Cap and Trade Rules
Economics and Regional Cap-and-Trade

By Libby Tucker
Green Inc. Blog
February 19, 2009

The Western Climate Initiative establishes the framework for a regional
cap-and-trade system. Not everyone is on board.

The Western Climate Initiative began as an agreement between Western governors
(and a few Canadian provinces) to place a cap on greenhouse gas emissions and
develop a regional market for trading in emissions permits.

The idea was to create a level playing field for businesses in the region by
developing a common set of rules for each state to adhere to, including a list
of six greenhouses gases they agreed to monitor and regulate from power plants
and industrial and commercial facilities.

But business interests are becoming more vocal in questioning the potential
economic impact of the the initiative, and other critics have argued that the
W.C.I. skimps on details, leaving it to each state to implement the W.C.I.
framework for themselves, creating a forest of different programs for measuring
emissions and monitoring compliance.

California was the first state in the group to pass comprehensive, statewide
emissions reduction plans — including a state-level cap-and-trade system that
would later link up the regional scheme, which is planned for 2012.

But as implementation of the program looms some employers there are worrying
about higher taxes — and similar emissions reduction proposals in Oregon,
Washington, New Mexico, Arizona and Utah have also been criticized by
manufacturers, utilities and other energy-intensive businesses, that argue that
utility rates would spike and raise the cost of doing business across the board.

On Wednesday, Management Information Services, a Washington consulting firm,
said the W.C.I. would “impose significant new costs on consumers and retard job
creation in the Western U.S. over the coming decade,” according to The Los
Angeles Times.

Meanwhile, The Albuquerque Journal reports that many businesses in the Southwest
are arguing that states should wait for Congress to adopt a federal
cap-and-trade system.

A similar discussion is unfolding in Oregon — spurred by a Feb. 7 editorial in
The Oregonian newspaper about a recent state Senate hearing on its cap-and-trade

The states no longer need to arm-wrestle the federal government on climate change.

That fact, along with the deepening recession, have radically altered the
parameters of this debate. Thus at Thursday’s hearing, the most convincing
testimony came not from the governor and his staff but from electric utility
representatives. A national cap-and-trade program could work, they said, but a
regional approach would harm Oregon’s economy.

The problem, even some cap-and-trade supporters say, is the Western Climate
Initiative left many of the implementation details to individual states,
creating localized political turmoil as each state’s lawmakers grapple with
competing interests.

“By leaving most of the specifics to each of the individual members, the W.C.I.
framework offers a great deal of flexibility for states and provinces,” said
Jake Weigler, director of RePower Oregon, a coalition of more than 90
organizations, businesses and policy makers advocating for the state’s
cap-and-trade proposal. “At the same time, that means each member must engage in
both an administrative process to design a program and a political one to secure
its adoption.”

Oregon’s proposal doesn’t take up the details of the regional climate initiative
at all. Instead, the largest debate revolves around competing economic studies,
which contribute differing opinions on how a state-based cap-and-trade system
might affect the economy.

The latest study, released Tuesday by economic consultant ECONorthwest and the
University of Oregon’s Climate Leadership Initiative, calculates that a
business-as-usual approach to climate change would cost Oregonians $3.3 billion
a year, or $1,930 per household.

The consultants also produced reports for Washington and New Mexico that show
similar losses in economic output if no climate change mitigation measures are
adopted. A second study by ECONorthwest — paid for by a business coalition and
leaked to The Statesman Journal in January before a final draft was released —
calculates that a cap-and-trade system would lead to long-term job creation — at
least in the long term.

It foresees $3.9 billion in economic output and 33,135 jobs in Oregon by 2020 —
but only after a shift from manufacturing to service jobs and a shorter-term
loss of $273 million in economic output and a loss of 708 jobs.

Meanwhile, a third study, produced in September by the Cascade Policy Institute,
a conservative think tank, argues that Oregon’s economic output would be cut in
half by 2020 as a result of adopting the W.C.I.’s cap-and-trade proposal.

The Oregon legislature is now assembling a working group to sort through the
data and address businesses’ concerns with the proposal before the session
adjourns in June.


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