Ecology Priorities > Facing Climate Change > Cap and Trade Issue Reports

Cap and Trade Issue Reports

• Local Governments in Cap and Trade
• Electricity or alternative fuel from landfill gas and anaerobic digesters
• Establishing forestry baselines
• Preventing market manipulation
• Combining Cap and Trade with Other Policy Instruments

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Local Governments in Cap and Trade

RCW 70.235.030(e) directs Ecology and CTED to recommend how local governments could participate in the WCI cap-and-trade program. As owners of facilities that might be included under the cap-and-trade program, local governments would participate in the program just as any other covered entity would. However, it is less clear how local ordinances might play in a carbon market. To help the agencies with this recommendation, Ecology contracted with the World Resources Institute for an evaluation of how local governments might participate.

Read more about: Local Governments in Cap and Trade

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Electricity or alternative fuel from landfill gas and anaerobic digesters

RCW 70.235.030(f) directs the agencies to recommend the circumstances under which electricity or alternative fuel from landfill gas and gas from anaerobic digesters may receive an offset or credit under the WCI cap-and-trade program. The WCI Partner jurisdictions have identified three types of projects as a priority for investigation and potential participation in the offset program including waste management. More work will be done in both of these areas however to help the agencies develop at least initial recommendations, Ecology contracted with the World Resources Institute for a preliminary evaluation of how these two types of projects are used as offsets.

Read more about: Electricity or alternative fuel from landfill gas and anaerobic digesters

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Establishing forestry baselines

RCW 70.235.030(g) directs the agencies to develop in consultation with others recommendations on how forestry and agriculture could participate voluntarily as an offset or other credit in the WCI cap-and-trade program. The statute specifically states that in setting the baseline, the agencies must ensure that the state is not disadvantaged in relation to another state or states. In the discussions with legislators around this provision of law, it was clear that the concern revolved around the different Forest Practices Act provisions of other states. On the recommendation of the UW College of Forest Resources, the Department of Ecology contracted with Dr. Mark Swanson with the College for a comparison of FPA provisions that would be expected to impact the storage of carbon dioxide.

Read more about: Establishing forestry baselines

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Preventing market manipulation

As the WCI Partner jurisdictions worked on the design of the cap-and-trade program, questions arose both within the WCI and from stakeholders about the potential for manipulating the market. Under a contract Ecology has with ICF International, we asked for an initial examination of the potential for manipulation of the allowance market and options for limiting such behavior. That paper is now available. The good news is that:

1. There is no evidence of market manipulation in existing cap-and-trade programs;
2. Allowance markets bear no resemblance to electricity markets
   • Carbon allowances will be much more broadly owned, making it difficult for a handful of bad actors to create a shortage.
   • Carbon allowance can be banked unlike electricity which cannot be stored.
   • There are no “critical” times for carbon allowances – there is a three year compliance period and a farily long true up time at the end of each. Electricity demand on the other hand must be met instantly to maintain system reliability.

We have also asked ICF to update this paper given the recent events on Wall Street to see what might be gleaned from them as we continue to refine the design of this program. We are also looking at other aspects of the program implementation, primarily market oversight, to further our thinking on this issue. We encourage our stakeholders to continue to share with us their thinking on this extremely important topic.

Read more about: Preventing market manipulation
Addendum to Task 4

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Combining Cap and Trade with Other Policy Instruments

Read more about: Combining Cap and Trade with Other Policy Instruments