California ready to cut greenhouse gases. Next, doing it.

California's historic effort to remake global-warming regulations in the United States is at last starting to take off its training wheels.

When then-Gov. Arnold Schwarz­en­egger signed the Global Warming Solutions Act in 2006, his purpose was not only to establish the most rigorous regime of greenhouse-gas emissions reductions in the US, but also to prove to a reluctant nation that the "cap and trade" policies rejected by Washington are not an economic catastrophe waiting to happen.

The success or failure of that law will have national – and even international – ramifications, as other states and Washington itself look to see if California can avoid the doomsday scenarios laid out by critics: lost jobs, higher energy costs, and dubious environmental gains.

Slowly, the first answers are starting to emerge.

The five-year slog has revealed both the surprising willingness of some industries to take part in the process and the dogged determination of others to impede it at virtually every step. The report card is mixed. While all the rules are now in place and there are signs that the law has kindled greater action against global warming statewide, full implementation has been pushed back a year, to 2013, because of the lingering effects of the recession. Lawsuits could also undermine its effectiveness.

"The state has done the lion's share of the work in spelling out what needs to be done to reach the goals, and it's a pretty amazing story to see how far the auto companies have come in doing their part," says Simon Mui of the Natural Resources Defense Council, an environmental group. "But the oil companies are still dragging their feet and fighting tooth and nail."

Specifically, the global warming law, known as AB 32 (Assembly Bill 32), mandates that California reach 1990 levels of greenhouse-gas emissions by 2020 – a 25 percent cut from current levels.

To reach that goal, AB 32 essentially provides a stool with four legs: instituting a cap-and-trade program, lowering carbon content in fuel, increasing fuel efficiency in vehicles, and pushing communities to become more energy efficient.

The effort to roll out each of the four main components of AB 32 has met with varying degrees of success and resistance. Texas oil companies even tried to repeal AB 32 in its entirety by funding a ballot initiative, which failed. Taken together, the developments of the past five years show the complexity of attempting such sweeping greenhouse-gas regulations all at once.

1. Cap and trade: still ironing out the kinks

The most controversial element of AB 32 is cap and trade – the mechanism that places an annually declining cap on greenhouse-gas emissions and allows polluters to buy and sell carbon allowances. Figuring out exactly how that will work took three years and was generally seen as a rough ride.

To ease the fears of those who worry that businesses will flee to other states, California is allowing state regulators to give out nearly half their allowances to polluters free of charge. Moreover, those that are sold will cost $10 per one metric ton (2,200 pounds) of emissions. Environmentalists say handing out free allowances undermines cap and trade, and that $10 is far too cheap. The futures market puts the price tag at $20.

Industry advocates, such as the AB 32 Implementation Group, counter that the price is still too high. "The costs that will be incurred by California's regulated industries are alarming," says executive director Shelly Sullivan. "Consumers and taxpayers will ultimately pick up the tab in higher costs for electricity, consumer products, government services, or even college tuition.

"Cap and trade will work only if other states impose similar emission caps in their economies," she adds.

Legal experts have suggested that opponents could take cap and trade to court, arguing that it forces utilities in other states to live by California's rules when selling electricity in the state – a violation of the Constitution's commerce clause, they say.

2. Mandating lower-carbon gasoline

The commerce clause, which vests power to govern interstate commerce in the federal government, has already caused problems for AB 32. California's low-carbon fuel standard, the world's first, was enacted the year after AB 32. It aims to reduce the carbon content of gasoline. But it was ruled unconstitutional by a federal district judge on Dec. 29. US District Court Judge Lawrence O'Neill said LCFS discriminates against out-of-state producers.

The case has had a ripple effect. Of 18 states that were poised to follow suit, several – including Pennsylvania, New Jersey, Maine, New Hampshire, Washington, and Oregon – have now either backed off or are reconsidering.

Like cap and trade, LCFS is at the center of the debate over whether AB 32 is merely symbolic. Oil companies see themselves as trying to keep California from being on the costly forefront of policies whose carbon savings will be easily erased by polluters like India and China.

Charles Drevna, president of the American Fuel and Petrochemical Manufacturers, says a nationwide low-carbon fuel standard would worsen air quality because it would prevent American refineries from importing petroleum obtained from oil sands in western Canada. That means the US would have to import more oil in tankers from the Middle East and elsewhere. At the same time, Canadian oil would be shipped in tankers across the Pacific to China and other Asian locations, thereby enlarging the carbon footprint for the oil imported and exported.

Supporters say AB 32 is crucial for its role in addressing global warming. "This was the first big step taken to really deal with it," says Nabil Nasr, director of the Center for Integrated Manufacturing Studies at the Rochester Institute of Technology in New York.

3. Increasing fuel efficiency

Other aspects of AB 32 have met with more success. On Jan. 27, the California Air Resources Board (CARB) mandated that 15 percent of all new cars sold in the state by 2025 should run with zero or near-zero emissions. The result would be some 1.4 million electric, plug-in hybrid, and hydrogen cars on California roads within 13 years. Today, there are 10,000 such vehicles in the state.

In addition, CARB mandated a 50 percent reduction from today's levels of overall auto-emitted greenhouse gases. Domestic car-makers, who are already moving in both of these directions on their own, have been largely supportive of CARB's efforts.

4. Urging more sustainable communities

The fourth major element of AB 32, the demand for more sustainable communities, has also begun to spread through the state. A law passed in 2008 to meet that goal, Senate Bill 375, calls for California communities to reduce transportation-related greenhouse-gas emissions by better use of roads, more open spaces, and better residential planning. Hundreds of cities and towns are participating, with an emphasis on regional cooperation.

"When the state came together to figure out how to meet the goals of AB 32 ... one thing that wasn't talked about enough was … how we conceive and build communities in the first place, to minimize the use of driving to work, shopping, and home again," says state Senate majority leader Darrell Steinberg in an online video. "This legislation is being touted in many states and in D.C. as the most significant law to change the direction of urban planning."

SB 375 authorized CARB to set greenhouse-gas reduction targets for cars and light trucks by region and allows each region the flexibility to develop its own plan. It also synced the federally required transportation-planning process with the state-mandated housing allo­cation process.

"Linking these two processes leads to more holistic planning," says Bill Higgins, executive director of the California Association of Councils of Governments.

But the first region out of the gate, San Diego, is facing a lawsuit as a result. Though CARB says the San Diego plan would achieve its greenhouse-gas reduction targets, opponents – this time, environmentalists – claim it would increase sprawl and pollution while not investing enough in public transit.

Some cities and businesses, however, are moving ahead on their own, suggesting that AB 32 is having indirect effects.

Santa Rosa, north of San Francisco, is redesigning its downtown around rail. The intent is to minimize car travel by keeping workers closer to their jobs and retail. Meanwhile, Bowman Design Group in Signal Hill reduced greenhouse emissions by 65 percent in 2009, replacing company cars with hybrids, improving natural light and ventilation, and consolidating office equipment, among other things. The annual savings is $9,000, and the company – which creates exhibitions for museums and firms – has become a leader in helping the exhibit industry go green.

Says chairman Tom Bowman: "AB 32 is an impressive effort, and even though it is being implemented gradually over time it is already delivering benefits to California."