On February 19, 2009, the Western Climate Initiative (WCI), an initiative of several U.S. states and Canadian provinces to establish a regional greenhouse gas (GHG) capand- trade system by 2012, released its 2009-2010 Work Plan.1 As discussed below, the Work Plan describes the activities that the WCI’s working committees will undertake in the next 12 to 18 months toward developing and implementing the WCI cap-andtrade program described in Torys’ October 2008 Environmental, Health and Safety Bulletin.
The Reporting Committee will be working with The Climate Registry, a non-profit partnership, to develop a regional GHG emissions–reporting database. In this regard, the WCI, in January 2009, released the third draft of its “Background Document and Progress Report for Essential Requirements of Mandatory Reporting for the Western Climate Initiative,” described in Torys’ January 2009 Environmental, Health and Safety Bulletin. These reporting requirements are expected to be finalized this spring and followed by draft regulations from each WCI partner jurisdiction.
Cap Setting and Allowance Distribution Committee
Starting January 1, 2012, the WCI will set a regional cap on its partners’ GHG emissions; this cap will be lowered between 2012 and 2020 in three-year compliance periods, so that by 2020 regional emissions will have been reduced by 15% below 2005 levels. In the upcoming months, the Cap Setting and Allowance Distribution (CSAD) Committee will be recommending a methodology for setting the initial 2012 cap and assessing ways to allocate emissions allowances to each WCI partner. Each partner will be allocated a pool of allowances, which it may then distribute, with significant flexibility, to capped entities within its jurisdiction. The size of the pool will be calculated according to the state’s or province’s population growth, economic activity, electricity consumption, among other factors. In this regard, the CSAD Committee will be examining ways to harmonize allowance distribution and to resolve any issues relating to competitiveness that arise among the capped industries.
According to the Work Plan, the Offset Committee will be making recommendations on the design and operation of the WCI’s offset system. Under many cap-and-trade systems, including the one proposed by the WCI, capped entities are able to purchase credits (“offset credits”) earned by projects shown to have reduced GHG emissions when not required by law to do so, as long as they follow an approved quantification and monitoring methodology (typically called an “offset protocol”). Under the WCI, capped entities will be able to use offset credits for no more than 49% of their compliance obligation between 2012 and 2020. Over the next year, the Offset Committee will be developing details of the WCI’s offset system, including the process for issuing offset credits and the offset protocols available for approved project types. Currently, offset project types under “priority consideration” by the WCI relate to agriculture (soil sequestration and manure management); forestry (afforestation/reforestation, forest management, forest preservation/conservation and forest products); and waste management (landfill gas and wastewater management). In developing offset protocols, the Offset Committee has indicated that, starting this spring, it will build on protocols that already exist in North America and internationally. At the same time, the Committee also plans to examine the key criteria necessary to ensure the integrity of the WCI offset system, should it choose to recognize offset credits earned through other cap-and-trade systems.
Markets and Other Committees
The Markets Committee will be developing recommendations on the elements necessary for a robust and transparent allowance and offset credit trading market. This Committee will examine, among other things, WCI compliance verification and enforcement; the oversight of the primary, secondary and derivatives markets in WCI allowance and offset credits; and the design of the allowance auction and credit tracking systems.2 The Markets Committee is also charged with providing recommendations regarding the design and operation of a regional administrative body to support the implementation of the system.
The WCI’s Electricity Committee, Complementary Policies Committee and Economic Modeling Team will also be working on WCI implementation over the next year. During that time, each committee will be seeking stakeholder feedback. For details of current opportunities for comment, please see www.westernclimateinitiative.org.
For further information on the Work Plan, please see www.westernclimateinitiative.org/ewebeditpro/items/O104F21097.pdf.
WCI and North American Cap-and-Trade Initiatives
Even as the WCI Work Plan outlines ambitious milestones for the implementation of a regional cap-andtrade system by 2012, the Canadian and U.S. federal governments have been increasingly signalling their intention to collaborate on the North American regulation of GHG emissions. For example, on March 3, 2009, Canada’s Minister of the Environment, Jim Prentice, met U.S. House of Representatives Energy and Commerce Committee Chair, Henry Waxman, to discuss the design of a joint cap-and-trade scheme. In addition, as described in Torys’ February 2009 Environmental, Health and Safety Bulletin, President Barack Obama and Prime Minister Stephen Harper agreed to a “Clean Energy Dialogue,” in which the two countries would collaborate on research related to advanced biofuels, clean engines and energy efficiency. The WCI has repeatedly indicated its desire to influence the development of any Canada-U.S. cap-and-trade system, and its Work Plan outlines plans to comment on any federal U.S. or Canadian GHG reporting guidelines that may be proposed.
The Ontario government recently released a discussion paper, described in Torys’ January 2009 Environmental, Health and Safety Bulletin, which outlines some considerations for the core design principles for the province’s proposed cap-and-trade system.3 Although this system may (theoretically) take effect as early as January 1, 2010, it is being designed to fit into the WCI framework. Therefore, most of the options that the discussion paper highlights are also options for implementation that the WCI affords its partner jurisdictions. For the near future, therefore, it is expected that Ontario will continue to focus on implementing a WCI-compliant cap-and-trade system by 2012.
For further information, please see www.ebr.gov.on.ca/ERS-WEBExternal/ displaynoticecontent.do?noticeId=MTA1Mzkx&statusId=MTU3OTI4&language=en.
Colouring any regional or international developments are indications that the Obama administration expects a national U.S. cap-and-trade system to be in effect as early as 2012. Indeed, in its proposed budget for the 2010 fiscal year, the administration indicates that by 2012, it will be collecting revenue from the auctioning of 100% of all allowances under such a system. According to the budget, the administration plans to work closely with Congress to develop the cap-and-trade system and other mitigation initiatives, so that U.S. GHG emissions can be reduced to approximately 14% below 2005 levels by 2020 and approximately 83% below 2005 levels by 2050. The U.S. House Energy and Commerce Committee is also drafting cap-and-trade legislation, which is currently expected to be passed out of committee by the end of May.