Any action from Obama on greenhouse gases could help chip away at the stigma of regulating carbon, said Horowitz of UCLA's climate change center. "States may learn that regulating greenhouse gas is actually not as scary as they thought it was." Already, some states are awakening to its economic benefits.
California tried to create a regional cap-and-trade pact with six other states called the Western Climate Initiative, but political will faded after Congress failed to pass federal climate legislation, the economy soured and skepticism about global warming became a tenet of GOP politics. A similar effort among Midwestern states was also abandoned.
For now, California is expected to link its scheme to Quebec's carbon market in 2013.
Matthew Kahn, an economist and professor of environmental economics at UCLA, said the more states that adopt cap and the trade, the better for California. "There would be less backlash ... if there's the perception that the rest of the country is catching up and that we're a trendsetter" and not a "green guinea pig."
Kahn explained that California's carbon polluters will each have to spend millions of dollars a year to buy pollution allowances, increasing business costs and raising the risk that jobs could "leak" to other states. If other states enact cap and trade, it would create a level playing field, he said. It would also increase the size of the pool for buying and selling allowances, which stabilizes prices of permits.
The ideal scenario, Kahn said, would be for California to link or fold its cap-and-trade program into a national carbon-trading scheme. While federal climate policy remains a remote reality, Kahn expressed slight optimism that if California's experiment proves good for the environment and the economy, moderate Republican lawmakers would get behind national carbon legislation.
Low-carbon fuel standard: Will Obama weigh in?
Another critical piece of California's global warming law is a rule to slash carbon emissions in transportation fuels. The Obama administration isn't directly involved with the measure, but the standards are stuck in legal limbo and the White House could opt to weigh in.
The low-carbon fuel standard - the first of its kind in the world - went into effect in the spring. Under the rule, oil importers, refiners and fuel blenders must cut the "carbon intensity" of their fuel mix by one-quarter of a percent this year and by 10 percent by 2020. The rule would discourage the use of oil sands crude and other high-carbon fuels and encourage greater adoption of electric cars and other clean vehicles.
Transportation accounts for 40 percent of California's global warming emissions and about a third of U.S. emissions.
In December, a federal judge ruled the policy was unconstitutional because it regulates economic activity outside California's borders, siding with oil companies, Midwestern ethanol producers and other opponents. Advocates appealed the decision.
The rule's fate now rests with a three-judge panel in the 9th Circuit Court of Appeals, which is expected to issue its final decision in 2013. The Obama administration could, in theory, attempt to sway the 9th Circuit judges by filing a friend-of-the-court brief expressing support for the program.
Obama has previously backed a national low-carbon fuel standard. On the 2008 campaign trail, he pledged to establish a program to cut the carbon-intensity in fuels by 10 percent by 2020. But he has also supported corn ethanol producers, who say the standard discriminates against them because it counts the greenhouse gases their ethanol-carting trucks emit en route to California. The president could anger them by championing the fuel rule.
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