Yesterday the WCI announced its design recommendations.
Update 9/26: WorldChanging has another take on the WCI here.
I haven’t read the whole thing, but here’s my initial impression based on the executive summary:
Scope
Major gases, including CO2, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.
| What? | In scope? | How/where? |
| Large Industrial & Commercial, >25,000 MTCO2eq/yr | ||
|
Combustion Emissions |
Yes | Point of emission |
|
Process Emissions |
Yes | Point of emission |
| Electricity | Yes | “First Jurisdictional Deliverer” – includes power generated outside WCI |
| Small Industrial, Commercial, Residential | Second Compliance Period (2015-2017) | Upstream (“where fuels enter commerce in the WCI Partner jurisdictions, generally at a distributor. The precise point is TBD and may vary by jurisdiction”) |
| Transportation | ||
|
Gasoline & Diesel |
Second Compliance Period (2015-2017) | Upstream (“where fuels enter commerce in the WCI Partner jurisdictions, generally at a terminal rack, final blender, or distributor. The precise point is TBD and may vary by jurisdiction”) |
|
Biofuel combustion |
No | |
| Biofuel & fossil fuel upstream | To be determined | ? |
| Biomass combustion | No, if determined to be carbon neutral | |
| Agriculture & Forestry | No | |
(See an earlier Midwestern Accord matrix here.)
Mechanism
The principal mechanism is cap & trade. However, the WCI recognizes a role for other policies that might help achieve reduction targets and provide other benefits. I find some statements about those to be confusing or ambiguous:
1.2.6 … jurisdictions recommend covering combustion … with the expectation that the individual … jurisdictions will:
- Mitigate the economic impact on consumers
- Implement other policies that will reduce GHG emissions from the transportation sector …
- Address any issues associated with the point of regulation and its implementation.
Does mitigating the impact on consumers mean shielding them from the price signal? I’ve seen several proposals for recycling permit auction revenue to provide consumer rate relief, which would have that effect. Will emissions reductions from other policies be creditable toward the cap? (Presumably yes.) Large companies are going to love having variations in the point of regulation across states. Not.
5.2.1. … jurisdictions agree that individual jurisdictions may use [a carbon tax and other fiscal measures] that contribute to achieving overall comparable GHG emission reductions and internalize the price of carbon as expected through the regional cap-and-trade program for transportation and residential/commercial fuels.
This is apparently targeted at integration of the BC carbon tax referred to in 5.2.2. But what does it mean, really? Time for a trip into the details of the report, I guess.
Allowances
The aggregate regional cap will be set in three 3-yr compliance periods: 2012-2014, 2015-2017, and 2018-2020. It will be a ballistic trajectory, starting in 2012 (2015 for transport and small sources) at estimated actual emissions and declining in a straight line to the WCI goal (15% below 2005 levels in 2020; about a 33% cut from 2020 business-as-usual). No ongoing adjustments will be made, except as needed to account for changes in scope and the like. Any adjustments will be made in advance of compliance periods (and three years in advance of post-2020 periods). That means there’s basically no flexibility for responding to business cycles, fuel trends, or other contingencies, so either one accepts price volatility or seeks other flexibility mechanisms.
Allowances will be apportioned among partners (mostly states) according to individual partner goals. The initial targets, like the aggregate cap, are set at estimated actual emissions. This allocation of property rights would seem to penalize states like California that are already comparatively carbon-efficient. There’s an obscure correction process for developments between 2001 and 2005. Partners may issue “Early Reduction Allowances” for measures taken between 2008 and 2012; those allowances will be distributed in 2012, after a joint quality review.
Partner jurisdictions will distribute allowances as they see fit, subject to a few constraints.
- At least 10% of allowances are to be auctioned in the first compliance period, rising to 25% by 2020, with an aspiration of up to 100%.
- The first 5% of allowances auctioned will have a reserve price, in order to prevent “hot air”
- A portion of allowances, or proceeds from auctioning allowances, will be set aside for energy efficiency incentives, R&D, sequestration and reductions in uncapped sectors, and adaptation to climate impacts.
- A portion may be used to mitigate impacts on consumers, jobs, communities, industries, etc.
- The WCI reserves the right to require standardization of treatment where differential allowance distribution might create competitive issues
The last point seems important, if allowances are not to be used as a lever for attracting business away from partners.
Banking, Borrowing, Offsets, Safety Valves
Banking is unlimited, but borrowing is not permitted.
Offsets are included, limited to no more than 49% of 2012 to 2020 emissions reductions. That puts the potential offsets market in 2020 at up to 7.5% of 2005 emissions – roughly 70 million metric tons CO2eq. What projects are allowable remains to be determined, but agriculture, forestry, and waste management are noted as priorities for consideration. Notably, efficiency projects are not on the list (though most would likely fall under the cap, and thus be ineligible anyway).
Evidently there will not be geographic limits on offsets, other than a quality check: “non-WCI allowances must meet the rigorous criteria established by the WCI Partner jurisdictions.” WCI partners may approve projects throughout the US, Canada, and Mexico, but not in Annex 1 countries for projects that would fall under the WCI cap, were they within its borders. CDM credits will be allowed, but possibly subject to additional quality checks. However, WCI encourages “development of offset-projects located inside WCI jurisdictions … in order to capture collateral benefits….” Offsets will be fully fungible within the WCI, and WCI won’t regulate outgoing sales of offsets.
I can’t find any mention of a safety valve (though the text of the report is not searchable), so that means the WCI is counting on regional and GHG diversity, banking, 3-yr compliance periods, and offsets to mitigate price volatility. My guess is that offsets will wind up doing most of the heavy lifting. (A note on the Energy2020 analysis, page 60 of the recommendations, seems to confirm that).