Blog Post

Western America Proposed Cap-And-Trade

The Western Climate Initiative, a consortium of seven states and four Canadian provinces, yesterday issued a draft of their proposed plan to institute a regional cap-and-trade system on carbon emissions. The group’s proposal would have states start monitoring emissions in 2010 and reporting them starting in 2011 in preparation for a cap on carbon emissions starting in 2012. This is part of the region’s goal to cut emissions 15 percent below 2005 levels by 2020.

In a cap-and-trade system, credits are exchanged on an open market, allowing for a certain amount of CO2 to be emitted. The WCI draft recommends including emissions from a broad swath of the economy, from electricity generation to forestry to transportation. Each year the market’s governing body would reduce the number of available credits, thus lowering CO2 emissions overall.

The proposal, however, is extremely vague, with the phrase “precise point to be determined” cropping up multiple times. Nor does it include some significant sources of emissions, like air travel. But there’s good news for biofuel startups: Biofuel and biomass emissions are exempt. The proposal, however, makes great allowances for changes in thresholds and the expansion of regulated emitters.

One of the most hotly contested issues when it comes to a cap-and-trade system, permit allocation, was not addressed in the WCI proposal. Among the questions that still need to be answered are: Will emission permits be issued for free to emitters based on historical emissions, potentially providing windfall profits and a free pass for the first year of regulations? Or will permits be auctioned off on the open market, a strategy that presidential candidate Obama has put forward as part of his cap-and-trade proposal?

This draft is being viewed as a possible template for a national cap-and-trade system in the U.S. and 14 non-initiative U.S., Mexican and Canandian states and provinces are officially tracking the initiative’s progress. There is concern that industry will try to obstruct its enforcement, possibly in the same way the auto industry has blocked California’s attempt to regulate car emissions. Final recommendations will be made in mid-September, when the group will also outline its 2009 road map.