REFILE-UPDATE 3-California unveils greenhouse gas trading plan

Fri Oct 29, 2010 11:31pm GMT

* Cap and trade to give away most permits at 2012 start

* Rules relaxed due to weak economy (Corrects spelling of last name of analyst Costantino) (Recasts, adds analyst comments, plan details)

By Peter Henderson

SAN FRANCISCO, Oct 29 (Reuters) - California unveiled on Friday its final blueprint of a market system to curb greenhouse gases, relaxing expected rules in the face of a weak economy in a measure that could set the tone for the nation's climate policy.

By agreeing to give away virtually all necessary permits to factories and power plants when the program starts in 2012, rather than sell them at auction, the U.S state with the biggest economy and population is acknowledging the challenges of double-digit unemployment -- and the reality that pollution decreases as the economy slows.

California aims to cap total emissions of gases linked to global warming and let factories and power plants trade for an ever-decreasing number of permits to emit gases. In theory, market forces will drive efficiency in the system, known as cap and trade.

There is still a debate about the economic merits of the plan, which planners in the Friday draft estimate will shave about 0.1 percentage point from annual state growth.

Many Californians see such environmental regulation as positive for the economy by spurring "green" jobs. Voters next Tuesday could put on hold a climate change law, including the emissions market, but polls show the Proposition 23 challenge to the state's climate change law is set to be rebuffed.

After the failure of federal climate legislation, the fate of California's law and the details of its cap-and-trade plan are seen as a U.S. turning point -- either away from addressing climate change or toward stronger action.   Continued...

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