Recommendations presented in a report to the Air Resources Board:

— Set a stringent cap on greenhouse gases requiring emission reductions to come from both mandatory regulations and a trading program. Gradually lower the cap over time.

— Create a trading market that encompasses as many sectors of the economy as possible. The more industries that are included, the less expensive it will be for companies to comply with a state cap. Start with a small program and expand it over time.

— Regulate carbon dioxide and, in certain cases, the industrial gases hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.

— In establishing the market, sell and give away allowances to companies that will participate in the program. But sell the majority. Other trading programs that have given too many allowances away have led to windfall profits by companies that later charge customers for what would have been their compliance costs.

— Companies should get credit for so-called "offsets" that meet stringent standards. Such projects would allow companies to pay for tree-planting or energy-efficiency programs in California or elsewhere as a way to make up for their inability to meet their emission goals.

— Companies should submit quarterly electronic reports that detail emission output to the Air Resources Board. The data would be posted on board's Web site.

— Penalize companies that fail to meet their designated greenhouse gas emission target. Establish both criminal and civil penalties for intentional violations.

— Eventually link California's cap-and-trade program with other trading systems as a way to lower costs and achieve greater emission reductions over time.

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Source: Market Advisory Committee report "Recommendations for Designing a Greenhouse Gas Cap-and-Trade System for California."