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WCI Advances its GHG Cap-and-Trade Regime, Predicting New Green Jobs and Cost Savings

The Western Climate Initiative (WCI) recently released its comprehensive strategy to address climate change and spur a clean energy economy. WCI Partners predict that their strategy will not only reduce greenhouse gas (GHG) emissions, but also foster development of clean technologies, create new green jobs, increase energy security, protect public health, and realize a cost savings of approximately $100 billion US by 2020.

The primary goal 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 emissions cap-and-trade programs that will be flexible, market-based, and economy-wide. WCI partner jurisdictions currently include seven US states (Arizona, California, Montana, New Mexico, Oregon, Utah and Washington) and four Canadian provinces (British Columbia, Manitoba, Ontario and Québec).

Upon implementation in 2012, the WCI’s cap-and-trade program will apply to utilities and large industrial sectors. In 2015, the regime will expand to include transportation, commercial and residential fuels. Once fully implemented by all WCI partners, the WCI program will encompass nearly 90 per cent of economy-wide emissions, making it one of the most comprehensive carbon-reduction strategies globally.

Rather than strictly dictate the program each WCI Partner must implement, the WCI strategy provides a broad framework under which individual provinces and states will enact their own cap-and-trade legislation. As such, each jurisdiction will adopt its own emissions allowance budget and determine how to allocate budgeted allowances to emitters — be it through allocations, direct sales or auctions. This flexibility is critical, as it allows each WCI partner to tailor its program to account for its unique mix of emissions sources and local economic realities. Conversely, the WCI program will permit the trading of allowances among regulated entities and third parties throughout the WCI region. This region-wide trading will help push down compliance costs by providing flexibility in how, when and where GHG emissions reductions are made.

The WCI program will also allow the use of offset certificates, in an effort to further reduce compliance costs. Offset certificates represent measurable GHG reductions in areas of the economy not covered by the cap-and-trade program or other emission reduction policies. For an offset certificate to qualify under the WCI, it must meet all recommended offset criteria and result from a project located in Canada, the US or Mexico. The WCI is recommending that the use of offsets be restricted to 49 per cent of aggregate emissions reductions to ensure that the remaining emissions reductions result from change within regulated industries.

Because of its market-driven and flexible approach, the WCI predicts that fuel savings spurred by the implementation of the WCI program would offset the cost of investing in new, more energy-efficient equipment to meet limits on carbon emissions. Although compliance costs may be shouldered by certain industries more than others, the WCI’s economic analysis underscores the fact that mitigation of GHG emissions and the transition to a clean-energy economy is possible without significant negative economy-wide impacts.

But because WCI partners have yet to develop the details of their individual cap-and-trade systems, it remains unclear what opportunities (or burdens) the WCI regime will provide to specific regulated entities. Similarly, it is uncertain whether emissions allowances will be distributed via auction, direct sales, or allocations (or by a combination of these methods).

All uncertainty aside, region-wide implementation of the WCI strategy could encourage large-scale investment in clean energy and clean technology, fostering local cleantech innovation and green job creation.