SAN FRANCISCO --California regulators late Thursday adopted the first large-scale cap-and-trade program in the U.S., in a move officials say will protect the environment without hurting the state's still-struggling economy. 
 
 In a 9-1 vote, the state Air Resources Board voted to adopt rules, scheduled to start in 2012, that place a limit on greenhouse-gas emissions for the state that will decline over time. 
 
 Power plants, refineries and other industrial facilities that emit carbon dioxide and can't cut their emissions by the required amount will be able to obtain pollution allowances from the state or buy them from other emitters with excess allowances. 
 
 Gov. Arnold Schwarzenegger said the cap-and-trade rules will help fight climate change and also boost California's clean-technology industry and overall economy. 
 
 "Billions of dollars are being poured into California in clean technology venture capital investment," Mr. Schwarzenegger said. "Of course, we have to be sensitive because it's an economic downturn, and this Air Resources Board knows they have to be sensitive. But we have to reach our goals by 2020." 
 
 Companies with facilities that emit carbon dioxide could also purchase carbon credits, or offsets, tied to emission-reduction projects, such as forests that are managed to contain carbon dioxide, to comply with required emission cuts. 
 
 Air Resources Board Chair Mary Nichols said there was still work to be done, including ensuring safeguards against manipulation of the market-based program and establishing a "community benefits fund" that would use some auction funds to help low-income families manage potential increases in energy prices. 
 
 She added that the board was mindful of proceeding with the rules without overburdening consumers, businesses or the economy. "We are being cautious and careful within the context of a very bold effort," Mrs. Nichols said. 
 
 The new rules come less than a week after the world's nations reached agreement on a package of climate initiatives last week at a United Nations-sponsored summit in Cancun, Mexico. And they come six weeks after a referendum in which Californians voted to keep the state's climate law intact. A federal proposal to limit U.S. greenhouse-gas emissions, however, has stalled in Congress amid political bickering. 
 
 Recent scientific studies have found that many of the earth's largest lakes have been warming more quickly than the air around them in the last 25 years, and that many glaciers around the world have been melting at an increasingly rapid pace, particularly in southern South America and Alaska. 
 
 California's Global Warming Solutions Act of 2006 requires the state to cut greenhouse gas emissions to 1990 levels by 2020. In addition to the proposed cap-and-trade program, the state has established an aggressive renewable-energy mandate and a requirement that the carbon content of the state's vehicle fuels be cut by 10% by 2020, as part of efforts to achieve the emissions-reduction goal. 
 
 Under the proposed cap-and-trade rules, the state would give away most allowances in the first few years of the cap-and-trade program, then sell many allowances in auctions in later years. Industries that could prove the regulations were putting them at a significant competitive advantage to companies in other states could be eligible for additional free allowances. The proposed rules would establish a floor on the price of allowances sold at auction of $10 per metric ton of carbon dioxide. 
 
 Environmental groups argued for greater auctioning of pollution allowances, while heavy industry groups pressed for more allowance giveaways. 
 
 "We don't need an auction," said Dorothy Rothrock, a spokeswoman for the California Manufacturers and Technology Association. "We think it's an extra burden on industries attempting to comply with this regulation." 
 
 But the Sierra Club said the provision would benefit companies that were unlikely to leave the state. 
 
 Other environmental groups lauded the cap-and-trade program. 
 
 "It's a step forward that will make our country more competitive and make California a leader in the clean technology industry," said Fred Krupp, president of the Environmental Defense Fund in New York. 
 
 Greenhouse-gas emitters could purchase carbon offsets--which are expected to trade at a discount to emission allowances--to comply with 8% of their annual emission obligations. 
 
 Carbon market participants said carbon offset prices have jumped in anticipation of California's adoption of the cap-and-trade rules. 
 
 Lenny Hochschild, a carbon broker with Evolution Markets, said offset prices have doubled from about $4 a ton of carbon dioxide to $8 a ton amid much higher volumes of trade in recent weeks. 
 
 Environmental groups and residents of California's forest regions have asked the ARB to exclude companies that clear-cut forests from participating in the offset program. 
 
 The ARB has said it will consider allowing carbon credits from a range of other types of projects, from forest protection projects in Mexico and other countries, to projects aimed at destroying ozone-depleting substances. 
 
 Some carbon market participants say the agency should act quickly to approve more types of projects to avoid a lack of supply of such credits to meet demand. 
 
 Write to Cassandra Sweet at cassandra.sweet@dowjones.com ||||| California regulators Thursday voted to cap the greenhouse gas emissions of the state's major industries and establish the nation's first broad-based carbon trading program.The move marks another bellwether moment for a state that has led in environmental policy, coming as national climate legislation to regulate greenhouse gases and curb climate change has stalled in Congress."This is an historic venture," said Mary Nichols, chairwoman of the California Air Resources Board, as the panel voted 9 to 1 to approve some 3,000 pages of regulations and supporting documents, crafted over three years of intense negotiations with businesses and public interest groups.Given the state's fragile economy, Nichols said, "most political people said we should do as little as possible as slowly as possible." Instead, she said, "we are being cautious and careful, but in the context of a very bold effort." Gov. Arnold Schwarzenegger , a champion of a market-based approach to climate regulation, showed up partway through a 10-hour public hearing at the board's headquarters to applaud the agency's effort to develop trading rules for carbon emissions. "We have led the nation in developing green policies," he said. "And we have seen our green economy grow as a result."California's 2006 Global Warming Solutions Act requires the state to slash greenhouse gas emissions to 1990 levels by 2020 — amounting to a 15% cut below today's levels.The complex cap-and-trade system is a centerpiece of the state's multifaceted plan. Already approved are rules to hike the fuel efficiency of automobiles, cut the energy intensity of gasoline and source a third of the state's electricity from renewable sources.More than 180 industry executives, environmentalists and concerned citizens testified on the trading regulations, which will limit emissions from 600 major industrial plants in the state. Representatives of the cement, electrical and agribusiness sectors picked apart aspects of the rules, as did forest conservationists, health advocates and anti-poverty lawyers.In the day's most contentious debate, more than a score of environmentalists and residents of Sierra Nevada communities showed up to protest provisions that would allow industrial plants to reduce their obligation to curb pollution at their own facilities by allowing them to purchase offsets from timber companies that pledge to tailor their practices to preserve more carbon in forests.Several board members sought to exclude a part of the regulation that allows parcels to be clear-cut and replanted. They were voted down, 7 to 3.The forest rules divided the environmental community, with such groups as the Nature Conservancy and the Environmental Defense Fund — both strong backers of carbon trading — siding with Sierra Pacific, the state's largest timber company, in support of the rule as written. Local activists from Sierra Nevada communities, backed by the Sierra Club, pleaded with the board to exclude any trading that could encourage clear-cutting and the replacement of natural forests with single-species plantations."We want California to be the leader on climate, not a laughingstock," said Addie Jacobson, a board member of the Sierra Nevada Alliance who said she spoke for 85 organizations.Only one air board member voted against the overall cap-and-trade program: John Telles, a physician who represents the San Joaquin Valley Air Pollution Control District. Telles said the measure would not protect low-income residents from energy price hikes. He also suggested that a carbon trading market would be open to "manipulation," as was the case with California's disastrous deregulation of electricity markets in the 1990s.Under the plan, the state would cap each industrial plant's emissions in 2012, gradually lowering the cap over the next eight years. Firms would be granted allowances for each ton of carbon dioxide they could emit.Many speakers at the public hearing criticized the board's decision to ignore its own economic advisory committee's recommendation to auction those allowances from the start of the program, rather than give them to industry and phase in auctions."Auctioning provides a sharper price signal," said UC Berkeley economist Michael Hanneman, adding that giving away allowances for free "risks granting windfall profits" to industry.
– While climate legislation flounders in Congress, California is taking the lead: Air regulators there voted yesterday to cap industrial greenhouse gas emissions and instate the first carbon-trading program of its size in the US, the Los Angeles Times reports. “Most political people said we should do as little as possible as slowly as possible” because of the economy, said an official. "We are being cautious and careful, but in the context of a very bold effort." Some 600 top industrial plants' emissions will be regulated by the measure; if they can't cut their emissions as required, they'll have to secure pollution allowances from the state or other emitters who have an excess. By a vote of 9 to 1, California’s Air Resource Board approved some 3,000 pages of documentation, following a three-year process that saw testimony from industry execs and environmentalists. “We have led the nation in developing green policies," said Gov. Arnold Schwarzenegger. "And we have seen our green economy grow as a result." See details of the cap-and-trade plan.