BERKELEY - 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.