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Second of a two-part series. Read Part 1

California starts the ball rolling Wednesday on a controversial scheme to keep the planet from overheating. Businesses will have to get a permit if they emit greenhouse gases.

Some permits will be auctioned today; the rest are free. The big idea here is the state is putting a ceiling on emissions.

It's a gamble. And for this top-down climate plan to work, it has to usher in a greener, more efficient economy.

Dan Kammen, an energy expert at the University of California, Berkeley, helped write the climate law. He says it will require businesses to be more energy-efficient and that will entail some pain.

"The way we say it," Kammen explains, "we've squeezed the lemon a little bit. And we're going to need to squeeze efficiency very strongly; we're going to have to really ratchet down. But at the same time, the global stock of low-power electronics and boilers and generators is actually ramping up."

Many of those low-energy products are made abroad. But the state hopes to use money from its auction to lure green-business entrepreneurs to California.

That includes people like Mike Hart.

Hart has set up shop in a big warehouse at a mothballed Air Force base near Sacramento. His company, Sierra Energy, is testing a reactor that makes fuel. He shows me a row of buckets filled with the stuff he makes the fuel from.

"This is garbage we're talking about here," he says as he picks up a handful of junk. "Bottle caps, broken glass, copper pieces, mixed plastics. Walnut shells is an example of biomass. Different sorts of shredded metal that can be recovered and melted."

Engineers pour this trash into a black, steel reactor vessel about the size of a telephone booth. They add some oxygen and steam, and the trash undergoes a chemical reaction. What comes out is synthetic gas, or syngas. It can then be turned into a low-carbon diesel fuel, or burned to make electricity, or even converted to hydrogen for fuel cells. It's low carbon and it also makes use of trash that eventually would decompose and emit methane, a powerful greenhouse gas.

Hart reckons the climate law will drive people to his doorstep — people in search of clean energy and who don't want to buy more permits from the state. "In the future," he says, the law "should have a tremendous impact for us because we offset greenhouse gases, because we offset CO2. It's not quite a gold rush yet, but if the prices turn out to be good, it will become one."

Hart is referring to the price for permits. If they're high enough at today's auction, then businesses might buy his gasifiers, or the fuel from them, to lower their carbon footprint.

Getting carbon out of energy will cost more, although ever since the law was passed, economists have dueled over how much, as well as how many, new green jobs might be created. The California Chamber of Commerce supports the law but opposes the auction, which it has sued to invalidate.

The Chamber's Loren Kaye says it's just a hidden tax. "The auction merely transfers wealth from the folks that are producing in the economy to the government," he says, "which is then going to use the proceeds for whatever the politicians and the regulators deem as best."

Even the law's authors, like Kammen, aren't sure how it all will work out.

"What I'm most worried about is: Where are our partners? Because this process needs to expand out so that industry is seeing this as a push to innovation and not just to be a penalty to be based in California," he says. "We've got to get other states, other municipalities partnering in."

California is gambling that green entrepreneurs will have to come to California. Several have come through the office of Tony Brunello, who studies green markets at a consulting firm, California Strategies, in Sacramento.

"It's an exciting time," he says. "I don't think all the businesses will make it here. But it's nice to see that with them coming in, I sort of see us again as the center of innovation for these low-carbon technologies and opportunities."

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