Toronto: On July 18 the Ontario government announced that it was joining the Western Climate Initiative (WCI), a coalition established in 2007, including provinces and US states working together to design a regional greenhouse gas (GHG) emission reduction program. The WCI has set a regional goal of reducing GHG emissions by 15 percent below 2005 levels by 2020 and features a cap-and-trade approach.
The coalition currently comprises the provinces of British Columbia, Manitoba, Ontario, Quebec and the states Arizona, California, Montana, New Mexico, Oregon, Utah and Washington. With Ontario’s participation, the initiative directorate says, WCI now represents approximately 73% of Canada’s economy and 20% of America’s economy. Ontario had been participating as an observer since August 2007. Saskatchewan is also observing, as well as several other US and Mexican states.
The initiative has set four pre-conditions for becoming a partner:
• Adoption of a GHG reduction goal;
• Development of a multi-sector plan to achieve the goal;
• A commitment to adopt the California standards for passenger vehicles;
• Participation in The Climate Registry.
Ontario has not satisfied the third criteria of signing on to California’s plan to reduce tail-pipe emissions for passenger vehicles, but it is being accepted into the WCI based on its commitment to phase out coal-fired generation.
“They’ll be paying a price for putting carbon in the atmosphere; that is the idea,” said B.C. Environment Minister Barry Penner, whose province was the first to join the WCI. “We believe there are economic and environmental opportunities that can come from a cap-and-trade system.” Environmental groups seem to be positive on WCI: “This rewards efficiency,” said Nicholas Heap, a climate-change analyst with the David Suzuki Foundation. “The people that are using less fuel and emitting less greenhouse gases are going to have lower costs.”
The WCI’s program would begin in 2012, the year that the Kyoto Protocol’s first commitment expires. Reporting actually starts in 2010. It would set annual caps (with 3-year compliance periods) from the beginning of the program in 2012 through 2020. The annual caps will be set in advance of the program start in 2012 so that the reductions required in each 3-year compliance period through 2020 are predictable. The cap will decline over time. Each three-year cap would be set as follows:
2012: The initial cap will be set at the best estimate of aggregated expected actual emissions for those sources covered in the initial year of the program (i.e., 2012). The estimate of expected actual emissions in 2012 will be developed using the best available data (including any available mandatory reporting data) and by accounting for expected changes in emissions by 2012. Population growth, economic growth, voluntary and mandatory emission reductions, and other factors will be considered. The 2012 cap will also recognize actions to reduce greenhouse gas emissions before the start of the program.
2015: The regional cap in 2015 will be set by adding the best estimate of expected actual emissions in 2015 from transportation fuels and residential, commercial, and industrial fuels (and any other sectors or sources that may be added to the program for the first time in 2015) to the emissions trajectory for the sources first included in the program in 2012.
2020: The regional cap for 2020 will be set so that reductions achieved by the cap plus reductions from other greenhouse gas reduction policies will achieve the WCI regional 2020 goal.
Under the program there would be an aggregate regional cap, equal to the sum of the partner state/province allowance budgets. Annual partner allowance budgets for each year through 2020 will be set prior to the start of the program in 2012. Each partner would get its own allowance budget, to distribute as it sees fit within its own jurisdiction. There would be some agreed-on minimum percentage for distribution to energy efficiency and the like. All the partner’s allowances would be retired by the end of the compliance period.
The program will cover the six greenhouse gases listed in the Kyoto Protocol: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulphur hexafluoride. Electricity generating sources with 25,000 metric tons of carbon dioxide equivalents (CO2e) or more annually would be covered, including emissions from electricity imported into WCI jurisdictions from non-WCI jurisdictions, as well as other industrial and commercial facilities, and also combustion from transportation. Some banking is allowed, and reporting is required for sources emitting 10,000 metric tonnes or more.
The WCI imposes obligations on “first jurisdictional deliverers” of electricity, to prevent non-WCI emitters from avoiding coverage in a WCI jurisdiction. For example, an entity generating electricity will be subject to regulation, and can not escape such coverage by breaking itself into separate entities each of which delivers electricity with emissions below the threshold. Similarly, consumers in one WCI jurisdiction can not avoid their emission responsibilities by importing power from high-emission sources located in another jurisdiction.
The draft program allows individual jurisdictions to utilize comparable fiscal measures instead of cap-and-trade, such as British Columbia’s carbon tax, to address transportation fuels and fuel use by residential and commercial sources. By 2012 the draft proposes that partners will determine the mechanism for integrating the cap-and-trade program with the BC carbon tax.
Ontario’s decision to become a partner in the WCI follows on its June 2 announcement of a memorandum of understanding with Quebec to collaborate on a provincial and territorial GHG cap-and-trade initiative. This makes it likely that the WCI will serve as the trading platform for any further developments pursuant to the MOU. Québec became a Partner in the WCI on April 18.
For more information see http://www.westernclimateinitiative.org/.
— Prepared with information adapted from material provided by Lisa DeMarco, MacLeod Dixon LLP.