WCI's New Proposal
The new draft proposal is here.
Just the major points. First off, the proposal is basically pretty good. We should keep in mind that what the Western Climate Initiative (WCI) is doing represents a big -- gigantic -- step in the right direction for the climate. So I'll raise a glass to everyone who's worked so hard on the WCI proposal so far.
But there's room for improvement. Below, I highlight the core areas of the proposal. These are bedrock issues that make me concerned.
Transportation is in. Sort of.
It appears that transportation fuels – the region’s largest source of carbon pollution – will be delayed until 2015, the second “compliance period.” The document is not crystal clear, but in Section 6, “Setting the Regional Cap,” it says that the regional cap will be adjusted in 2015 to add both transportation and the natural gas that is used in homes and businesses. (See 6.3). It's critical that we included transportation fuels ASAP.
Auctioning is in limbo.
WCI appears to be punting on this hugely important question. In past communications they’ve said that states and provinces will be required to auction a minimum percentage of between 25 and 75 percent of their allowances. In today’s draft (see 8.7) they say this:
The issue of establishing a minimum percentage of allowances subject to auction by each Partner is still under discussion by the Partners. The Partners expect to make a recommendation on this issue by Fall, 2008.
That's not wildly helpful. But in defense of WCI, they do include quite a bit of language about how the value of allowances are to be used (Sections 8.2 and 8.3) most of which are clearly good public interest goals.
Offsets are on the table.
WCI is apparently considering allowing offsets in the amount of 10 percent of any regulated firm’s allowances. They say, “not greater than 10 percent of an individual entity’s or facility’s compliance obligation” (section 9.2). (A firm's compliance obligation is its total amount of carbon emissions.) Since WCI is shooting for a 15 percent reduction, allowing a firm to submit offsets to cover 10 percent of its total emissions is tantamount to allowing offsets to cover more than half of all the WCI reductions. In my judgment, 10 percent is probably much too high a figure. We shouldn’t have so much confidence in offsets. (For more on the trouble with offsets, see this excellent 2-page summary from economist Chris Busch with the Union of Concerned Scientists. It's California-centric, but completely relevant to WCI.)
A strange loophole, maybe.
Finally, there’s some odd language sprinkled throughout the document that appears to nudge open the door for some states or provinces to avoid capping transportation fuels. In Section 1.4, for example, the document says:
WCI Partners acknowledge that individual jurisdictions may instead utilize comparable fiscal measures, such as British Columbia’s carbon tax, to address transportation fuels and fuel use by residential and commercial sources.
That would be a mistake. Consistency and comprehensiveness are key to the program's success. To use this particular example, BC's carbon tax can easily integrate with a cap and trade program (the taxes would basically become a "reserve price" in the auction system). But a legal cap on carbon is important because it makes certain we meet our climate targets.
Do Gas Taxes Cover the Costs of Roads?
I thought this was interesting. The Texas highway department – Texas, no less! -- says that roads simply don’t pay for themselves.
… no road pays for itself in gas taxes and fees. For example, in Houston, the 15 miles of SH 99 from I-10 to US 290 will cost $1 billion to build and maintain over its lifetime, while only generating $162 million in gas taxes. That gives a tax gap ratio of .16, which means that the real gas tax rate people would need to pay on this segment of road to completely pay for it would be $2.22 per gallon. This is just one example, but there is not one road in Texas that pays for itself based on the tax system of today. Some roads pay for about half their true cost, but most roads we have analyzed pay for considerably less. To conclude, in the SH 99 example, since the traffic volume for that road doesn't generate enough fuel tax revenue to pay for it, revenues from other parts of the state must be used to build and maintain this corridor segment. The same is true across the state, meaning that, as revealed by the tax gap analysis, overall revenues are not sufficient to meet the state’s transportation needs.
There may be some political shenanigans at play here that, not being a Texan, I know nothing about. (Haven't I heard that Texas is trying to build a massive toll-road corridor?) Still, the idea that roads don't pay for themselves -- and instead, must sap money from other funding sources -- seems like quite an admission from a highway department. Perhaps there are lessons here for road construction projects all across North America, not just in Texas.
