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WCI'S GHGCAP AND TRADE -

PROMISES OF CLEANTECH,ENERGY SECURITY AND JOBS

CREATION

Western Climate Initiative has recently published its comprehensive strategy to

address climate change and spur a clean energy economy. The stated targetsinclude not only greenhouse gas (GHG) emissions reduction, but also clean

technologies development, green jobs creation, energy security, betterment of

public health, and significant cost savings.

The primary target of the WCI strategy is to reduce regional GHG emissions to 15

per cent below 2005 levels by 2020. This strategy is based on the Implementation of

regional GHG cap-and-trade programs form the basis od the target and the strategy.

The cap and trade programs are expected to be flexible, market-based, and

economy-wide. Currently the WCI jurisdictions currently include seven US states of

Arizona, California, Montana, New Mexico, Oregon, Utah and Washington, and four

Canadian provinces of British Columbia, Manitoba, Ontario and Qubec.

WCI's cap and trade program, when it gets implemented in 2012, will apply to

utilities and large industrial sectors. The regime will expand in 2015 to include

transportation, commercial and residential fuels. The WCI program targets to

encompass nearly 90 per cent of economy-wide emissions, making it one of the

most comprehensive carbon-reduction strategies globally, second only to the EU-

ETS, which is pan-European.

Having found it difficult to centrally plan and implement programs, WCI's strategy

now states a broad framework under which individual provinces and states will

enact their own cap-and-trade legislation. Each jurisdiction has the liberty to adopt

its own emissions allowance budget and determine how to allocate budgeted

allowances to emitters either through allocations, direct sales or auctions. This

flexibility allows each partner to tailor its own cap-and-trade to account for its state-

specific mix of emissions sources and local economic realities. The scope of trading

is however, across the WCI region Trading of allowances among regulated entities

and third parties is permitted throughout the WCI region. This will put pressure on

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the compliance costs by providing flexibility in format, location and timing of the

GHG emissions reductions.

Offset certificates are expected to be a part of this program in attempts to reduce

compliance costs. These offset certificates are measurable GHG reductions in areas

of the economy that are not covered by the cap-and-trade program or any specific

policy. Recommended offset criteria and project location in Canada, the US or

Mexico would allow a project to qualify for offset certificates. To ensure that the

emissions reductions result from change within regulated industries (emission

intensive), the use of offsets is recommended to be restricted to 49 per cent of

aggregate emissions reductions.

The WCI partners are yet to develop the detailed individual cap-and-trade systems,

the opportunities (or burdens) the WCI regime will provide to specific regulated

entities remains to be seen. Similarly, the method of distribution of emissions

allowances - either via auction, direct sales, or allocations or by a combination of

these methods - is yet to be developed.