By Peter Henderson
SAN FRANCISCO (Reuters) - California unveiled its final draft 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 scheme starts in 2012 rather than sell them at auction, the 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.
There is still a debate about the economic merits of the plan, which planners in the Friday draft estimate will shave about 0.1 percent from annual state growth.
Under the plan unveiled on Friday and likely to be adopted December 16 by the powerful Air Resources Board, the brunt of the market force will not be brought to bear for years.
The plan insures easy compliance terms in early years, and planners reserve the right to give preferential terms to industries that are at risk of fleeing the state.
Polluters will be given on average about 97 or 98 percent of the permits they will require. In addition up to 8 percent of their permit needs could be met with so-called offset credits from projects that avoid emissions or soak up greenhouse gases - such as planting trees.
The state will create as many permits as expected emissions in the first year, and it will set aside an average of 4 percent of permits over 2012-2020 to be sold if trading prices go too high. The reserve will be about 1 percent in 2012.
Any permits auctioned by the state will cost at least $10 per tonne in the first year, rising to $15 in 2020, with a series of caps in that year putting the top allowable price at $75.
Transportation fuels will not be covered until the second round of trade, starting in 2015, when roughly 85 percent of state emissions will be governed by cap-and-trade.
(Reporting by Peter Henderson and Sarah McBride; Editing by Lisa Shumaker)