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July 02, 2010

WCI Releases Detailed Cap-and-trade Strategy: Ontario, B.C. and Quebec to begin issuing greenhouse gas allowances by January 2012

On July 27, the Western Climate Initiative (WCI) released a comprehensive blueprint for reducing regional greenhouse gas (GHG) emissions to 15 percent below 2005 levels by 2020. The centerpiece will be a series of integrated, market-based cap-and-trade systems, scheduled to begin operation on January 1, 2012, which will eventually address up to 90 percent of economy-wide emissions in the WCI partner jurisdictions. The program’s first stage would cover those generators emitting at least 25,000 tonnes of GHG per year.

Although there has been no official confirmation, it is anticipated that WCI partners British Columbia, Ontario, Quebec, California and New Mexico will be the first to implement their individual cap-and-trade programs and issue “emission allowances” to meet a jurisdiction-specific emissions “cap”. These jurisdictional allowances would be accepted by other WCI partners and tradable permits sold between and among the prescribed GHG generators and third parties. The WCI plan will allow additional states and provinces to join the system after the January 2012 start date. These could include the other current WCI partners — Manitoba, Arizona, Montana, Oregon, Utah and Washington. In addition, Nova Scotia, Saskatchewan and the Yukon, together with another dozen U.S. and Mexican states, have sought “observer” status with the WCI.

WCI partners have been working on their detailed “Design for the WCI Regional Program” since 2007. The cap-and-trade strategy will provide economic incentives for companies to use renewable and less carbon intensive fuels and more energy efficient technologies and process improvements. Offset certificates will reward emissions reductions in sectors without emissions caps, such as forestry and agriculture. The WCI estimates that a tonne of carbon emission will be trading at $33(US) by 2020.

The strategy requires high-quality emissions data reporting and setting program emission limits. Maintaining competitiveness and preventing “emissions leakage” (with production shifting to non-partner jurisdictions) is an important goal. There is to be a fair and transparent auction and a well-functioning market. The WCI’s core design parameters will ensure compatibility between jurisdictions, while allowing for flexibility in regulatory language and approach.

To reduce the total amount of emissions, the number of allowances issued will be reduced over time. At least once each three years, regulated entities will be required to retire one “emission allowance” for each metric ton of carbon dioxide equivalent (CO2e) they emit and report. Entities that reduce their emissions below the number of allowances they hold can sell their excess allowances or hold them for later use. WCI partners will also encourage GHG emissions reductions in industries not covered by the emissions cap, expand energy efficiency and fuel diversification programs, tackle transportation emissions through vehicle emission and fuel standards, and help individuals transition to jobs in a “clean-energy” economy.

Between now and 2012, WCI partners will hammer out the final program design issues and put the necessary administrative systems and infrastructure in place. They are also working with the Canadian and U.S. federal governments to promote national and international action and ensure coordination among state, provincial, regional and national programs. Discussion are on-going with other climate change initiatives — including the Regional Greenhouse Gas Initiative and the Midwestern Greenhouse Gas Reduction Accord — to explore further opportunities for collaborative action.

Full details on the strategy are available through the WCI website at http://westernclimateinitiative.org/the-wci-cap-and-trade-program/program-design

For more information, contact:

Paul Manning
T:(416) 862-4843
E: pmanning@willmsshier.com