Detailed program design lays the groundwork for a regional cap-and-trade program and other strategies to reduce greenhouse gases, lower energy costs

On July 27, 2010 the Partner jurisdictions of the Western Climate Initiative (WCI) released a comprehensive strategy designed to reduce climate-warming greenhouse gas emissions (GHG), stimulate development of clean-energy technologies, create green jobs, increase energy security and independence, and protect public health. 

The Design for the WCI Regional Program is the culmination of two years of work by seven U.S. states and four Canadian provinces. Supported by their jurisdictional goals, the objective of the WCI Partner jurisdictions' plan is to reduce regional GHG emissions to 15 percent below 2005 levels by 2020. The regional goal will be reached by:

• Creating a market-based system that caps GHG emissions and uses tradable permits to incent development of renewable and lower-polluting energy sources
• Encouraging GHG emissions reductions in industries not covered by the emissions cap, thus reducing energy costs region wide, and
• Advancing policies that expand energy efficiency programs, reduce vehicle emissions, encourage energy innovation in high-emitting industries, and help individuals transition to new jobs in the clean-energy economy.

Scientific research confirms that our water resources, natural ecosystems, air quality, and environment-dependent industries like agriculture and tourism will continue to be significantly impacted by changes in climate if we do not act to reduce GHG emissions. Furthermore, studies have shown that the cost of inaction is high.

The WCI Partner jurisdictions are strongly committed to continuing to provide leadership in the development of affordable, innovative clean-energy solutions that will create new jobs and reduce our dependence on imported oil, helping protect consumers from volatile petroleum prices. In the absence of federal action to address climate change, the WCI Partner jurisdictions believe it is important for state and provincial governments to keep moving forward on the transition to a clean-energy economy and continue to lead in demonstrated areas of expertise, including energy innovation, efficiency, and conservation.

A recently-updated economic analysis by the Partner jurisdictions of the WCI indicates that their plan can achieve the regional GHG emissions reduction goal and realize a cost savings of approximately US$100 billion by 2020.

The economic analysis underscores that mitigation of GHG emissions and the move to a clean-energy economy is affordable, and can be achieved without negatively impacting the regional economy. This result is consistent with other recent state and federal analyses of climate mitigation programs.

The WCI Regional Cap-and-Trade Program

The central component of the WCI Partner jurisdictions' comprehensive strategy is a flexible, market-based, regional cap-and-trade program that encourages the most cost-effective, reliable alternatives to reduce GHG emissions.

The WCI regional cap-and-trade program will be composed of the individual jurisdictions' cap-and-trade programs implemented through state and provincial regulations. Each Partner jurisdiction implementing a cap-and-trade program will issue "emission allowances" to meet its jurisdiction-specific emissions goal. The total number of available allowances serves as the "cap" on emissions. A regional allowance market is created by the Partner jurisdictions accepting one another's allowances for compliance. The allowances can be sold between and among covered entities as well as by third parties.

This "trading" of emission allowances keeps costs low because it provides flexibility in how and when reductions are made. For example, entities that reduce their emissions below the number of allowances they hold can sell their excess allowances or "bank" them for later use. Selling excess allowances allows entities to recoup some of their emissions reduction costs, while banking allowances will lessen future compliance costs.

The WCI program design includes important features to ensure that the program achieves the regional emissions goal affordably and cost-effectively. For instance, emission offsets from sources not covered by the program can be used in limited quantity along with emission allowances to comply with the program. Allowing entities to turn in allowances in three-year periods provides flexibility as to when emissions reductions are made.

A Flexible, Affordable Program

The WCI program design recognizes that variations in jurisdictional authority, regulatory procedures, and administrative requirements will result in different approaches to implementation. While not all WCI partner jurisdictions will be implementing the cap-and-trade program when it begins in January 2012, those expected to move ahead comprise approximately two-thirds of total emissions in the WCI jurisdictions-a critical mass and a robust market for achieving significant GHG emissions reductions.

The program design also reflects an understanding that potential future conditions could lead to higher-than expected program costs. To ensure that the program is not only affordable, but also supportive of economic growth and job creation, the WCI Partner jurisdictions are considering a number of options to address unforeseen circumstances. These include an allowance reserve in the event of high-price conditions, increased flexibility regarding compliance periods, and special purpose mechanisms to address specific local conditions.

Next Steps

Between now and the planned program start date of January 2012, the WCI Partner jurisdictions will address remaining program design issues and take the steps necessary to make regional trading operational. In addition, they will expand their efforts to develop and implement other core policies and programs to increase energy efficiency and fuel diversification in order to reduce GHG emissions.