On the heels of the California Air Resources Board’s (“CARB”) release of its much-anticipated Climate Change Draft Scoping Plan in late June, the structure of both California’s developing cap-and-trade system and a broader western regional cap-and-trade system are coming together quickly.

On July 23, 2008, the CARB took another big step in releasing the in-depth appendices to the scoping plan, providing more detail about its cap-and-trade concept, as well as other regulatory measures. On the same day, the Western Climate Initiative (“WCI”), of which California is a member state, released the draft design of its regional cap-and-trade program.

The WCI is an international coalition comprised of member states and observer states. Currently, the member states include California, Arizona, New Mexico, Montana, Oregon, Utah and Washington. The Canadian Provinces that are also members include Manitoba, Quebec, British Columbia and Ontario. The observer states include at least 13 more states and/or provinces, encompassing the remainder of the Western United States, stretching as far east as Kansas, and also including many of the northern states of Mexico.

The new details of the WCI plan suggest that member states and organizations within those states should begin preparation for compliance with the regional cap-and-trade system. The draft design defines the scope of the system, including which greenhouse gases (“GHGs”) are covered, which emission sources are covered, and which types of facilities and companies are likely to have the compliance obligation. Many key issues are still to be determined over the next few years. Important details such as setting a regional cap, determining a distribution system for allowances, and defining a role for the use of offsets, are major provisions that will be finalized as the member states refine the plans within their own borders.

With the release of the draft scoping-plan and the appendices, California has demonstrated that it is prepared to take the lead, even among the member states of the WCI. California’s cap-and-trade system could cover up to 85 percent of the state’s emission sources by 2020. The broad design of the systems is generally known, including the concepts of a declining cap over time, the ability to buy and sell allowances to maintain optimal cost effectiveness, and the imposition of significant penalties for those organizations not in compliance. However, many details are not yet finalized, and the issue of how allowances will be distributed – whether they are to be distributed freely or as part of an auction system – is likely to be one of the most hotly debated topics over the coming months and years.

Comments on the WCI's draft design are due August 13, 2008, comments on the CARB's scoping plan are due August 1, 2008, and comments on the CARB's scoping plan appendices are due August 11, 2008.