On Tuesday, September 23, the Western Climate Initiative (WCI) partners, including seven western states and four Canadian provinces, announced their proposed design of a regional market-based cap-and-trade program.  The WCI partners are recommending a multi-sector program to reduce greenhouse gas (GHG) emissions to 15% below 2005 levels by 2020.

Under the current proposal, the WCI would initially regulate emissions from electricity generation and large industrial and commercial facilities that emit more than 25,000 metric tons of GHGs.  The scope would expand in 2015 to include smaller facilities and transportation fuels.

Each WCI partner will have an emission allowance budget, consistent with its jurisdiction-specific emissions goal for 2020, and will have flexibility to decide how best to allocate its allowance budget.  The WCI design calls for a minimum auction level of 10% at the start of the program, increasing to at least 25% by 2020.

Notably, in order to allow flexibility in how and when reductions are made, the proposed program permits the use of offsets to achieve up to 49 percent of the total emission reductions.  This means that actual, program-wide emission reductions would only need to total just over 7.5% by 2020, as regulated facilities will be able to purchase carbon offset credits to account for nearly half the targeted reductions.  This provision is a boon for carbon offset developers, as it ensures a robust demand for credits, which are often less expensive than making infrastructure or process changes to reduce GHG emissions at a facility.

Over the next couple months, the WCI partners will prepare a detailed work plan to guide the next phase of the WCI.  The timeline agreed to by the partners is that each will begin measuring emissions in 2010 (to be reported in 2011), and the first phase of the cap-and-trade program will begin on January 1, 2012, with a three-year compliance period.

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