June 26 (Bloomberg) -- California outlined for the first time the broadest U.S. attempt to regulate greenhouse gases blamed for global warming, calling for the creation of a new emissions-trading program and increased renewable-energy production.

All parts of the $1.6 trillion economy, the largest of the U.S. states, would be affected. Utilities, refiners, carmakers, farmers, manufacturers and forest managers would be called on to cut pollution under the draft plan released today by the state Air Resources Board.

The blueprint comes 18 months after Governor Arnold Schwarzenegger signed a law requiring the country's most populous state to reduce emissions to 1990 levels by 2020. The law is the most far-reaching of any climate-change plan in the U.S., where President George W. Bush's administration and Congress have resisted mandatory caps on greenhouse gases.

``It's going to be seen as a model for other states, the country as a whole and other countries,'' Daniel Sperling, a member of the Air Resources Board and a transportation professor at the University of California, Davis, said in an interview.

Schwarzenegger has hailed the climate law as a way to lead the state toward a low-carbon economy and spur investment. In 2006, clean energy technology companies in California received $1 billion in investment, according to Cleantech Network LLC, a Brighton, Michigan-based investor group that conducts industry research.

Cap-and-Trade

California regulators call for boosting to 33 percent the amount of renewable energy that must be generated by utilities such as San Francisco-based PG&E Corp. and Edison International of Rosemead, California, up from the current 20 percent target.

The plan also outlines a cap-and-trade emissions program like those used in Europe that could generate an estimated $3.6 billion market, tougher energy-efficiency standards for appliances and buildings, incentives to grow trees that act as sponges for carbon and encouragement for local governments to develop cities in ways that provide shorter commutes.

Measurements of how much the program would cost specific industries haven't been completed, Mary Nichols, the air board chairwoman, said in a conference call with reporters. Preliminary estimates project it may increase California's economy by 1 percent of GDP by 2020, she said.

``This is really the beginning of a process,'' said Nichols.

12th Largest Emitter

The so-called scoping plan, which is subject to public comment, is expected to gain final approval by the end of the year, with the rules going into effect by 2012.

By 2050, the state plans to reduce emissions by 80 percent, the amount many scientists say is needed to avoid the most severe effects of climate change.

In California, the world's 12th-largest emitter when the law was signed in 2006, transportation accounts for about 40 percent of greenhouse gases, electricity generation 25 percent and industries such as refineries 20 percent, according to the air board.

About 60 percent of the needed reductions come from regulations already approved by the state, including the country's strictest greenhouse-gas standards for vehicles. That rule is the subject of a legal fight with the U.S. Environmental Protection Agency, which has refused to allow California to implement the program.

California also has adopted a standard requiring transportation fuels to have 10 percent lower carbon intensity by 2020.

Control-Alt-Delete

``When you say we're going to reduce our emissions by 30 percent, and then the 80 percent reduction the governor says we need, you are hitting the control-alt-delete button on the economy,'' said Josh Margolis, co-chief executive officer of CantorCO2e, an emissions trading brokerage in San Francisco, referring to the keyboard strokes used to restart a computer. ``We're saying what we did before doesn't work. We need to start over.''

The outline of California's emissions-trading program is similar to those in Europe, where nations have used a cap-and- trade system to reach emission-reduction targets set by the Kyoto Protocol in 1997. The largest emissions currency is European Union carbon-dioxide allowances, overseen by the European Commission, the bloc's regulatory arm. The second-largest is United Nations-certified emission-reduction credits.

International Offsets

It's unclear what role international offset credits will play in allowing companies to meet their emission targets under the California trading system.

The regulators are ``considering limiting the use of offsets for regulatory compliance obligations to help ensure a significant portion of required reductions come from within the state and within the regulated sectors,'' the report said.

Other programs in the U.S. include a regional initiative involving 10 Northeast states including New York and New Jersey, which will next year begin imposing pollution caps on utilities. Midwestern states also have established a regional partnership.

California regulators estimate the emissions-trading program would generate 20 percent of the greenhouse-gas reductions by 2020. The state will set a cap on emissions starting in 2012, and industries exceeding their allocated amount will have to buy credits from those polluting less.

Capped sectors would include electricity, transportation fuels, natural gas and large industries, the report said. The first industries to be regulated under the system will be utilities such as the Los Angeles Department of Water and Power, and oil and gas refiners including San Ramon, California-based Chevron Corp., with the other sectors following, said Stanley Young, a spokesman for the air board.

Initial Credits

The utilities and refiners will receive pollution credits instead of being required to buy all of them at auction. Over time, the state would reduce the amount of those allowances, said Nichols, the air board chairwoman.

The trading program will linked with a regional system being crafting by Western Climate Initiative, a regional emission- reduction effort involving California, six other Western states and three Canadian provinces.

California's carbon-trading market could be $576 million to $3.6 billion, depending how emissions credits are distributed and which industries are included, said Margolis.

Nichols said the air board also has been studying a carbon fee as a ``backstop'' if the cap-and-trade program doesn't produce the needed emission reductions. A carbon fee would tax companies based on their emissions.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

Last Updated: June 26, 2008 13:47 EDT