California, New Mexico, and three Canadian provinces—partners of the Western Climate Initiative (WCI)—last week released a detailed plan for a regional cap-and-trade program to curb greenhouse gases (GHG) starting in January 2012. If the plan reaches fruition, it would be three times larger than a program under way in 10 eastern states.

The “Design for the WCI Regional Program” is the culmination of two years of work by the initiative’s original members. When the group was launched in 2007 it included seven U.S. states and four Canadian provinces. Only California, New Mexico, British Columbia, Ontario, and Quebec are on track to adopt the regulations required to implement the WCI’s plan by 2012. Arizona, Utah, Washington, Oregon, Montana, and Manitoba have delayed participation.

The WCI’s plan seeks to reduce regional GHG emissions to 15% below 2005 levels by 2020. Essentially, the plan will create a market-based system that caps GHG emissions and uses tradable permits to incent development of renewable and lower-polluting energy sources. It will also encourage GHG emissions reductions in industries not covered by the emissions cap, thus reducing energy costs in member territories.

“In the absence of federal action to address climate change, the WCI Partner jurisdictions believe it is important for state and provincial governments to keep moving forward on the transition to a clean-energy economy and continue to lead in demonstrated areas of expertise, including energy innovation, efficiency, and conservation,” the WCI said in a statement.

The outline was released days after U.S. Senate Democrats, in a caucus meeting, decided not to pursue legislation that would seek a cap-and-trade program to fast track an energy bill.

The WCI claims, citing a recently updated economic analysis, that their plan can achieve the regional GHG emissions reduction goal and realize a cost savings of approximately $100 billion by 2020. “The economic analysis underscores that mitigation of GHG emissions and the move to a clean-energy economy is affordable, and can be achieved without negatively impacting the regional economy. This result is consistent with other recent state and federal analyses of climate mitigation programs,” it said.

The WCI regional cap-and-trade program will be composed of the individual jurisdictions’ cap-and-trade programs implemented through state and provincial regulations. Each jurisdiction implementing a cap-and-trade program will issue "emission allowances" to meet its jurisdiction-specific emissions goals. The total number of available allowances serves as the "cap" on emissions. A regional allowance market is created by the jurisdictions accepting one another’s allowances for compliance. The allowances can be sold between and among covered entities as well as by third parties.

“This ‘trading’ of emission allowances keeps costs low because it provides flexibility in how and when reductions are made,” said the WCI. For example, entities that reduce their emissions below the number of allowances they hold can sell their excess allowances or "bank" them for later use. “Selling excess allowances allows entities to recoup some of their emissions reduction costs, while banking allowances will lessen future compliance costs.”

The program also includes emission offsets from sources not covered, and which can be used in limited quantity along with emission allowances to comply with the program. “Allowing entities to turn in allowances in three-year periods provides flexibility as to when emissions reductions are made,” the WCI claims.

The WCI program design recognizes that variations in jurisdictional authority, regulatory procedures, and administrative requirements will result in different approaches to implementation. “While not all WCI partner jurisdictions will be implementing the cap-and-trade program when it begins in January 2012, those expected to move ahead comprise approximately two-thirds of total emissions in the WCI jurisdictions—a critical mass and a robust market for achieving significant GHG emissions reductions,” it said.

Sources: WCI, POWERnews