Implementing the Western Climate Initiative: a deeper look at the short-term impacts in BC

The Western Climate Initiative cap and trade mechanism is an important piece of British Columbia’s plan to reduce greenhouse gas emissions by 33% from 2007 levels by 2020, but it may impose a significant burden on certain industries of the economy. I follow a two-step analysis to first, better understand the impact of the cap over the short-term and to second, identify what options are available to the government to reduce the costs of transitioning without compromising environmental goals. I found that a number of industries covered by the cap are emissions intensive and trade exposed, and are vulnerable to emissions pricing schemes. While this is cause for concern, BC has the discretion to adopt specific design features within the WCI cap and trade that can smooth transition related costs. Careful design of the allocation and revenue-recycling feature can reduce distributional impacts and facilitate the transition to low-carbon.