Western Climate Initiative
The Western Climate Initiative (WCI) is a partnership among seven states and four Canadian provinces that is implementing a regional, economy-wide cap-and-trade system to reduce global warming pollution. The WCI will cap the region's electricity, industrial, and transportation sectors with the goal of reducing the heat-trapping emissions that cause global warming 15 percent below 2005 levels by 2020.
New economic analyses conclude that the region's economy would benefit from investments in global warming solutions. The analyses show that improved energy and fuel efficiency can reduce electric bills and save drivers money at the pump. They also would lead to changes in consumer spending that would help create new jobs.
Regional Analysis (pdf) | California Analysis (pdf)
The WCI recommendations that were released on September 23, 2008 provide a general outline for the regional cap-and-trade program and suggest minimum requirements for participation in the program. Each state and province will have the opportunity to tighten program requirements through legislation or administrative action over the next few years.
The Union of Concerned Scientists has identified two areas where states and provinces may be able to significantly strengthen the program beyond the WCI's minimum recommended standards: auctioning permits—also called allowances—for global warming pollution, and limiting the use of "offsets," which allow a polluter to earn credit for reducing emissions by paying others to reduce their emissions.
The WCI acknowledges the value of auctioning permits to polluters, and in principle the region aspires to reach 100 percent auctioning. In practice, however, the program allows states and provinces to determine how they will distribute allowances beyond a minimum level of auctioning, starting with 10 percent in 2012 and increasing to a minimum of 25 percent by 2020. Conversely, the 10 Northeastern states involved in the Regional Greenhouse Gas Initiative decided to auction nearly or fully 100 percent of their permits. The European Union also is moving toward a 100-percent auction.
Auctioning permits allows states to use the revenue the auctions create on projects that can further reduce pollution and benefit their residents. Conversely, giving the permits away for free could result in windfall profits for polluters.
The WCI also recognizes the value of limiting the use of offsets. The WCI allows offsets to cover no more than half of the program's expected global warming pollution reductions. Specifically, it requires that a majority of reductions occur directly in the region's highly polluting electricity, transportation, and industrial sectors. The WCI permits states and provinces to set even tighter limits on offsets. This is an improvement over the draft recommendations the WCI issued in July.
UCS recommends that states and provinces limit offsets and maximize pollution reduction in the region. Doing so, UCS experts say, would spur more clean technology development and protect public health by reducing conventional smog-forming and toxic air pollutants.
States and provinces should close the offsets loophole. Outsourcing half the effort would undercut the benefits of reducing pollution and make it difficult to achieve the region's long-term climate goals.
The WCI-member states are Arizona, California, Montana, New Mexico, Oregon, Utah and Washington. The member provinces are British Columbia, Manitoba, Ontario and Quebec.
BACKGROUND ON CAP-AND-TRADE SYSTEMS
Under cap-and-trade programs, governments establish a limit or cap on global warming emissions and continually tighten the cap, allowing for fewer emissions over time. Governments then distribute emissions permits, or allowances, that correspond to a specific number of metric tons of global warming pollution. The total number of allowances matches the cap, so they too will decrease over time.
According to a cap-and-trade program, for each ton of global warming emissions they produce, polluters are required to acquire a permit from a government auction or giveaway program. Polluters then trade for permits in a carbon market.
Such a market enables polluters that are able to reduce their emissions relatively cheaply to sell allowances to other polluters that are unable to do so, thereby establishing a market price for carbon. The program creates an incentive for polluting facilities to implement the most cost-effective emissions reduction options and, by putting a price on global warming pollution, encourages investments in new low-carbon technologies.
BENEFITS OF LIMITING THE USE OF OFFSETS
CLEANER AIR: Reducing global warming pollution will help us avoid the worst consequences of climate change, but it also will provide many other environmental benefits. When electric utilities, oil and gas companies, and other industrial sources reduce their global warming emissions, residents of the western states will be exposed to lower levels of conventional smog-forming and toxic air pollutants as well. This improved air quality will in turn lead to better public health, lower healthcare costs, and higher levels of worker productivity and student performance. On the other hand, if the WCI program allows offsets from anywhere in the world—the equivalent of outsourcing emissions reduction projects—these valuable health benefits would be lost.
CLEAN-TECH DEVELOPMENT: A 2004 survey by Environmental Entrepreneurs found that strong state climate policies are one of the main reasons venture capitalists invest in the clean-technology industry. Carefully designed offset limits would help maintain this trend, while overly permissive offset policies would shift emissions reductions from capped sectors to other sectors or geographic areas. Keeping the reductions in the capped industries will create more demand for new clean technology leading to more innovation and development.
FEWER NEW FOSSIL FUEL POWER PLANTS: The broad reach of the cap-and-trade program proposed in the draft plan would limit nearly all fossil-fuel combustion in transportation, electricity generation, and other industrial activities. Carefully designed offset limits would spur technological changes in capped sectors by forcing emissions reductions instead of diverting those reductions to other sectors of the economy or other geographic areas. Unlimited offsets, conversely, could prompt companies to build new highly polluting facilities and buy cheaper offsets instead than cutting their own emissions. This would make the task of reducing global warming pollution far more difficult in the short timeframe we have left to avoid the worst consequences of climate change.
