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WCI'S GHG CAP AND TRADE -

PROMISES OF CLEANTECH,
ENERGY SECURITY AND JOBS
CREATION
Western Climate Initiative has recently published its comprehensive strategy to
address climate change and spur a clean energy economy. The stated targets
include not only greenhouse gas (GHG) emissions reduction, but also clean
technologies development, green jobs creation, energy security, betterment of
public health, and significant cost savings.

The primary target of the WCI strategy is to reduce regional GHG emissions to 15
per cent below 2005 levels by 2020. This strategy is based on the Implementation of
regional GHG cap-and-trade programs form the basis od the target and the strategy.
The cap and trade programs are expected to be flexible, market-based, and
economy-wide. Currently the WCI jurisdictions currently include seven US states of
Arizona, California, Montana, New Mexico, Oregon, Utah and Washington, and four
Canadian provinces of British Columbia, Manitoba, Ontario and Québec.

WCI's cap and trade program, when it gets implemented in 2012, will apply to
utilities and large industrial sectors. The regime will expand in 2015 to include
transportation, commercial and residential fuels. The WCI program targets to
encompass nearly 90 per cent of economy-wide emissions, making it one of the
most comprehensive carbon-reduction strategies globally, second only to the EU-
ETS, which is pan-European.

Having found it difficult to centrally plan and implement programs, WCI's strategy
now states a broad framework under which individual provinces and states will
enact their own cap-and-trade legislation. Each jurisdiction has the liberty to adopt
its own emissions allowance budget and determine how to allocate budgeted
allowances to emitters — either through allocations, direct sales or auctions. This
flexibility allows each partner to tailor its own cap-and-trade to account for its state-
specific mix of emissions sources and local economic realities. The scope of trading
is however, across the WCI region Trading of allowances among regulated entities
and third parties is permitted throughout the WCI region. This will put pressure on
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the compliance costs by providing flexibility in format, location and timing of the
GHG emissions reductions.

Offset certificates are expected to be a part of this program in attempts to reduce

compliance costs. These offset certificates are measurable GHG reductions in areas
of the economy that are not covered by the cap-and-trade program or any specific
policy. Recommended offset criteria and project location in Canada, the US or
Mexico would allow a project to qualify for offset certificates. To ensure that the
emissions reductions result from change within regulated industries (emission
intensive), the use of offsets is recommended to be restricted to 49 per cent of
aggregate emissions reductions.

The WCI partners are yet to develop the detailed individual cap-and-trade systems,
the opportunities (or burdens) the WCI regime will provide to specific regulated
entities remains to be seen. Similarly, the method of distribution of emissions
allowances - either via auction, direct sales, or allocations or by a combination of
these methods - is yet to be developed.