A design to curb greenhouse gases

The Western Climate Initiative makes public a draft design of proposed cap & trade system

Photo by Flickr/SorbyRock

The Western Climate Initiative released on Wednesday the draft design of a proposed regional cap-and-trade program to curb greenhouse gas emissions.

The initial cap-and-trade goal of the WCI, a partnership of seven western states including New Mexico and four Canadian provinces, is to cut aggregate greenhouse gas emissions by 2020 to amounts 15 percent lower than 2005 levels. The program would continue beyond 2020, with new targets set three years in advance.

The idea behind this proposal is to set a cap on the emission of greenhouse gasses, primarily carbon dioxide, but also including methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. The cap would be gradually lowered each year, until desired greenhouse gas emission levels are reached. 

Under the proposed plan, the cap would begin in 2012. The system would allow businesses to buy emission allowances from other companies in order to emit more greenhouse gas pollutants than allowed under the cap. In this way, it encourages the formation of a market in emissions allowances. It would be a regional system, so companies in New Mexico could purchase allowances from other companies located in participating states or provinces.

This would be the second regional cap and trade system in the United States geared toward reducing greenhouse gas emissions. The first was the Regional Greenhouse Gas Initiative formed by 10 northeast and mid-Atlantic states that specifically regulates power plants. The WCI initiative would have a greater scope, though, with the draft design targeting electricity generation; industrial processes, including oil and gas production; and industrial and commercial combustion. Transportation fuel combustion would be phased in, as would residential, commercial and industrial fuel combustion.

The design incorporates an “offsets” system that allows industries that aren’t regulated by the cap-and-trade program, such as agriculture or forest products, to participate in the allowance market, with the goal of reducing compliance costs. Sandra Ely, Energy and Environment Policy Coordinator at the New Mexico Environment Department, gave an example of how offsets would work to the Independent:

Take for instance a dairyman who isn’t in the program because dairy isn’t regulated under the cap-and-trade system. He could voluntarily implement methods to reduce his emissions of methane, which is a greenhouse gas. He could then take emission allowances for his reduction of methane and sell them on the market. This would encourage more emission reductions overall plus reduce the price of carbon in the market because it might be cheaper for him to get those reductions, whereas other industries might have higher costs. By bringing down the price of carbon within the market, we make compliance with the regulations less expensive overall. 

Ely said that there are still a number of issues to work out, including how allowance quantities are allocated per state or province. “Think of it as one big pie of greenhouse gas emissions allowed under a regional cap, she said, that gets divvied up between the participating jurisdictions. How that pie gets divided still needs to be determined.”

Once each state has been apportioned it’s share, it then is allowed to determine how to allocate them within its jurisdiction.  Because allowances will be bought and sold across the region, it’s also important to have equivalent reporting requirements throughout the region. Ely said New Mexico is ahead of the curve in this regard, having started its own emissions reporting program this year with reports due in 2009 from the private sector. A regional reporting system still needs to be worked out.

Another significant area still being determined is whether or not allowances would be distributed for free to companies or whether they would be auctioned off by the jurisdiction. Ely said there’s a big debate about this:

If we freely distribute the allowances, industry may make windfall profits. We’re talking potentially about a lot of money. The other side of the argument is that meeting the cap will require some industries, such as electric utilities, to use all of their allowances. This issue is one that still needs to be ironed out, but there will most likely be some kind of combination of public auction and free distribution. One beneficial outcome of a public auction is that it would generate public revenue that can be used for further research and action to fight global warming.

For an idea of how New Mexico might be affected, a 2006 report by the Center for Climate Strategies shows the amount of greenhouse gas emissions in the state, both in  total amounts and by sector of the economy.

Public comments on the proposal can be made in person at a New Mexico Environment Department meeting on Friday, August 1. The meeting will be from 1-4pm in the Rio Grande Room of the Tony Anaya Building, which is at 2550 Cerrillos Road. For more information, you can e-mail Sandra Ely at sandra.ely@state.nm.us. Public comment can also be made in writing by August 13 through the Western Climate Initiative website.

The group plans to finalize the design of the program by mid-September.

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