The Question of Linkage

Sean Penrith, The Climate Trust
Weekly Policy and Finance Update – September 5, 2017

Bottom line | The Western Climate Initiative (WCI) carbon market is identified as one type of cooperative approach that could comply with Article 6.2 of the Paris Agreement. We have to get this right!

Oregon is teeing up their version of a cap and trade bill known as SB1070 for the 2018 session. Full disclosure; this review of the linkage framework is one of curiosity and is not from a place of expertise.

SB1070 directs Oregon to “develop and administer the carbon pollution market … in a manner necessary to enable this state to pursue linkage agreements with market-based programs in other states or countries.” The question of stringency thus emerges when attempting to link jurisdictions. The Government Code section 12894(f)(1) requires ARB to demonstrate that “the jurisdiction with which the state agency proposes to link has adopted program requirements for greenhouse gas reductions, including, but not limited to, requirements for offsets, that are equivalent to or stricter than” California’s. The passage of AB398 in California reduced the offset limit from 8% to 4% in 2021. Oregon’s SB1070 sets the offset limit at 8%. Would Oregon be considered less stringent in this case?

The official opinion by the CA Justice Department offers some insight into how stringency is assessed when contemplating the linkage of Ontario and California. Division 25.5 of the Health And Safety Code informed the Department’s analysis when examining the stringency of each jurisdiction’s overall emission reduction goals, their respective implementation of these goals through a cap and trade program, and their respective treatment of offsets. While Ontario has a 3% less stringent reduction target for 2030 than California, handles invalidation differently, and expands the eligibility of offset types, the Justice Department concluded that linkage adhered to the Health and Safety code that calls for offsets to be real, additional, permanent, enforceable, quantifiable, and verifiable. It is noteworthy that these offset prerequisites were established under the original Western Climate Initiative discussions when Oregon and Washington were active WCI members.

It sounds like Oregon would likely be able to make the case that their overall program is as stringent, especially since SB1070 does not contemplate a ceiling contained in AB 398 which enables ARB to essentially release allowances to reduce price pressure and arguably effect the integrity of the cap.

We need to get this right. The WCI carbon market is identified as one type of cooperative approach that could comply with Article 6.2 of the Paris Agreement. Linked jurisdictions will be transferring compliance instruments across borders while maintaining environmental system design, promoting transparency, and ensuring that double counting is avoided. There is a lot to gain in getting the Oregon system right.