Midwestern Governors' Accord — Key Issues Facing the Midwest Greenhouse Gas Regional Cap and Trade Program

The Midwestern Regional Greenhouse Gas Reduction Accord (Accord), likely the least-publicized of the U.S. regional greenhouse gas (GHG) programs, is rapidly developing a cap and trade mechanism for reducing GHG emissions from facilities located in the member states of Illinois, Iowa, Kansas, Michigan, Minnesota, and Wisconsin and the member province Manitoba. In the next few months, the Midwestern Governors Association (MGA), responsible for creating the Accord, will make key policy decisions that will shape the model rules to be considered for approval and adoption in the member states and province early next year. These policies could significantly affect energy-intensive and coal-burning industries, while at the same time potentially spurring innovation in energy-efficiency and carbon-sequestration techniques. Addressing the delicate balance between economics and environmental gain in an already hard-hit portion of the country will be a significant challenge for the MGA policymakers.

The MGA is currently focusing on the following key issues:

Scope — Who is in and who is out of the cap and trade regulatory program?
Utilities and industrial facilities are currently on the “in” list. Various environmental interest groups are advocating for a more inclusive list — one that includes such sources as transportation and fuels — while industrial facilities (which make up only 13 percent of the total MGA states’ GHG emissions) see inclusion of these sources as only adding significant costs with limited environmental gain.

Allocations — Who receives allocation, at what cost and, if auctioned, who gets the money?
Industry argues that, if included in the scope of the program, it should receive free allowances to address the “double hit” of rising electric rates and cap and trade restrictions. Environmental groups, however, see more value in issuing allowances to carbon innovators for new products or approaches that reduce GHG emissions.

Offsets — What projects are eligible and how can projects that do not generate true GHG reductions be prevented?
A key concept for offsets is that they be real, verifiable, permanent, and enforceable. In that light, methane reduction is viewed as acceptable by environmental groups, while energy efficiency is not likely to be considered appropriate for generating offset credits. In addition, given the agricultural emphasis of the MGA states, offsets for agriculture and forestry are considered important for political support.

Outside of the cap and trade program, the MGA states are developing “complementary programs” aimed at GHG reductions. Of particular significance are potential complementary policies to promote Integrated Gasification Combined Cycle (IGCC)-based electric power production combined with carbon sequestration.

The MGA GHG cap and trade initiative will be holding a public meeting session in Milwaukee, Wisconsin on July 29, 2008 at 1:00 p.m. Input will be sought on the key issues of scope, allocations, and offsets. Given the rapid development of the MGA program and the potential implications to the bottom line, companies need to express their positions on these significant policy issues.

Foley is an observer of the MGA process, attending the MGA meetings and synthesizing the issues and implications of the process. Our work with the MGA is one part of Foley’s extensive GHG activities, which include tracking national legislation and active participation in trade groups.

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our environmental clients and our colleagues.

If you have any questions about this alert or would like to discuss these topics further, please contact your Foley attorney or the following individual:

Mark A. Thimke
Milwaukee, Wisconsin
414.297.5832
[email protected]