BERKELEY - September 23 - The Western Climate Initiative (WCI), a partnership among seven states and four Canadian provinces, today issued final recommendations for a regional, economy-wide cap-and-trade system that represents the most ambitious program of its kind. The WCI regime will cover the region's electricity, industrial and transportation sectors with the goal of reducing the heat-trapping emissions that cause global warming 15 percent below 2005 levels by 2020.  

"The region just took a big step forward," said Erin Rogers, California climate strategy manager at the Union of Concerned Scientists, "but it will be up the states and provinces to decide how far they really go."  

Christopher Bush, a UCS climate economist, noted that new economic analyses conclude that region's economy would benefit from investments in global warming solutions. The analyses show that improved energy efficiency can reduce electric bills and save drivers money at the pump, he said. They also would lead to changes in consumer spending that would help create new jobs.   (For a regional analysis, go to: westernclimateinitiative.org/ewebeditpro/items/O104F19869.PDF. For a California-centric analysis, go to: arb.ca.gov/cc/scopingplan/document/economic_analysis_supplement.pdf.)  

The WCI recommendations provide a general outline for the regional cap-and-trade program and suggest minimum requirements for participation in the program. Each state and province will have the opportunity to tighten program requirements through legislation or administrative action over the next few years.  

"There's a right way and wrong way to do cap and trade," Busch said. "Doing it the right way means making sure that the program speeds the transition to a clean energy economy in a way that protects consumers. The added bonus is a successful cap-and-trade program in the region will have a ripple effect that reaches Washington, D.C., and the rest of the world."  

Busch identified two areas where states and provinces may be able to significantly strengthen the program beyond WCI's minimum recommended standards: auctioning permits -- also called allowances -- for global warming pollution, and limiting the use of "offsets," which allow a polluter to earn credit for reducing emissions by paying others to reduce their emissions.  

The WCI program acknowledges the value of auctioning permits to polluters, and in principle the region aspires to reach 100 percent auctioning. In practice, however, the program allows states and provinces determine how they will distribute allowances beyond a minimum level of auctioning, starting with 10 percent in 2012 and increasing to a minimum of 25 percent by 2020. Conversely, the 10 Northeastern states involved in the Regional Greenhouse Gas Initiative decided to auction nearly or fully 100 percent of their permits. The European Union also is moving toward a 100-percent auction.  

"Auctioning permits allows states to spend money on projects that can further reduce pollution and benefit their residents," Busch said. "Giving them away for free could result in windfall profits for polluters." 

The WCI agreement also recognizes the value of limiting the use of offsets. The WCI allows offsets to cover no more than half of the program's expected global warming pollution reductions. Specifically, it requires that a majority of reductions occur directly in the region's highly polluting electricity, transportation and industrial sectors. The WCI permits states and provinces to set even tighter limits on offsets. This is an improvement over the draft recommendations the WCI issued in July.  

UCS recommends that states and provinces limit offsets and maximize pollution reduction in the region. Doing so, UCS experts say, would spur more clean technology development and protect public health by reducing conventional smog-forming and toxic air pollutants. 

"States and provinces should close the offsets loophole," said Rogers. "Outsourcing half the effort would undercut the benefits of reducing pollution and make it difficult to achieve the region's long-term climate goals."  

The WCI-member states are Arizona, California, Montana, New Mexico, Oregon, Utah and Washington. The member provinces are British Columbia, Manitoba, Ontario and Quebec.  

BACKGROUND ON CAP-AND-TRADE SYSTEMS
Under cap-and-trade programs, governments establish a cap on global warming emissions and tighten it over time. Governments then distribute emissions permits, or allowances, that correspond to a specific number of metric tons of global warming pollution. The total number of allowances match the cap and decrease over time.  

A cap-and-trade program requires polluters to acquire a permit for each ton of emissions from a government auction or giveaway program. Polluters then trade for permits in a carbon market. 

Such a market enables polluters that are able to reduce their emissions relatively cheaply to sell allowances to other polluters that are unable to do so, thereby establishing a market price for carbon. The program creates an incentive for polluting facilities to implement the most cost-effective emissions reduction options and, by putting a price on global warming pollution, encourages investments in new low-carbon technologies.