at its meetings Thursday or Friday, with the hope that other states and nations will follow the lead of the world's eighth largest economy.
California's rules would set up the largest U.S. carbon trading market as a way to enforce the state's gradually tightening cap on emissions. Companies that reduce emissions below their capped level could then sell credits on a carbon market to polluters exceeding their cap.
The cap-and-trade rules are "a critical piece because it's the tool we're using to make sure we reward businesses that invest in efficiency and renewable technologies, and that we are pushing and creating the right incentives," said Mary Nichols, air board chairwoman.
Nichols also believes the program will help spur economic recovery and innovation by influencing business to invest in clean technologies. In addition, money collected from the new carbon market is ultimately expected to provide billions of dollars for the state that could be directed by the Legislature to various clean air programs.
"California is still facing tough economic times and people have asked whether we can afford to do this now," Nichols said at the start of the meeting. "It is our belief ... and well supported by the public at large, that adoption of a program like this is California's insurance against future recessions."
Outside the board's chambers, a few global warming skeptics demonstrated, holding signs that read "Global Warming: Science by Homer Simpson" and also questioned the validity of the science charting the effects and reasons for climate change.
California already has enacted the strictest climate-related regulations in the U.S. involving renewable energy mandates for utilities, tighter fuel-efficiency standards for automobiles and low-carbon fuel standards.
AB32 was passed by the state Legislature four years ago primarily to fill the vacuum created by the failure of Congress to pass any kind of climate or energy legislation, Nichols said. The law had a Jan. 1, 2011 deadline for devising and enacting details on how it would work.
Nichols said other states, the European Union, and Chinese and Canadian provinces are in various stages of discussions with California to link their carbon markets. New Mexico's Environmental Improvement Board narrowly approved its own cap-and-trade program last month and approved the state's participation in a regional market.
Under the new California rules, regulators would enforce limits on heat-trapping gas emissions beginning in 2012, eventually including 85 percent of the state's worst polluters.
The amount of allowed emissions would be reduced over time, and the regulations would expand in 2015 to include refineries and fuel distributors like oil companies. The cap would reach its lowest level in 2020, when California wants its greenhouse gas emissions reduced to 1990 levels.
Ninety percent of the allowances would be free in the first years of the program to give industry time to upgrade to cleaner equipment or account for increased future costs.
Over time, as the cap gets lower and fewer allowances are available, costs would rise.
"The idea is to incentivize clean technology over fossil fuels by putting a price on carbon," said Jon Costantino, a senior adviser at a Sacramento law firm who formerly served as the climate change planning manager at the Air Resources Board.
Buying allowances from other polluters on the carbon market wouldn't be the only way companies can comply with the strict emissions standards.
Up to 8 percent of companies' emissions reductions also could be fulfilled by buying so-called carbon offsets -- credits for forestry or other projects that reduce greenhouse gases.
These offset credits have been criticized by some environmental groups that argue the provision allows polluters to comply with the cap while continuing to belch harmful substances into the air.
Industries regulated under the cap say it could put California at a competitive disadvantage with states and countries that do not require such strict -- and expensive -- emissions reductions.
The state's budget currently has a $28.1 billion revenue shortfall through June 2012, and industry leaders have voiced concern that the program's increased costs could further weaken the economy.
But Californians have shown widespread support for AB32. Voters last month soundly rejected a proposition backed largely by oil companies and refiners that sought to delay implementation of the law until the state's economy improves.
Catherine Reheis-Boyd, president of the Western States Petroleum Association, said California has to ensure the cap-and-trade program gets linked with other states and countries that plan to do the same thing, so that the market broadens and becomes more robust.
"California can't do it alone, we won't help fix climate change alone," Reheis-Boyd said. "If we're the only ones doing cap-and-trade, it will be a huge competitive disadvantage for California when compared to other states, and a huge competitive disadvantage globally."
