The Western Climate Initiative (WCI) today released the draft design for its regional cap-and-trade program. The WCI is a consortium of seven states, along with four Canadian provinces, that intend to implement a mandatory cap-and-trade program for greenhouse gas (GHG) emissions.

The basic shape of the program can be discerned from today’s draft design document. The cap-and-trade program will regulate emissions of all six major GHGs, not merely carbon dioxide. It will cover a broad array of industries, including electrical generation and industrial and commercial combustion facilities that emit at least 25,000 tons of carbon dioxide equivalent GHGs per year, as well as transportation fuels. In a later phase, residential and small commercial/industrial facilities will also be required to participate.

Emissions allowances will be apportioned to each Partner state, although the apportionment methodology is not expected to be completed until Fall 2008. The Partner states will then determine how they want to distribute their allowances. An as-yet-unspecified percentage of the allowances will be dedicated for public purposes such as energy efficiency incentives and research and development of new clean technologies. The Partner states are still discussing whether to mandate auctioning a certain percentage of allowances.

The actual cap-and-trade program will operate in three year compliance periods, commencing on January 1, 2012. Regulated entities will be required to measure and monitor GHG emissions beginning in January 2010, with reporting deadlines early in the following year.

This draft design document is an important first step towards making the WCI’s cap-and-trade program a reality. There are still a significant number of hurdles yet to be overcome, however, including setting the initial emissions cap for 2012, establishing an auction mechanism, and resolving potential constitutional concerns related to linking the cap-and-trade system with Canadian provinces.

The WCI also released draft mandatory reporting requirements today, but that document is not yet available online.

For further information about this topic, please contact Akin Gump.