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Cap and Trade System

By: Tiffany Richmond

The Western Climate Initiative (WCI) and its partner jurisdictions released a comprehensive strategy on Tuesday, including a robust cap and trade system, to address climate change in North America. The program’s objective, culminated from two years of work, is to reduce greenhouse gas emissions by 15% below 2005 levels by 2020.

The program includes:

  • A market-based approach that caps greenhouse gas emissions;
  • Encouraging reductions throughout the economy, including offset certificates;
  • Expanding energy efficiency programs;
  • Encouraging additional renewable energy sources;
  • Vehicle emission standards, fuel standards and incentives in the transportation industry;
  • Establishing performance benchmarks for high –emitting industries; and
  • Identifying best practices programs for new jobs in the clean energy economy.

The WCI’s jurisdiction partners backing the program include Ontario, Quebec and British Columbia in Canada, and California and New Mexico in the United States. The other 6 members have not committed to the program.

How The WCI Cap And Trade Program Will Work

The cap and trade program will be composed of the individual jurisdictions’ cap and trade programs implemented through state and provincial regulations. Each jurisdiction will issue emission allowances to entities to meet the jurisdiction’s specific emissions goal. Emission allowances are the maximum emitted emissions that entities can produce. The total number of available allowances serves as the cap on emissions and can be bought or sold (traded).

The WCI’s cap and trade program includes rigorous emission reporting requirements to support accurate and timely measurement and recording of GHG emissions. The WCI reporting requirements in the United States will be harmonized with the EPA Mandatory Reporting Rules for GHG emissions. In Canada the WCI is currently developing a similar version of this reporting requirement. Under the program emitters will have to report their emissions and submit sufficient emission allowances and offset certificates (achieved when a reduction or removal of GHG emissions is obtained) annually.

Each jurisdiction will have an allowance budget, the total emissions emitted maximum in each jurisdiction, with each year gradually reducing to the 2020 emission target.

At least once each three years, entities are required to turn into the state or provide one emission allowance for each metric ton of carbon dioxide equivalent emissions they emit and report. Entities that reduce their emissions below the number of allowances can hold them for later use or sell their excess. The WCI is reviewing using an auction setting to sell excess emissions. Recommendations for the design of the auction include a sealed bid, single round, uniformed price auction, a reserve price auction, allowances from future compliance periods to be sold concurrently, allowances to be sold in lot size of 1,000, and open auction to anyone who meets pre-qualified financial assurance requirements.

With two years until the planned launch of the program, the WCI recognizes that variations in jurisdictional authority, regulatory procedures, and administrative requirements will result in different approaches for implementation. The program also recognizes that future conditions, such as technology cost increases, weather instability and disruption in electricity supply, could lead to higher than expected program costs.

The WCI announced that it will continue to address program design and take the necessary steps to make regional trading operational.

During a recent conference, Energy Advantage presented on the topic of holistic carbon management and spoke to five steps organizations should take to prepare for carbon regulations. With this recent announcement from the WCI it’s evident that the industry is moving towards a regulated reporting system and it’s imperative to start preparing today.

Click here to read the summary of this presentation on how to prepare for carbon reporting regulations today.

1. “Western Climate Initiative”. WCI Partners Release Their Comprehensive Strategy to Address Climate Change and Spur a Clean-Energy Economy. Western Climate Initiative, 28 July, 2010.
2. “Western Climate Initiative”. Design Summary and Documentation Section of the Design for the WCI Regional Program. Western Climate Initiative, 28 July, 2010.
3. “David Ebner”. Biggest Provinces Push Plan to Cap Emissions. The Global and Mail, 27 July, 2010.


Tiffany Richmond is an enthusiastic marketing guru and is responsible for online marketing strategies at Energy Advantage Inc.

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