The Western Climate Initative just released an “allocation” recommendation for its cap and trade program, which (together with complementary policies) aims to reduce the region’s emissions 15% below 2005 levels by 2020. (“Allocation” refers to the method of distributing carbon permits, whether for free or by auction.) In case folks are interested in the highlights, I’ve selected key passages from the document:
“Each Partner will auction a minimum percentage between 25% and 75% of its allowance budget through a coordinated regional auction process by which each Partner will auction allowances throughout the WCI region and receive the proceeds of the auction.”
“The minimum percentage of allowances to be auctioned should be increased over time, potentially to 100%. Even before such an increase, each Partner will have discretion to auction a greater portion of its allowances at the program outset or gradually over time as it sees fit.”
“Purchasers and covered entities will be allowed to bank allowances without restrictions on the amount of allowances that may be banked or for how long.”
“Borrowing of allowances from future compliance periods will not be allowed.”
“The compliance periods will be three years long.”
“…allowances will be issued by each Partner rather than issued by a regional organization.”
“Each Partner initially will have flexibility to issue, beyond the minimum percentage auction amount discussed below and subject to the sector-specific assessments discussed below, its remaining allowances as it sees fit, including (i) auctioning more than the minimum amount of allowances; (ii) issuing some or all of the remaining allowances for free; (iii) holding some or all of the remaining allowances within a compliance period; and/or (iv) retiring some or all of the remaining allowances.”
So that’s it, basically. (Though if you follow this stuff closely, there’s other stuff that’s worth reading too — including ways to assess economic dislocations for certain sectors and ensure fairness between jurisdictions.)
I should also mention that the reporting recommendations are out too. Offsets recommendations are supposed to be released today too, but they’re not up on the web yet. Okay, here they are.
I’ll have some commentary later.
p.s. In many cases, free allocation can have big consequences for windfall profits. For an explanation of how this work, see our handy little primer on the subject.
Morgan
I feel a bit relieved to read that the auction floor will be no less than 25% and that the WCI will encourage auction increases over time regardless of the starting ratio. So, we have another month or so to argue for more auctioning in the subcommittee recommendations. (be the turtle with stamina)I’m not sure what to think about the provision allowing Partners to adjust their auction percentage as they “see fit”. While more auctioned permits across the whole system is something that citizens, government and advocacy organizations would likely be supporting, this also seems to me like an invitation for political battles with outsiders. Covered entities needing to buy allowances will be arguing against more auctioning in their own jurisdiction (because they want them issued for free) but simultaneously arguing in support of more auctioning in other jurisdictions. As a general principle, allowing certain market features to function across the region with other features working only more locally would seem to allow some parties to take advantage where others cannot. “Reductions achieved by the cap plus reductions from uncapped sources resulting from complementary measures should achieve the WCI regional goal of a 15% reduction below 2005 levels by 2020″This suggests to me that, in, say, the case of Transportation, all reductions from transportation emissions can be counted toward the WCI goal (not the cap) of 15% below 2005 by 2020. Even though the cap schedule through 2020 is to be fixed from the outset, language is included that allows room for adjustments. So, reductions or lack of reductions in unregulated sectors can be used as an argument to ratchet down, or not, the regional cap. This all leads me to ask, how can the WCI establish and manage a cap schedule without including transportation?
Eric de Place
Excellent question, Morgan. If your interpretation is right (and I think it is) WCI is either going to have to adjust the cap and down to align it with the overall goal, given the reductions from complementary policies in uncapped sectors. Or else—a possibly worse scenario—they’ll just estimate what they think they’ll get from the complementary policies, then set a cap in accordance hoping that the complementary policies play out like they hope.You also make me think that I worded by original post poorly. I’m making some changes above to make it clearer. Thanks.