By deciding to levy a carbon surcharge, the city of Los Angeles has taken a new step forward in its transition to renewable energy.

The city's Department of Water and Power on Thursday approved a carbon surcharge that adds about 2.50 dollars a month to the bills of most residential customers while increasing rates for businesses by about 20 percent.

The board unanimously voted to phase in the Energy Cost Adjustment Factor, which includes the carbon reduction surcharge proposed by Mayor Antonio Villaraigosa, over the next four quarters, starting from April 1.

"With the approval of this plan, we are one step closer to turning the L.A. DWP into the cleanest utility in the country and Los Angeles into the greenest big city in America," the mayor said.

"The carbon reduction surcharge will allow us to invest in clean renewable energy, create jobs, grow our green economy, become more energy efficient, reduce our reliance on fossil fuel and help solve the climate change crisis," he said.

The surcharge would help the DWP implement energy efficiency programs that would create jobs while protecting the environment, said S. David Freeman, the DWP's interim general manager.

"I think there are three reasons to do this: one, if we don't do it, it's going to cost us more money; the second is it's the law; and the third, I might add, it's the right thing to do," he said.

Also, he said, it would allow the DWP to compensate for failing in previous years to make customers take on a larger share of the cost of switching to renewable energy.

"The 'undercollection' has gotten to the point where, according to our books, we're losing about 6 million dollars a week," Freeman said. "If we do not get some relief on these items in the coming weeks, we will not be able to meet our minimum requirements and, in my humble opinion, not be able to make the payments to the general fund that they are counting on for the city's solvency."

The carbon reduction surcharge is a portion of the ECAF that would be deposited into the Renewable Energy and Energy Efficiency Trust Fund.

Villaraigosa estimated the surcharge would bring in 168 million dollars a year that would be used to teach residents how to retrofit their homes and businesses to make them more energy-efficient. The surcharge also would help business owners with rooftop solar panels sell electricity to the DWP.

Villaraigosa estimated that the programs would create 18,000 jobs in 10 years time.