On June 8, 2009, members of the Midwestern Greenhouse Gas Reduction Accord released their Advisory Group’s draft final recommendations for a regional cap-and-trade program. The Accord includes six U.S. states—Illinois, Iowa, Kansas, Michigan, Minnesota, and Wisconsin—and the Canadian province of Manitoba. The design recommendations were drafted by an Advisory Group convened by the participating Governors and Premier, including their staff as well as a diverse group of stakeholder representatives. The Accord is the first cap-and-trade program to be designed for the Midwestern region; there are two other regional initiatives in the United States (see Western Climate Initiative and Regional Greenhouse Gas Initiative). The Midwestern governors have expressed their preference for a federal cap-and-trade system, but they have called for the creation of a regional program as a backstop if a federal program is not enacted, or proves insufficient.
For the regional program, the Advisory Group recommends emission reduction targets of 18-20 percent below 2005 levels by 2020 (or 16-18 percent if certain cost containment mechanisms come into full effect) and 80 percent below 2005 levels by 2050. The program would cover six greenhouse gases: carbon dioxide (excluding emissions from the combustion of biomass or fuels), methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. Capped sectors include electricity generation and imports, industrial combustion and process sources, transportation fuels, and residential, commercial, and industrial fuels not otherwise covered. Only sources and fuel providers responsible for the emission of more than 25,000 metric tons of carbon dioxide equivalent gases will be covered (with exemptions for generators under 25 megawatts), though the program will operate on a “once-in, always-in” basis such that coverage will continue for sources that eventually fall below the 25,000 metric tons threshold.
The Advisory Group recommends that the program begin in 2012, with compliance periods of three years. The Advisory Group recommends that GHG allowance value be dedicated to climate-related purposes including (1) accelerating transformational investment; (2) mitigating transitional adverse impacts of the program, and (3) addressing harmful impacts due to climate change. The Advisory Group recommends that initially, approximately one third of the allowances be auctioned and the remaining portion be sold for a small fee; the program would then gradually transition to auctioning all allowances. Several cost-containment mechanisms are also recommended, including limited offsets, banking allowances for use in subsequent compliance periods, limited borrowing of allowances from subsequent periods, and an allowance reserve pool from which allowances would be released if the allowance price rises above a certain threshold.
The Accord is currently working on a Model Rule for the program, which is likely to be released in Fall 2009.
Draft Final Recommendations