Oregon Public Broadcasting

A coalition of 11 western states and Canadian provinces Tuesday unveiled the world’s most ambitious market-based framework for reducing greenhouse gases.

The Western Climate Initiative’s carbon cap-and-trade system is set to go into operation in a little over three years. It would regulate greenhouse gas emissions of everything from coal plants to paper mills, and eventually, even cars. The framework is receiving broad support from environmentalists and consumer protection groups.

The state’s leading industrial group is also  pleased. I’m joined this afternoon by OPB reporter, Rob Manning, who’s been digging into the new framework.

Hi, Rob.

Good afternoon.

Beth: First, remind us of who created this framework, and what it’s supposed to do?

Rob: The Western Climate Initiative began with just Oregon, Washington, and California a number of years ago. But it's since grown to include Arizona, Montana, New Mexico, and Utah, as well as British Columbia, Manitoba, Quebec, and Ontario to the north. Staffers and experts hashed out this framework in the hopes of creating a  system to reduce greenhouse gases that was regional and also market-based.

Just a little refresher, a cap and trade system works by capping the overall amount that industries and utilities can emit, and then forcing them either to reduce their pollution, or use permits.

The cap gets lower over time, to reach carbon reduction goals. The idea is that market forces will push utilities and industrial companies - and even the transportation sector, eventually - to reduce carbon emissions, by creating a strong financial incentive to do that.

Beth: So, the Western Climate Initiative  came out with a framework, and from the sound of it, the players who are closest to the action - industrial users, consumer advocates, environmentalists - are all happy.

Rob: Yes, surprisingly, all sides do have reason to be happy. The Association of Oregon Industries has been at the table. And it's optimistic about the plan, for the most part. A consumer advocate I spoke to said that the certainty offered by the plan was good news for utilities and customers.

Now, a few days ago, environmental groups held a conference call with reporters to voice concerns about draft plans they’d been hearing about. But their tone changed today. Jeremiah Baumann with Environment Oregon says he was pleasantly surprised by the new framework:

Jeremiah Baumann: “The bottom line of this program, is that it’s the most significant global warming solutions program in the world. It’s going to be a major reduction in global warming pollution, and an increase in renewable energy. There are a couple of things that still need work. The biggest one is we want to make sure the polluters pay for their permits, and don’t get windfall profits.”

Beth: So where is Baumann going there - it sounds as though he’s not entirely sold.

Rob: He’s talking about the permits, or allowances. Remember, the way cap and trade works is that polluting companies and utilities get a limited number of permits based on how much they pollute. Those can be traded.

Environmentalists contend that giving away something that has a cash value is basically putting money in the pockets of polluting industries and utilities. For that reason, they want those permits auctioned. The current framework requires that at least ten percent of permits be auctioned - so companies and utilities wouldn’t get them all for free. That’s the minimum for membership in the Western Climate Initiative.

But the governor’s office  has already suggested that legislation next session will ask for more than the minimum for Oregon. The Initiative also calls for the number of permits being sold to rise to 25 percent by the year  2020. And here is where industrial users begin to get cold feet. John Ledger is vice president with Association of Oregon Industries.

John Ledger: “An auction point of a minimum of ten percent might be close to being about right, because you have to keep enough in the auction system to that the market so that it remains liquid and fliud. But you don’t want to put the whole thing in an auction system, because that basically pits Oregon businesses against each other for the ability to operate.”

Ledger says Oregon industries would actually prefer a national system that both leading presidential candidates have said they’d implement. How they’d deal with selling permits is hard to say.

Beth: So in the meantime, what does this cap and trade mean for an end user - an electricity customer, or, say, a building contractor who buys concrete from a plant that will be affected by the cap.  What will this mean for them?

Rob: Well there are only a few dozen companies that are affected and again, nothing will change before 2012. There’s general agreement that this will eventually lead to higher prices, but how much, and whether the higher prices will remain high, isn’t clear. Environmentalists argue that essentially putting a price on carbon through the carbon market will drive efficiency into the whole system, and prices may not go up much. But industrial users have emphasized that efficiency and conservation have limits with some products. And that’s just one reason why this highly touted cap-and-trade system is, in their view, only a small part of the solution.

Beth: And we’ll hear more about the Western Climate Initiative after it  comes up with more details later this year.

Rob: Yes, and then next year, when Oregon and Washington lawmakers use this framework as a minimum standard, to write their own bills.

Thanks, Rob.

You’re welcome.