Six US states leave the Western Climate Initiative

Washington (Platts)--18Nov2011/415 pm EST/2115 GMT

Six states have withdrawn from the Western Climate Initiative, leaving California and four Canadian provinces as the remaining members of the regional greenhouse gas reduction organization, Patrick Cummins, WCI's project manager, said Friday.

Besides California, the remaining WCI members are the Canadian provinces of British Columbia, Manitoba, Ontario and Quebec.

The exit of Arizona, Montana, New Mexico, Oregon, Utah and Washington mostly was expected, as the states were seen as unlikely to implement a cap-and-trade program, observers said.

"News about the departure of the six states comes as no real surprise," said Jeff King, the head of environmental markets at Scotia Capital. "There was little to no hope that they'd get involved in a regional cap-and-trade program given the current political make-up of the states."

WCI was formed in 2007 with the intent of reducing regional GHG emissions to 15% below 2005 levels by 2020. The group identified cap-and-trade as a means of achieving the reductions, beginning a multi-year process of designing a regional system of tradable permits.

But the economic recession that ensued beginning in 2008 ultimately sapped much of the political appetite for cap-and-trade.

Meanwhile, new governors who adamantly objected to a cap-and-trade agenda were elected in Arizona, New Mexico and Utah, while legislatures in Oregon, Washington and Montana failed to advance cap-and-trade bills.

Susan Martinez, who was elected last year as New Mexico's governor, was a vocal opponent of the cap-and-trade policy that her predecessor, Bill Richardson, supported.

"Cap-and-trade regulations passed during the Richardson administration put the state [at] an economic disadvantage," Jim Winchester, communications director of the New Mexico Environment Department, said in a statement. "The rules create an uneven playing field for [New Mexico] businesses, which are now subject to more stringent regulations than their competitors in surrounding states."

Another strong critic has been Arizona Governor Jan Brewer, who became governor in 2009 following the Janet Napolitano's resignation to serve as head of the US Department of Homeland Security, and was elected in her own right in 2010.

"Arizona believes there are more effective, responsible ways to realize the environmental and health benefits the WCI program seeks to achieve while avoiding the economic costs to industries that are subject to cap-and-trade," Henry Darwin, Arizona Department of Environmental Quality director, said in a statement.

Eroding support for cap-and-trade among WCI members was foreshadowed by former Utah Governor Jon Huntsman. Huntsman, speaking in 2008, said a regional approach is "probably long-term unsustainable."

Climate change policy must ultimately be coordinated on a federal level, Huntsman said.

Indeed, part of the motivation behind creating the WCI, as well as a similar organization in the Northeast and Mid-Atlantic, was to gain experience ahead of a national cap-and-trade program.

That justification dwindled along with the prospects of Congress passing such legislation anytime soon.

Still, some support for cap-and-trade remains. California plans to start a cap-and-trade program in 2013, while British Columbia, Ontario and Quebec are moving forward with programs that can be linked with California.

The six states leaving WCI have joined a new organization called North America 2050, a GHG-reduction group that says it will push for cost-effective policies, including carbon capture and sequestration, developing offset projects to be used in emissions trading programs and promoting sustainable biomass.

--Geoffrey Craig, geoffrey_craig@platts.com

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