On July 27, 2010, the partner jurisdictions of the Western Climate Initiative (WCI) released a comprehensive strategy designed to reduce greenhouse gas (GHG) emissions, stimulate development of clean energy technologies, create green jobs, increase energy security and protect public health.
On July 27, 2010, the partner jurisdictions of the Western Climate Initiative (WCI) released a comprehensive strategy designed to reduce greenhouse gas (GHG) emissions, stimulate development of clean energy technologies, create green jobs, increase energy security and protect public health.
The Design for the WCI Regional Program (the Design Document) is the product of two years of work by seven U.S. states and four Canadian provinces (including Québec, Ontario, Manitoba and BC). The objective of the WCI is to reduce regional GHG emissions to 15% below 2005 levels by 2020. This regional goal will be achieved by:
• creating a market-based system that caps GHG emissions and uses tradable permits to incent the development of renewable and lower-polluting energy sources;
• encouraging GHG emission 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.
A recently updated economic analysis by the WCI indicates that this plan can achieve the regional GHG emissions reduction goal and realize a cost savings of approximately US$100 billion by 2020.
Overview of the Design Document
The primary policy recommendations in the Design Document address some of the following key issues:
WCI Cap-and-Trade Program: The central component of the WCI’s comprehensive strategy is a regional cap-and-trade program that will be composed of WCI member jurisdictions’ cap-and-trade programs implemented through state and provincial regulations. The WCI program design encompasses almost 90% of economy-wide emissions in WCI jurisdictions. Each member 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 member 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 also includes important features to ensure that the program achieves regional emissions in a cost-effective way. 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. To address unforeseen circumstances that could lead to increased program costs, WCI member jurisdictions are considering a number of options including an allowance reserve in the event of high-price conditions, increased flexibility regarding compliance periods, and special purpose mechanisms to address specific local conditions.
Not all WCI member jurisdictions will be implementing the cap-and-trade program when it is scheduled to start trading in January 2012, however those expected to move ahead (including Québec, Ontario, BC, New Mexico and California) comprise approximately two-thirds of total emissions in the WCI. According to the WCI, this represents a critical mass and a robust market for achieving significant GHG emissions reductions.
Between now and the planned program start date of January 2012, WCI member 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.
Relying on High-Quality Emissions Data from Rigorous Reporting: The WCI understands that accurate, timely and consistent GHG emissions data is essential for effective GHG reductions. As a result, WCI member jurisdictions have developed a reporting program that specifies quantification methods that are rigorous, technically feasible, cost-effective and sufficiently accurate to support the cap-and-trade program. To minimize the reporting burden in the U.S., reporting requirements have been harmonized with U.S. EPA Mandatory Reporting Rule for GHG emissions.
For further information on the EPA’s GHG reporting requirements, please see Link
This way a facility will be able to submit a single report satisfying both WCI and EPA requirements. WCI member jurisdictions in Canada (including Québec, Ontario and BC) have developed their own reporting requirements, which will likely be set up as a one-window GHG emissions reporting interface with Environment Canada. This one-window reporting would meet the requirements of both the federal and provincial governments, thus eliminating the need for duplicate reporting.
Designing for High Quality Offsets: The proposed WCI cap-and-trade system includes offsets to reduce compliance costs by introducing a broader range of emission reduction opportunities. A particular emphasis has been placed on assuring the quality of offsets. The WCI recommend the following for the definition of an offset and criteria to evaluate an offset project:
• Definition: A GHG offset is a reduction or removal of GHG emissions as a result of a project or activity that occurs outside the sectors regulated by the cap-and-trade program. An offset certificate issued by a WCI Partner jurisdiction represents a reduction or removal of one metric ton of CO2e. To be issued an offset certificate by a WCI Partner jurisdiction, each reduction or removal must meet all recommended offset criteria, have clearly identified ownership, follow an accepted protocol, and result from a project located in Canada, the U.S., or Mexico.
• Criteria: Offset projects approved by WCI Partner jurisdictions will meet the criteria described in the Offset System Essential Elements Final Recommendations (June 2010). The criteria recommended by WCI Partner jurisdictions are consistent with the leading offset systems in use worldwide, and will allow the adoption of protocols that produce consistent offsets across the WCI region. The other North American emissions trading systems – RGGI and the Midwestern Greenhouse Gas Reduction Accord – share the goal of ensuring the quality of offsets. The three regional programs released a paper on offset quality (Ensuring Offset Quality: Design and implementation Criteria for a High Quality Offset Program, May 2010) that is consistent with the offset criteria recommended by the WCI Partner jurisdictions.
The Design Document indicates that WCI member jurisdictions will leverage existing protocols to align with the essential criteria and will continue to establish key protocol components for each priority project type. The process of offset project approval through certificate issuance contains important features to ensure offset quality. These processes, which continue to be finalized, will include specific requirements for registration, validation, monitoring, quantification, reporting, verification, certification and issuance of offsets.
Other policy recommendations addressed in the Design Document include:
• setting program emissions limits;
• enhancing compliance flexibility and program adaptability to manage compliance costs;
• maintaining competitiveness and preventing emissions leakage;
• electricity sector;
• designing a fair and transparent auction;
• ensuring a well-functioning market;
• linking programs; and
• coordinating program administration.
To access the complete Design Document, please refer to the WCI Link on this site.