The Western Climate Initative just released an “allocation” recommendation for its cap and trade program, which (together with complementary policies) aims to reduce the region’s emissions 15% below 2005 levels by 2020. (“Allocation” refers to the method of distributing carbon permits, whether for free or by auction.) In case folks are interested in the highlights, I’ve selected key passages from the document:
“Each Partner will auction a minimum percentage between 25% and 75% of its allowance budget through a coordinated regional auction process by which each Partner will auction allowances throughout the WCI region and receive the proceeds of the auction.”
“The minimum percentage of allowances to be auctioned should be increased over time, potentially to 100%. Even before such an increase, each Partner will have discretion to auction a greater portion of its allowances at the program outset or gradually over time as it sees fit.”
“Purchasers and covered entities will be allowed to bank allowances without restrictions on the amount of allowances that may be banked or for how long.”
“Borrowing of allowances from future compliance periods will not be allowed.”
“The compliance periods will be three years long.”
“…allowances will be issued by each Partner rather than issued by a regional organization.”
“Each Partner initially will have flexibility to issue, beyond the minimum percentage auction amount discussed below and subject to the sector-specific assessments discussed below, its remaining allowances as it sees fit, including (i) auctioning more than the minimum amount of allowances; (ii) issuing some or all of the remaining allowances for free; (iii) holding some or all of the remaining allowances within a compliance period; and/or (iv) retiring some or all of the remaining allowances.”
So that’s it, basically. (Though if you follow this stuff closely, there’s other stuff that’s worth reading too — including ways to assess economic dislocations for certain sectors and ensure fairness between jurisdictions.)
I’ll have some commentary later.
p.s. In many cases, free allocation can have big consequences for windfall profits. For an explanation of how this work, see our handy little primer on the subject.