WCI Proposal Rewards Foot Draggers On Reducing Carbon Emissions
One unfortunate aspect of the Western Climate Initiative (WCI) proposal for a greenhouse gas (GHG) cap-and-trade system is that it has failed to protect states that have been "early actors" in reducing GHGs. This is a consequence of the baseline chosen for allocating allowances to each jurisdiction. Ultimately, the WCI based the allowance budget on emission levels as of January 1, 2008.
This unfairly penalizes states like Oregon that achieved significant reductions prior to 2008 with actions such as the Business Energy Tax Credit (BETC), while rewarding states that have done nothing and consequently have lots of low-hanging fruit available to reduce emissions going forward. These same fruit are no longer available to Oregon and other early actors, which will have to find harder, more expensive methods to achieve reductions.
The WCI program also unfairly penalizes businesses that will be subject to cap-and-trade in early actor jurisdictions like Oregon. For example, Oregon businesses have already funded the BETC and spent money to reduce emissions, resulting in a relatively low number of allowances credited to those businesses based on the January 1, 2008 baseline. In contrast, emitters in foot-dragging jurisdictions will have lots of allowances because they did not previously reduce their emissions, and once they implement relatively cheap emissions reductions measures, they will have lots of extra allowances to sell. The Oregon businesses that then choose to buy those allowances rather than implement comparatively expensive mitigation measures will end up funding emissions reductions measures in other states.
The WCI is an admirable effort to achieve a laudable goal in response to the disappointing vacuum of federal action on climate change. Nonetheless, the proposal should be revised to bring more fairness to the relationship between early actors and foot draggers. Otherwise, the foot draggers will be rewarded, which will discourage early action against GHG emissions by other emitters who are not yet slated to be subject to cap-and-trade, but someday will be. Instead, those emitters will adopt a "use it or lose it" philosophy and seek to maximize emissions until the next baseline date and thereby increase the number of allowances that they ultimately receive.
Post authored by David J. Petersen, partner practicing in the Sustainability and Real Estate and Land Use Groups.
