Western Climate Initiative – Page 3

BC Releases Consultation Papers for Proposed Cap-and-Trade Regulations

BC Ministry of Environment (MOE) released consultation papers for the Emissions Trading Regulation and the Cap and Trade Offsets Regulation. The proposed regulations will provide the foundation for the province’s proposed cap-and-trade system under the Western Climate Initiative (WCI), which has a planned start date of January 1, 2012.

On October 22, 2010, the BC Ministry of Environment (MOE) released consultation papers for the Emissions Trading Regulation and the Cap and Trade Offsets Regulation. The proposed regulations will provide the foundation for the province’s proposed cap-and-trade system under the Western Climate Initiative (WCI), which has a planned start date of January 1, 2012. MOE is seeking comments from stakeholders, First Nations and the general public on the two proposed regulations until December 6, 2010. The proposed regulations are anticipated to be finalized in early 2011.

The proposed Emissions Trading Regulation is designed to establish an efficient, fair market for trading cap-and-trade compliance units. Under the proposed Emissions Trading Regulation, operations that meet certain criteria will be considered a “Regulated Operation”.

The following provisions are under consideration:

starting January 1, 2012 (or any subsequent year in which an operation emits 25,000 tonnes or more of CO₂e), the regulation will apply to the operator of an operation that emits 25,000 tonnes or more of CO₂e;
source types listed in Schedule A of the current Reporting Regulation (including activities such as general stationary combustion, aluminum production, cement production, coal mining, industrial wastewater processing, lime manufacturing, petroleum refining, and pulp and paper production) are under evaluation to be “covered sources” in the first compliance period;
additional sources types under consideration include emissions from anaerobic or aerobic digestion of wastewater, emissions from surface coal mines and stored coal piles, specific oil and gas and petroleum refinery emissions, and fugitive hydrofluorocarbon emissions from cooling units at electricity generators;
verified emission reports and compliance unit liability may be linked in the registry, meaning that an amount equal to a Regulated Operation’s annual greenhouse gas (“GHG”) emissions will become its corresponding compliance obligation;
facilities below the 25,000 tonne threshold may be able to opt in to the emissions trading system;
each compliance period will last three years;
at the end of each three-year compliance period, one compliance unit will be retired for each tonne of GHG emissions;
every three years, BC will prepare a nine-year “Allowance Budget Forecast”, with the first forecast for the period from 2012 to 2020 being published in the first quarter of 2011 (in 2014, BC would release a forecast for the period from 2015 to 2023);
every three years, BC would establish a cap on allowances issued for the following three-year compliance period, known as an “Allowance Budget”;
in the third quarter of 2011 and every year thereafter, BC would publish an annual “Allowance Distribution Plan” that will describe how allowances will be allocated for the following year (including number of allowances to be auctioned, number of allowances to be distributed for free, number of allowances to be held in reserve or contingency accounts, and number of allowances to be sold directly in the market);
there will be two main allowance distribution mechanisms for distributing allowances to a Regulated Operation: by auction and by distribution for free;
auctions of allowances will be held quarterly in coordination with other WCI members on a single round, sealed-bid, uniform price basis;
BC will have the ability to set a minimum price for allowances sold at auction;
allowances allocated for free will be transferred into accounts at the beginning of each year;
a registry will be established to record the issuance, holding, transfer, retirement and cancellation of compliance units;
BC may collaborate on a registry with other WCI members;
compliance will be assessed every three years on July 1 of the year following the last year of the compliance period;
a number of compliance mechanisms will be available to Regulated Operations including limited use of offsets and approved compliance units from other systems, unlimited banking, multi-year compliance period, linking with partner jurisdictions, and government support for low-carbon policies and programs;
BC will set limits on the use of offsets as a percentage of an operator’s compliance obligation and is still seeking input about the percentage to be adopted in BC;
penalty for non-compliance will be assessed at three additional allowances for every allowance that the regulated operation is short; and

The proposed Offsets Regulation will govern emission offsets and set out steps for offset registration, validation, monitoring, quantification, reporting, verification, certification and issuance. It is expected that offsets issued in BC will be able to be traded and used for compliance across the WCI. The following provisions are under consideration:

offset project eligibility will be evaluated on the basis of the following criteria: definition of an offset, real, additional, permanent and verifiable;
a BC offset, of “emission reduction unit” (“ERU”), would be issued based on certification of verified emission reductions from a registered offset project (one ERU will represent a reduction or removal of one tonne of CO₂e);
ERUs would be issued for projects located within BC and may also be issued for projects located outside of BC in a partner jurisdiction (Recognized Compliance Units, or RCUs, are compliance units that will be recognized by BC under the Cap and Trade Act but not issued by/in British Columbia.;
ERUs would only be issued for projects that have a start date of January 1, 2007 or later (2007 was the year in which the WCI Memorandum of Understanding was signed);
BC government will carry out periodic risk-based auditing.

The consultation papers for the proposed Cap and Trade Offsets Regulation and Emissions Trading Regulation are available online.

WCI Proposes Harmonised Reporting Requirements for Canadian WCI Members

On September 8, 2010, the Western Climate Initiative (WCI) released its proposal for revising and harmonising the existing Final Essential Requirements for Mandatory Reporting (the Essential Requirements) for use in Canadian jurisdictions. The proposal is entitled Harmonisation of Essential Requirements for Mandatory Reporting in Canadian Jurisdictions with the WCI Essential Requirements for Mandatory Reporting and the EPA Greenhouse Gas Reporting Program (the Harmonisation Document).

By way of background, on July 16, 2009, the WCI published the Essential Requirements for implementation by WCI Partner jurisdictions. On September 22, 2009, the U.S. Environmental Protection Agency (EPA) adopted its final Mandatory Reporting Rule (the EPA Rule) for greenhouse gas emissions. On May 28, 2010, the WCI invited stakeholder comment on its proposal to harmonise the Essential Requirements with the EPA Rule for use in a cap-and-trade program. In order to maintain consistency across all WCI jurisdictions, WCI members acknowledged that the WCI proposal to harmonise with the EPA Rule necessitated the development of revised Essential Requirements for use in Canadian provinces to ensure harmonised quantification methods throughout the U.S. and Canadian WCI jurisdictions. As a result, WCI members directed the WCI Reporting Committee to develop amended Canadian Essential Requirements that are themselves harmonised with the proposed WCI Essential Requirements for use in U.S. jurisdictions.

The following principles were applied in the harmonisation process:

1. A Canadian facility should apply the same functions, equations, sampling protocols and measurement criteria as U.S. facilities subject to the U.S. version of the harmonised Essential Requirements. This means that the harmonised Essential Requirements will achieve the same level of reporting accuracy for Canadian and U.S. facilities, but the U.S. version may require more data elements to be reported to harmonize with the EPA Rule.

2. The quantification methods included in the harmonised Essential Requirements must remain sufficiently reliable and accurate to be employed in a greenhouse gas (GHG) cap-and-trade program.

3.The WCI reporting system must remain suitable for use in Canadian jurisdictions. For example, it must allow reporting in metric as well as English units and must, where necessary, include Canada-specific emission factors.

4. The harmonised Essential Requirements should facilitate harmonisation with Canadian federal reporting. Some Canadian jurisdictions are working with Environment Canada to develop a one-window reporting tool for provincial and national GHG reporting requirements.

The WCI anticipates that Canadian WCI members will implement the harmonised Essential Requirements by adopting them into or through their reporting regulations. The WCI is also working on minor revisions to the general provisions of the Essential Requirements and the development of quantification methods for upstream oil and gas, natural gas transmission, distribution and storage, underground coal mine and magnesium production that are appropriate for use in Canadian member jurisdictions.

A stakeholder call to discuss the proposal will be hosted by the WCI during the week of September 20th. The Harmonisation Document is available through the WCI web site.

Canadian Provinces Forge Ahead on Cap-and-Trade System

Canada’s three largest provinces – Québec, Ontario and BC – are moving forward with a cap-and-trade system designed under the Western Climate Initiative (WCI) to reduce greenhouse gas (GHG) emissions. This decision comes after plans for a cap-and-trade system have been abandoned by the U.S. Senate.

The cap-and-trade system, scheduled to begin trading in January 2012, would cap emissions on large industrial facilities in Ontario, Québec and BC, as well as in California and New Mexico. The five jurisdictions forging ahead are part of the WCI (other group members, such as Utah and Arizona, have not committed to the system). On Tuesday July 27, 2010, the WCI released its comprehensive design strategy (for more information on the design document, please see our overview: link

The WCI’s commitment is to reduce industrial GHG emissions at the regional level from 15% below 2005 levels by 2020.

Each jurisdiction continues to weigh the pros and cons of moving ahead with the WCI system. In BC, any industrial operation emitting more than 25,000 tonnes of greenhouse gas per year will be subject to the system. This threshold will capture 40 operations in the province. While the regulatory framework for a cap-and-trade program has been put in place (under the Greenhouse Gas Reduction (Cap and Trade) Act and its associated Reporting Regulation), the details of the program as they will apply in BC have not yet been settled.

WCI Releases Comprehensive Strategy to Address Climate Change and Stimulate Clean Energy Economy

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.

WCI

WCI is the acronym widely used to refer to the “Western Climate Initiative”.

The Western Climate Initiative is a joint collaborating of the US States Arizona, California, Montana, New Mexico, Oregon, Utah, Washington, and the Canadian Provinces British Columbia, Manitoba, Ontario, Quebec to take cooperative actions to address climate change and implement a joint strategy to reduce greenhouse gas emissions.

Website: www.westernclimateinitiative.org