Canada: Recent Developments with the Western Climate Initiative


The Western Climate Initiative ("WCI"), is a group of U.S. states and Canadian provinces, including Ontario, BC and Québec committed to developing cap and trade policies to further the goal of reducing Greenhouse Gas Emissions ("GHG").

This bulletin summarizes recent key initiatives of the WCI that will be of interest to clients in the electricity and industrial sectors in Canada.

WCI White Paper on Benchmarking Industrial Emissions

On May 13, the WCI issued a draft white paper entitled "Issues and Options for Benchmarking Industrial GHG Emissions". The white paper examines a number of industrial sectors in detail including: aluminum, cement, chemicals, food processing, pulp and paper, steam and steel, and how the benching approach would work with a federal or regional cap-and-trade program. The draft paper is the result of part of Washington State's Governor Gregoire Executive Order 09-05 (2009) directing the Department of Ecology to consult with industry in the development and use of industrial GHG benchmarks to meet the state's emission reduction targets by July 1, 2011. The draft white paper represents phase 1, identifying the key issues and policy options in benchmark development.

Building on the insights gained from the WCI benchmarking symposium from May 19 and stakeholder input, the Washington Department of Ecology will issue a final draft in late June 2010.

WCI Partners Renewable Energy Certificates and Cap-and-Trade Programs

Several states have passed renewable portfolio standards that require electricity load-serving entities to include a minimum amount of renewable electricity in the portfolio of electricity sources used to serve their customers. Most of these programs use Renewable Energy Certificates ("RECs") to track compliance and ensure that no renewable MWhr's are double-counted.

Many states with renewable portfolio standards allow RECs to be sold separately from the generated electricity. The electricity from which RECs have been separated is often referred to as "null" power. In order to prevent double counting of the zero-GHG attribute of renewable electricity in GHG cap-and-trade programs, either the null power or the RECs should carry the zero-GHG attribute. If RECs carry the attribute, they could be bundled with electricity from other sources to negate or reduce the compliance obligation associated with the electricity. Under this approach, WCI Partner jurisdictions would then have to attribute emissions to the null power in order to maintain accurate GHG accounting; otherwise, reported emissions would be lower than actual emissions.

The WCI Partners recommend that RECs have no role in the WCI Partner jurisdictions' mandatory GHG reporting and compliance protocols. Under this approach, the compliance obligation of first jurisdictional deliverers of electricity would be based only on the actual GHG emissions occurring as a result of generating electricity (as described in the Design Recommendations for the WCI Regional Cap-and-Trade Program). First jurisdictional deliverers with a GHG compliance obligation would not be able to use RECs to reduce their compliance obligations, and null power would not have GHG emissions attributed to it.

WCI Markets Committee Releases Report on Allowance and Offset Limits

In its Market Oversight Draft Recommendations, the Markets Committee identified twelve policy decisions, including whether or not to implement "holdings limits" on the number of allowances or offset certificates any entity could control. WCI Partners commissioned a report on this issue to review the history, theory, and use of similar limits in other markets, as well as recommendations on their use in a regional cap-and-trade program.

WCI White Paper on GHG Reducing Complementary Policies

On May 20, WCI officials released its final draft white paper on GHG Reducing Complementary Policies. It discusses why and when policies complementary to a cap-and-trade program are useful, how complementary policies help achieve the WCI's GHG reduction goals, and which policies would affect emissions under the cap and which would affect emissions from sectors and sources outside the cap.

WCI's Complementary Policies Committee will soon begin to conduct an evaluation of the policies reviewed in the white paper, with the aim of identifying key issues and benefits for each. The outcome of this evaluation process will be the formulation of design recommendations to facilitate regional harmonization of policies. The Committee will continue to engage stakeholders in upcoming work and is currently preparing a stakeholder outreach plan. Next steps for the Committee will be to evaluate selected policies based on the following criteria to "help determine whether and how each policy should be harmonized and how each policy will help achieve WCI's emissions reduction goals":

  1. The policy will reduce GHG emissions.
  2. The policy is expected to reduce costs associated with achieving the WCI goals for covered facilities.
  3. Administrative costs are expected to be manageable.
  4. Impacts on low-income communities or small businesses can be mitigated.
  5. Meaningful benefits to harmonizing implementation have been identified.
  6. Identified barriers to harmonizing implementation can be overcome.
  7. The policy addresses a perceived market failure.
  8. An opportunity to achieve collateral benefits (e.g., conserving water) has been identified.
  9. No collateral detriments (e.g., increased use of electricity that results in increased GHG emissions, increased fine particulates or air toxics pollution) have been identified.
  10. The policy does not encourage leakage outside the cap.
  11. The policy has the potential to create or retain clean energy jobs or otherwise transition to a low-carbon economy.

WCI Harmonization of its Reporting Requirements with EPA Rule

Released in late May 2010, this paper contains the WCI's proposal for harmonizing the emissions reductions ("ER") and the EPA rule in U.S. jurisdictions. It takes the form of a markup of the EPA rule showing the changes to the EPA program that are needed to support a cap-and-trade program. The WCI anticipates that WCI jurisdictions in the U.S. will implement the harmonized ERs by adopting a rule that incorporates the EPA rule by reference with the changes shown in the markup. The WCI is also working on the development of amended ERs that are methodologically consistent with the harmonized ERs, but appropriate for use in the Canadian Partner jurisdictions.

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