Janice Adair Chair, Western Climate Initiative Washington Department of Ecology 300 Desmond Drive SE Lacey, WA 98503 Dear Ms. Adair, Climate Solutions appreciates the opportunity to comment on the Western Climate Initiative’s “Draft Elements of the Cap-and-Trade Program” released on May 15, 2008; we offer comments on each of the five subcommittee’s recommendations below. We look forward to continue working with the WCI as it develops the final design recommendations over the next several months. Reporting Scope of reporting We support the WCI’s recommendation that reporting requirements should apply to both capped and non-capped sectors. While we feel strongly that transportation fuels should be included in the initial cap, we would like to stress the importance of requiring reporting from all liquid transportation fuels in the 2008 model rule. In addition to liquid transportation fuels, emissions associated with oil and natural gas extraction should be included in the initial reporting period. Verification We continue to believe that third party verification, or an equally rigorous verification method, must be required. It would be helpful for us if the WCI would provide a list of verification methods outside of third party verification that it feels will ensure quality assurance. As third party verification will help to enhance public trust and support of the reporting program, as well as the entire cap and trade program, we continue to urge the WCI to adopt a third party verification requirement. Scope Liquid transportation fuels must be included in the initial cap and trade program. Not including the single largest source of emissions in the region will severely jeopardize the environmental integrity of the program and will lead to economically inefficient reductions, unduly burdening other sectors and sources that are included under the cap. Climate Solutions sees no technical barriers to including transportation fuels and urges the WCI to announce its intention to cover
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liquid transportation fuels in the initial cap. Every major piece of federal legislation is looking to cover emissions from the transportation sector in a cap and trade program; the WCI should not have a more narrow scope of coverage than national programs. The WCI should support policies in the transportation sector that complement the cap, not substitute for it. The cap on transportation fuels will provide a firm backstop on emissions from the sector, while demand-side reduction policies will help to meet the cap and reduce the overall cost of the program. In addition to including transportation fuels in the cap, all WCI jurisdictions should adopt policies supporting cleaner cars, cleaner fuels and vehicle miles traveled reductions. All WCI partners must commit to the California clean car standards; no partner should be allowed to opt out. Threshold The threshold for regulation should be no more than 10,000 ton of carbon dioxide equivalent per year per entity. The compliance threshold should be lower where appropriate, and especially where a significant share of emissions is found to be outside of the cap in any state, province or sector. Program Expansion We appreciate the WCI’s recognition on page nine that “sources that are considered as viable offset projects at the start of the cap-and-trade program may become part of the program at a future date.” The WCI should announce its clear intention to include all sectors under the cap and trade program as soon as practical to remove potential political barriers that will arise when certain sectors are transitioned from offset providers to regulated entities. Electricity Climate Solutions supports the WCI’s generator/first jurisdictional delivered approach. However, we feel that to prevent leakage there should be no phase-in of the first jurisdictional deliverer. In addition, we suggest that all WCI jurisdictions adopt a greenhouse gas performance standard similar to Washington SB 6001, to reduce the potential of leakage. Allocations Climate Solutions supports 100% auction as the preferred distribution method of allowances under a cap and trade program. Auctioning, as opposed to giving away allowances for free, will protect consumers by ensuring that the value generated by limiting global warming pollution goes to people and not polluters. The European experience with emission trading has shown that regulated entities will pass along the value of an allowance, the opportunity cost of not selling it, whenever possible, regardless of how it was acquired. Auctions are is the simplest and most transparent way to distribute allowances. Auctioning further rewards early action and easily allows for new entrants to an industry.
Main Office: 219 Legion Way SW, Suite 201. Olympia, WA 98501 360-352-1763 fax: 360-943-4977 Seattle Office: 1402 Third Ave, Suite 1305 Seattle, WA 98101 206-443-9570 fax: 206-624-2022 info@climatesolutions.org www.climatesolutions.org
Auctioning creates revenue that should be returned to the people either directly (as tax breaks or dividends), or as public investments to speed and ease the transition to a clean-energy economy. Auctioning will make climate policy fair by providing resources to protect lower income households who are least responsible for climate change yet will suffer its worst impacts. Our sky is a public trust that belongs to us all. The Western Climate Initiative must learn from the European trading experience and should call for 100% auction in its initial cap and trade program. Cost containment Climate Solutions supports a variety of cost containment mechanisms, including banking, a limited amount of offsets, multi-year compliance periods and increased flexibility from the broadest scope of coverage possible in the cap and trade program. The WCI must remember that cap and trade itself is designed to be a cost containment mechanism allowing for a program that do not just result in emissions reductions but realizes those reductions at the lowest overall cost to the economy. A so-called “safety valve” is a loophole that breaks the cap, not a cost containment measure. The WCI partners have stated many times their recognition of the threat posed by climate change and the need to reduce emissions to a science-based level. To reach this goal, the WCI cap and trade program must be designed without cap-busting loopholes. Offsets Quantitative limits Wherever possible, emissions reductions should come from direct regulations. In a cap and trade program, the vast majority of emissions reductions should come from capped sectors; where offsets are allowed, the WCI should clearly state its intention to moved those emissions sources under the cap as soon as practical. In the absence of such a clear statement, political barriers to expand the cap will arise as sectors that have been asked to voluntarily participate in a program where they are paid to reduce emissions are transitioned into a sector regulated under the cap. The WCI should set strict quantitative limits on the amount of offset credits that can be used toward compliance with the cap and trade program. These limits should ensure that not more than 10% of emissions reductions are met by offsets. Such limits on offsets will: preserve the integrity of the firm cap; drive incentives towards technological innovation in capped sectors; ensure co-benefits of the emissions cap like cleaner air are experienced by communities currently suffering from the health effects of fossil fuel dependence.
Geographic limits
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To increase the environmental integrity of the offsets program, we recommend that the WCI allow offsets only from WCI partner jurisdictions so that the WCI partners can ensure accurate monitoring of data and enforcement. Limiting offsets to the WCI-region will also guarantee that any co-benefits associated with offset projects occur in WCI jurisdictions. In particular, we recommend that the WCI not allow certified emissions reductions (CERs) from the Clean Development Mechanism (CDM) at this time. We very much support the objective of the CDM and have high hopes for effective reform of the program to ensure that emissions reductions are truly additional to what would have happened in the absence of offset credits and that CDM projects contribute to sustainable development in non-Annex I countries. However, it is not the responsibility of the WCI to reform the CDM nor is it the WCI’s role to determine whether or not the CDM can currently be considered to be an effective and equitable system for reducing emissions. The CDM Executive Board is currently undertaking a large effort to strengthen the CDM; the WCI should wait for the outcome of their work to ensure the integrity of the CDM before it allows CDM credits into the WCI trading system. The WCI should not include CDM credits at the beginning of the WCI trading program. Project types To decrease the administrative burden and increase the environmental integrity of the program, the WCI should announce an initial set of approved offset project types that will be allowed in the WCI program. These initial project types should be small in number and should be chosen to represent those projects that offer the best chance for reliable and measurable emissions reductions. Offset projects should be subject to discounting where appropriate to account for uncertainties and the inherent qualitative difference between carbon stored as biomass and avoided carbon emissions.
Main Office: 219 Legion Way SW, Suite 201. Olympia, WA 98501 360-352-1763 fax: 360-943-4977 Seattle Office: 1402 Third Ave, Suite 1305 Seattle, WA 98101 206-443-9570 fax: 206-624-2022 info@climatesolutions.org www.climatesolutions.org