Climate Change Policy in North America Designing Integration in a Regional System 9781442646704

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CLIMATE CHANGE POLICY IN NORTH AMERICA Designing Integration in a Regional System

While no supranational institutions exist to govern climate change in North America, a system of cooperation among a diverse range of actors and institutions is currently emerging. Given the range of interests that influence climate policy across political boundaries, can these distinct parts be integrated into a coherent and ultimately resilient system of regional climate cooperation? Climate Change Policy in North America is the first book to examine how cooperation respecting climate change can emerge within decentralized governance arrangements. Leading scholars from a variety of disciplines provide in-depth case studies of climate cooperation initiatives – such as emissions trading, energy cooperation, climate finance, carbon accounting, and international trade – as well as analyses of the institutional, political, and economic conditions that influence climate policy integration. neil craik is director of the School of Environment, Enterprise, and Development at the University of Waterloo. isabel studer is the director of the Global Institute for Sustainability at Tecnológico de Monterrey. debora vannijnatten is an associate professor in the Department of Political Science at Wilfrid Laurier University.

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Climate Change Policy in North America Designing Integration in a Regional System

EDITED BY NEIL CRAIK, ISABEL STUDER, AND DEBORA VANNIJNATTEN

UNIVERSITY OF TORONTO PRESS Toronto Buffalo London

© University of Toronto Press 2013 Toronto Buffalo London www.utppublishing.com Printed in Canada ISBN 978-1-4426-4670-4 (cloth) ISBN 978-1-4426-1458-1 (paper)

Printed on acid-free, 100% post-consumer recycled paper with vegetablebased inks. Publication cataloguing information is available from Library and Archives Canada.

Acknowledgment is gratefully extended to the ClimateWorks Foundation for funding in support of this publication. University of Toronto Press acknowledges the financial assistance to its publishing program of the Canada Council for the Arts and the Ontario Arts Council.

University of Toronto Press acknowledges the financial support of the Government of Canada through the Canada Book Fund for its publishing activities.

Contents

List of Figures and Tables

vii

Preface ix Abbreviations

xiii

Part One: Cooperation and Integration in North American Climate Governance 1 Designing Integration: The System of Climate Change Governance in North America 5 debora vannijnatten and neil craik 2 Supply and Demand for a North American Climate Regime 35 isabel studer Part Two: Cases of North American Climate Cooperation 3 Building on Sub-Federal Climate Strategies: The Challenges of Regionalism 71 barry g. rabe 4 Standards Diffusion: The Quieter Side of North American Climate Policy Cooperation? 108 debora vannijnatten 5 Deploying the Smart Grid across Borders in North America ian h. rowlands

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vi

Contents

6 New Approaches to Climate Mitigation: Collaborative Strategies for Developing Renewable Energy in North America 157 josé etcheverry 7 Climate Financing in a North American Context clare demerse and sandra guzmán

182

Part Three: Policy Infrastructure 8 Regional Climate Policy Facilitation: The Role of the North American Commission on Environmental Cooperation 213 neil craik 9 Design Issues for Linking Carbon Markets 246 brian c. murray, peter t. maniloff, and jonas monast 10 Developing Integrated Carbon Accounting Systems 273 steven b. young and clint l. abbott 11 Trade Rules, Dispute Settlement, and Barriers to Regional Climate Cooperation 301 andrew green 12 Conclusion 333 neil craik and debora vannijnatten Appendix 353 Contributors Index

365

363

Figures and Tables

Figure 6.1

North American primary energy demand versus renewable energy potential 159

Figure 6.2

Primary energy sources in Mexico in 2004 162

Figure 10.1 Domains of carbon accounting

287

Table 4.1

LCFS programs in North America

117

Table 6.1

Mexican renewable energy centres and networks

Table 6.2

RETSCREEN Partners 172

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Preface

The commencement for this project was a January 2009 conference in Mexico City, hosted by Tecnológico de Monterrey’s Centro de Diálogo y Análisis sobre América del Norte (CEDAN, directed by Isabel Studer), and supported by a Department of Foreign Affairs and International Trade (Canada) North American Linkages Grant, as well as contributions from the Instituto Nacional de Ecología (INE), the Mexico City Government, the UCI Newkirk Center for Science and Society, the University of New Brunswick Faculty of Law, and Wilfrid Laurier University. We are particularly indebted to Adrian Fernández, then president of INE, who enthusiastically supported this endeavour and many of the activities that followed. The conference brought together academics and policy practitioners to discuss the challenges facing climate change cooperation in North America. In particular, we hoped to develop a research agenda that could assess the nature and potential role of regional climate change law and policy within the broader global framework. In this vein, many thanks go to our 2009 conference coorganizer Joseph DiMento. We would also like to acknowledge (in addition to the authors in this volume) the following people for contributing their insights at the conference: Carlos Gay, Douglas Macdonald, Juan Mata, Julia Martínez, Karen Sigmond, Adolfo Mejía, Gerardo Mejía, Thomas Peterson, Isidro Morales, Ma Elena Sierra Galindo, Claudio Alatorre, Pamela Doughman, Rodolfo Lacy, Jean Daniel Saphores, Adriana Lobo, Adrián Vázquez, Fernando Tudela, and Evan Lloyd. The central theme which emerged from the 2009 conference was that there were numerous, promising climate policy activities ongoing across the continent but little apparent coordination among them. How we might integrate these various efforts in order to better achieve collective goals associated with greenhouse gas reductions in North

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America became the primary animus for our continuing research. At the time, many of us expected that national action, particularly in the United States, would provide the foundation for greater integration across climate policy tools and infrastructures – from national targets and carbon markets to sector-based regulatory regimes and incentive schemes. However, these hopes were short-lived, as lawmakers in Washington failed to agree upon a national approach to greenhouse gas regulation, and the dire economic and budget situation across all levels of government further reduced the political will to develop comprehensive and stringent climate policy at national levels in the United States and Canada. While Mexico led in promoting climate policies on the national and international stage, integration of climate policies and tools in North America, it seemed, would not be nearly so easy. We thus chose to focus on the role of continental policy tools and infrastructure that might offer integrative benefits – carbon pricing, climate finance, emission reporting protocols, trade rules, standards harmonization, and energy grids, among others. In addition, given the shifting political winds and continuing economic constraints, we became increasingly interested in how to build resilience into the rather fragmented and decentralized landscape of climate policy activities in North America. In September 2010 we held an authors’ workshop at Wilfrid Laurier University in Waterloo, Ontario. Supported by a Social Sciences and Humanities Research Council of Canada (SSHRC) Public Outreach Grant (Canadian Environmental Issues), as well as assistance from the University of Waterloo (Interdisciplinary Centre on Climate Change) and Wilfrid Laurier University, we invited a number of policy practitioners to participate in the workshop to provide input into the papers and arguments presented from the perspective of the climate policy community. In particular, we would like to thank the following people for taking seriously our request that we wanted to “ground” our analysis in policy realities: Evan Lloyd, Meera Fickling, Mark Winfield, Jim Whitestone, Alex Wood, Doug MacCallum, Keith Steward, Elias Frieg, Erik Haites, Ron Nielson, and Chris Sands. We also were very fortunate to have the Honourable Stéphane Dion attend and share his insights on the future of climate policy in North America with the workshop participants. Clint Abbott, in addition to co-authoring one of the chapters, coordinated much of the administration of the workshop. After receiving this excellent input, our authors revised their papers and we submitted the manuscript in the summer of 2012. The manuscript preparation benefited from the input of three anonymous reviewers, who provided detailed and very helpful suggestions. The

Preface

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University of Toronto Press provided excellent editorial advice and we are grateful to the editorial team, especially Daniel Quinlan, who helped us shepherd this book through the editorial and production process. We are particularly grateful for the generous support provided by the ClimateWorks Foundation, through the Mexican Catalyst Project grant for CEDAN and INE, which made the publication of this volume possible. Our editorial and research activities in relation to this book also received considerable support. Neil Craik’s work was partially funded by a SSHRC standard research grant (“Greening the 49th”), and he would like to thank his research assistants, Katie Ireton and Dana Decent, who provided excellent support for this project. Isabel Studer is grateful to José Trejo for the support provided in 2009 as workshop organizer, and to Sofia Viguri and Rachel Listinsky for their devotion to detail and hard work as reasearch assistants. Debora VanNijnatten would like to thank Kari Mai Williams for her excellent work in formatting and preparing the final manuscript for submission in the spring of 2012. En route to publication, of course, the political and economic context has continued to change. Not only has Barack Obama won a second term as president, his February 2013 State of the Union Address contained a renewed commitment to environmental policy, climate change, and green energy. Mexico, meanwhile, also has a new president, Enrique Peña Nieto, who has promised to focus more on poverty and job-creation, less on rooting out drug lords, and who has already taken important measures to provide continuity and visibility to the climate policies that were established in the Calderon administration. In Canada, environmental policy retrenchment at the national level continues apace, and the resources and knowledge that might be used to further climate policy goals are diminishing rapidly. Developments at the sub-state level also continue, including the start of emission trading in California. Despite the ebbs and flows of particular climate policy initiatives, the structure of North American climate governance as described and illustrated in this book remains central to the cooperative efforts among the various policy actors engaged in climate law and policy. Neil Craik Waterloo, Ontario Isabel Studer Mexico City, D.F. Debora VanNijnatten Waterloo, Ontario

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Abbreviations

ACES ALEC ANSI APA BACT BTA CAFC CAFE CARB CCX CCS CDM CDP CEC

American Clean Energy and Security Act (of 2009) American Legislative Exchange Council American National Standards Institute American Power Act best available control technology Border Tax Adjustments Corporate Average Fuel Consumption Corporate Average Fuel Economy Standards California Air Resources Board Chicago Climate Exchange Carbon Capture and Storage Clean Development Mechanism Carbon Disclosure Project (North American) Commission for Environmental Cooperation CED Clean Energy Dialogue CEI Competitive Enterprise Institute CEPA Canadian Environmental Protection Act CER Certified Emission Reductions CFA Commodity Futures Act (Ontario) CFE Comisión Federal de Electricidad (Mexico) (Federal Electricity Commission) CFTC Commodity Futures Trading Commission CIDA Canadian International Development Agency CONUEE Comisión Nacional para el Uso Eficiente de la Energía (Mexico) (National Commission for the Efficient Use of Energy)

xiv Abbreviations

COP EERS EIG EISA EITE EPA EPS EU EUA ETS EUREC FERC FES FIDE

Conference of the Parties energy efficiency resource standards Environmental Integrity Group Energy Independence and Security Act (of 2007) energy-intensive and trade exposed Environmental Protection Agency emissions performance standards European Union European Union allowances Emissions Trading System European Renewable Energy Research Centres Agency Federal Energy Regulatory Commission fuel economy standards (United States) Fideicomiso para el Ahorro de Energía Eléctrica (Mexico) (Trust Fund for Electricity Savings) FITs Feed-In-Tariffs G8 Group of Eight (of world’s largest economies) G20 Group of Twenty Finance Ministers and Central Bank Governors G77 Group of 77 (developing nations) GA GridWise Alliance GATT General Agreement on Tariffs and Trade GDP gross domestic product GHG greenhouse gas GHGRP Greenhouse Gas Emissions Reporting Program (Canada) GWP Global Warming Potential IEA International Energy Agency IEC International Electrotechnical Commission IFC International Finance Corporation IIE Instituto de Investigaciones Eléctricas IIROC Investment Industry Regulatory Organization of Canada INECC Instituto Nacional de Ecología y Cambio Climático (Mexico) (National Institute for Ecology and Climate Change) IPCC Intergovernmental Panel on Climate Change IRC ISO/RTO Independent System Operator / Regional Transmission Organization Council IRENA International Renewable Energy Agency ISGAN International Smart Grid Action Network ISO Independent System Operator

Abbreviations xv

ISO JMM JPAC LAER LCFS MEF MGGRA MOU mpg MRR MRV NAFTA NAAEC NAEWG NERC NESCAUM NGO NHTSA NIST NPRI NRTREE ODA OECD OSC OTC PCF PECC PEMEX PND PRTR QDA REDD

International Organisation for Standardisation Joint Meeting of Ministers Joint Public Advisory Committee lowest achievable emission rate Low Carbon Fuel Standards Major Economies Forum (on Energy and Climate) Midwest Greenhouse Gas Reduction Accord memorandum of understanding miles per gallon Mandatory Reporting Rule (EPA) Measuring, Reporting, Verifying (GHG emissions) North American Free Trade Agreement North American Agreement for Environmental Cooperation North American Energy Working Group North American Electric Reliability Corporation Northeast States for Coordinated Air Use Management non-governmental organization National Highway Traffic Safety Administration National Institute of Standards and Technology (United States) National Pollutant Release Inventory (Canada) National Round Table on Environment and the Economy Official Development Assistance Organization for Economic Cooperation and Development Ontario Securities Commission over-the-counter (derivatives) Prototype Carbon Fund (World Bank) Programa Especial de Cambio Climático (Mexico) (Special Climate Change Program) Petróleos Mexicanos (Mexico) (National Petroleum Company) National Development Plan (of Mexico) Pollutant Release and Transfer Registry Quebec Derivatives Act Reducing Emissions from Deforestation and Forest Degradation

xvi Abbreviations

RETSCREEN RETScreen Clean Energy Project Analysis Software RETC Registro de Emisiones y Transferencia de Contaminantes (Mexico) (Pollutant Release and Transfer Registry) RGGI Regional Greenhouse Gas Initiative SES socio-ecological systems SEMARNAT Secretaría de Medio Ambiente y Recursos Naturales (Mexico) (Secretariat of the Environment and Natural Resources) SENER Secretaría de Energia (Mexico) SMOC Sound Management of Chemicals SPP Security and Prosperity Partnership (of North America) SPS Sanitary and Phytosanitary Measures (WTO) SRO Self-Regulatory Organization TCR The Climate Registry TRI Toxics Release Inventory (United States) UN United Nations UNFCCC United Nations Framework Convention on Climate Change WBCSD World Business Council for Sustainable Development WCI Western Climate Initiative WSSD World Summit on Sustainable Development WTO World Trade Organization USAID United States Agency for International Development U.S. DOC United States Department of Commerce U.S. EPA United States Environmental Protection Agency USIJI United States Initiative on Joint Implementation

CLIMATE CHANGE POLICY IN NORTH AMERICA Designing Integration in a Regional System

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PART ONE Cooperation and Integration in North American Climate Governance

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1 Designing Integration: The System of Climate Change Governance in North America debora vannijnatten and neil craik

In August 2009, U.S. President Obama, Mexican President Calderon, and Canadian Prime Minister Harper issued the North American Leaders’ Declaration on Climate Change and Clean Energy, a political statement that outlined a shared vision for a “low-carbon North America,” and they committed the three national governments to cooperate across a broad range of initiatives to reduce greenhouse gas emissions.1 The issuance of this declaration marked the first major affirmation by the three North American leaders of the importance of North America as a governance level to address climate change. At first blush, North America as a level of governance may appear ill-suited to the task. As a collective action problem, climate change necessarily requires global cooperation. Cooperative actions among North American states, no matter how successful, cannot solve a problem that requires commitments from all of the major emitter nations. Unlike air pollution or free trade – two areas of historic, and many would say successful, North American cooperation – the principal benefits of greenhouse gas emissions reduction cannot be geographically bounded. A second potential obstacle for North American climate change governance is the lack of supranational institutions that might be used to generate binding commitments between North American states and, significantly, the absence of almost any political desire to establish new continental institutions that create formal obligations.2 North American leaders are not likely to look to European climate governance, which includes collective obligations and a unified European emission trading system, as a governance model. Not only is there a reticence about creating new supranational governance institutions to address climate

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change, but those governance institutions and tools that do exist are dispersed across federal and sub-national levels in overlapping and potentially discordant arrangements.3 The third obstacle is the everchanging political and economic context facing those involved in climate change governance at all levels; given the long periods over which carbon reduction needs to occur, the ebb and flow of support for related activities – whether because of political opposition or economic scarcity – can be challenging. The point of departure for this book is that these potential impediments to climate change governance do not negate meaningful cooperation among North American states, but will define its function and nature. What is emerging in North American climate governance is a set of mechanisms that are profoundly multi-level, highly diverse in the range of actors and institutions involved, as well as the objects and means of cooperation, and also dynamic in the sense that governance arrangements change in response to shifts in political and economic conditions. Despite the aversion to shared sovereignty in North America, as well as the ambivalence towards climate policy in many quarters, there are a growing number of coordinated activities and they often extend across national boundaries. This book has three central aims. The first is to take stock of these decentralized governance conditions in North American climate cooperation with a view to providing an appreciation of the range of policy tools and institutions invoked by governments to address climate change. Second, we employ a systems approach to understand the degree to which these tools and institutions are integrated. Given the collective effort required in carbon reduction, we focus here on the critical question of how governance activities interact and influence one another within the North American system, and whether they are mutually reinforcing. Third, we are interested in the resilience of climate policy tools and institutions in a context of political and economic constraint. In the absence of strong, centralized leadership on climate policy, are there policy approaches that are better able to adapt to changing and unpredictable political and economic conditions? Interactions in a Climate Change Policy System Climate change as a policy challenge is exceptional in its complexity, exemplifying “super wicked problems.”4 Climate change is plagued by high levels of scientific uncertainty, gaping time-lags between the point at which policy actions are taken and at which improvements might

Designing Integration 7

begin to be observed, as well as convoluted cost-benefit interactions that result in a significant collective action challenge. In the absence of any ready governance structure, one might expect that only a centrally directed approach could overcome these obstacles. At a minimum, it is difficult to understand what benefits might accrue to “smaller” actors from taking climate action, given the incentive structure underlying collective action problems and the differential impacts according to geographic location. Yet analyses of climate change policy in North America, taken together, paint a picture of an emerging multi-level governance reality that has fostered considerable policy experimentation, particularly over the past ten to twelve years.5 This picture also highlights a fragmentation of effort, and analysts are concerned about the prospects for a “scaling up” or diffusion of individual initiatives, such that the fragments can be linked into a broader policy framework. While our book builds on these comprehensive studies, we approach the subject matter using a different analytical lens – more specifically, we argue that North American climate change policy should not be viewed first and foremost as a loose collection of disparate governance activities, but rather as a dynamic and adaptive system within which governance is linked across spatial and organizational scales. Our relational approach draws on several emerging strands of literature that focus on such linkages, most notably work on socioecological systems, or SES.6 In line with SES thinking, we portray North American climate governance as a “complex system” composed of interactions among a diverse array of climate policy institutions and mechanisms, which are themselves rooted in a bio-physical reality.7 The example of climate finance illustrates the way in which complex socio-ecological systems are composed of separable but interacting sub-systems; the activities undertaken to raise and distribute funds for the purpose of financing greenhouse gas mitigation and climate adaptation measures may rely on carbon markets to generate and allocate capital funds through carbon offset projects. Carbon markets, in turn, require common accounting and reporting procedures, as well as regulatory oversight in order to provide a stable investment climate that is necessary to bring about the offset projects themselves.8 Each of these elements within the broader system has its own distinct set of goals and operating requirements, which may be more or less aligned with the other elements. A systems approach also recognizes that the system as a whole will be subject to common institutional features that influence both the

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particular cooperative activities and the interactions among them. As highlighted by Isabel Studer in the companion introductory chapter, one such feature in North America is the absence of formal, hierarchically structured regional governance institutions, such as judicial, legislative, or executive bodies that operate supranationally. There exist in North America, instead, institutions of varying formality that cut across areas of cooperation and structure the kinds of cooperative activities undertaken. The North American Free Trade Agreement (NAFTA) is the most prominent North American governance institution and has very directly influenced climate policy in North America through the creation of rules that determine the competitive conditions of North American firms. The mechanisms associated with free trade also influence more broadly the frequency and density of interactions among constituent governance units and firms within North America. There are, of course, myriad other formal and informal institutional structures that coordinate governance at multiple levels within North America, and we devote particular attention below to “networks” composed of government and non-governmental actors who undertake shared projects across borders.9 But systems also have less tangible features that can influence the nature of cooperation within the system, such as the level of trust and reciprocity among cooperating groups, which has been shown to be an important feature of successful collective action.10 Other analysts, primarily in the field of international relations, also recognize the distinct role that more decentralized governance structures can play in addressing complex global environmental issues like climate change. In a manner similar to the SES approach, they too focus on interactions as a variable that is critical to understanding the overall nature of climate governance. Perhaps most prominently, Nobel Laureate Elinor Ostrom has argued that climate change is best addressed at multiple scales and multiple levels – an approach that Ostrom argues will better promote trust among cooperating entities and encourage much-needed experimentation.11 Ostrom’s polycentric approach echoes similar calls for a “Madisonian” approach to climate policy that allows constituent governments, both at the state and sub-national levels, as well as firms, to develop individualized responses to climate change that best suit the ecological, economic, and political conditions in which they operate.12 Ostrom sees systemic cooperation as a function of broadening coherence and a scaling up of local activities. Interactions are dynamic, allowing for learning and adaptation, as well as building trust; the key variable here is the degree of communication among participants across sub-systems.

Designing Integration 9

Matthew Hoffman, in his consideration of decentralized climate experiments, explicitly adopts a complex systems approach whereby individual climate governance activities draw on common normative foundations, learn from one another, and organize themselves in patterned and predictable ways. This experimental system is emergent and dynamic, and like Ostrom, Hoffman sees interactions between sub-systems as an important determinant of the overall coherence and effectiveness of the broader system.13 Robert Keohane and David Victor portray a somewhat more ordered reality; they describe the global system of climate change governance as a “regime complex,” with international institutional arrangements varying along a continuum from a single, highly integrated legal instrument at one end, to sets of highly fragmented arrangements at the other.14 Regime complexes lie between the two poles and are characterized by “non-hierarchical but loosely coupled systems of institutions.”15 Keohane and Victor’s concept of a regime complex differs from Ostrom’s notion of polycentric governance in that systemic cooperation arises from top-down structures. Inter-scheme interactions are understood as either existing in a hierarchical or “nested” relationship, or in an overlapping one where multiple schemes address similar issue areas, without formally structuring the relationship between schemes with ordering rules.16 Frank Biermann, Philipp Pattberg, and Fariborz Zelli, in their investigation of the global governance “architecture” supporting climate change action, approach decentralization in a more open empirical manner, asking whether higher or lower degrees of fragmentation in this architecture are more likely to be effective.17 They, too, are interested in the kinds of “steering mechanisms” that might operate on the governance mechanisms being employed; they see such mechanisms as critical to achieving drastic cuts in greenhouse gas emissions. After surveying a wide range of governance tools, they emphasize the benefits of “more integrated governance architectures as opposed to more fragmented architectures.”18 For both the SES literature and the IR analysts surveyed above, the issue of coherence among decentralized governance arrangements looms large. It is this question regarding the capacity of individual, often non-binding, programs to be mutually reinforcing that underpins the empirical examinations in this book. Given the multi-level, diverse, and dynamic structure of North American climate governance, elaborated on below, our interest here is in the degree to which cooperative

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activities are integrated and how coordination among disparate initiatives is or might be structured to improve their effectiveness.19 The other obvious concern here is resilience. At the time of writing, the climate policy tools and institutions discussed in the various chapters here face considerable political and economic obstacles – including strong anti-environmental forces in the U.S. Congress, the Harper administration in Canada, and a number of provinces and states; a debtceiling crisis in the United States; large program deficits in U.S. states and some Canadian provinces, and significant capacity and resource gaps in Mexico. While we would not underestimate the significance of these forces, we argue that there will never be a perfect setting for climate change policy, particularly given the challenge it poses to the prevailing political, economic, and social orders. Instead, the climate policy system will always encounter myriad challenges, particularly given the many sub-systems involved and the parochial political and economic conditions across them. The question for climate policy analysts is how the system responds to disturbances and maintains its functions in the face of changing circumstances.20 What is of particular interest for the analysts in this volume are those points of interaction that are able to withstand such changes or, failing that, hold the most potential for supporting a “gearing up” of climate policy activity in the future. The International Regime: North American Climate Governance in a Global Context By conceptualizing North American climate cooperation as a system, we do not mean to suggest that North American climate governance operates autonomously from the global system of climate change governance. To the contrary, it is clear that the global nature of climate change necessitates that North American climate governance is not an alternative to the United Nations Framework Convention on Climate Change (UNFCCC), but rather, interacts with it. While the European climate change system is very strongly aligned with the UNFCCC process and operationalized through an explicitly regional approach,21 the relationship of the UNFCCC to North American efforts is more ambiguous. Certainly, much of the current focus of actual policy effort has been to establish an international framework of reciprocal national commitments and facilitate mechanisms to implement these commitments. The UNFCCC defines the overall objective of the global climate regime as the “stabilization of greenhouse gas concentrations in the atmosphere

Designing Integration 11

at a level that would prevent dangerous anthropogenic interference with the climate system.”22 Defining exactly what constitutes dangerous levels has been the subject of much international discussion, but there is an emerging consensus reflected in the Copenhagen Accord, and affirmed in the Cancún Agreements, that identifies a goal of keeping the global average temperature increase below two degrees Celsius.23 It is recognized that this goal will require long-term global greenhouse gas reductions in the order of a 50 per cent reduction by 2050 and cuts by developed countries of approximately 80 per cent. The need to reduce emissions by 80 per cent by 2050 has been accepted in principle by both the United States and Canada, along with other developed states.24 For its part, Mexico has set its sights on the “50 per cent by 50” target. While the two-degree increase limit and the associated emission reduction requirements to achieve that goal are driven by scientific considerations, their acceptance in North America represents a marked departure from, until very recently, an unwillingness to directly tie emission reduction targets to science-driven outcomes.25 The acceptance of deeper emission reductions by North American states has largely been a non-credible political, as opposed to legal, commitment, both internationally and domestically; only very recently has Mexico embedded its emission reduction targets in national legislation. The lynchpin of the UNFCCC architecture is the division between developed, Annex 1, and developing, non–Annex 1, countries – a division that is underlain by the quasi-constitutional principle of common but differentiated responsibilities. Formally, this means that Canada and the United States have an obligation to accept binding targets for the reduction of greenhouse gas emissions, while Mexico is required to undertake nationally appropriate mitigation – in essence, non-binding commitments to reduce their business-as-usual emissions pathway.26 The very binary distinction between Annex 1 and non–Annex 1 countries is giving way to a more nuanced differentiation between countries of varying capabilities and emission profiles, as reflected in the outcomes from the UNFCCC Conference of Parties (COP17) in Durban, South Africa, in 2011. This may have important implications, because Mexico – a member of the OECD – has negotiated outside the auspices of the G77 in climate matters27 and is one of the few developing countries to accept binding emission reduction targets. The asymmetry between Annex 1 parties and non–Annex 1 parties within the UNFCCC reflects the historic responsibility of developed countries for climate change, the present emission patterns whereby

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per capita emissions in the developing world are much lower than those of developed countries, as well as the higher capacity of developed states to reduce greenhouse gas emissions. All of these factors are salient to the North American context, where Mexico’s path to industrialization has occurred more recently and its level of development lags behind that of the United States and Canada. Per capita emissions in Mexico are one-quarter those in Canada and the United States. Relative capacity to address greenhouse gas emission reductions is not easily quantified, but it is clearly acknowledged by Mexico that its ambitious emission reduction program depends upon financial support from developed states. Internationally, Mexico has been a principal architect of the emerging global climate financing mechanism, the Copenhagen Green Climate Fund, which is intended to support mitigation, and adaptation programs in developing countries. Any significant expectations at a regional level for Mexican greenhouse gas mitigation will need to be accompanied by secure and credible financing.28 A second structural feature of the international climate regime is its preference for the use of economy-wide mitigation targets and reduction timetables. Under the Copenhagen Accord, the United States committed to a 17 per cent reduction by 2020 from a 2005 base year.29 Canada deliberately and expressly aligned its target and base year with that of the United States.30 For its part, Mexico agreed to measures amounting to a reduction of 30 per cent from its business-as-usual pathway by 2020.31 Canada and the United States have shown a preference for shallow reductions in the near term (for example, the 17 per cent reduction based on a 2005 base year is equivalent to a 4 per cent increase from 1990 levels in Canada – an increase of 10 per cent from its Kyoto Protocol commitment of reducing emissions by 6 per cent from its 1990 baseline), which would deepen to reductions in the order of 70 to 80 per cent by 2050. The UN climate regime has given states broad discretion to specify the manner of implementation, including determining from which sector cuts ought to be sought, and the manner by which reductions will be required. In this context, the advantage of an economy-wide approach is that it allows individual countries to measure the reciprocity of mitigation on a country-by-country basis, while still allowing for flexibility of implementation in order to address distinct national circumstances. National targets provide a measure of comparability, and as such, are the preferred basis of international cooperation. The use of “flexibility mechanisms” has been another prominent feature of the UN climate regime. Under the Kyoto Protocol, parties

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may take advantage of three separate mechanisms – emissions trading, joint implementation, and the Clean Development Mechanism (CDM) – to facilitate compliance with national targets.32 Given the absence of binding domestic requirements, the use of these Kyoto mechanisms has been limited in North America, consisting mostly of Mexican participation in the CDM as a host nation.33 Despite some serious concerns over the credibility of emission reduction credits under the CDM,34 flexibility mechanisms have been viewed positively by many in the international community and will likely continue in the second compliance period (post-2012) under the Kyoto Protocol. The EU Emissions Trading System (ETS), for example, has been structured around the UN climate regime and remains the major acceptor of certified emission reduction credits under the CDM.35 North American carbon markets, on the other hand, remain cautious in their acceptance of CDM credits. The North American Model: Decentralized, Diverse, and Dynamic With the Kyoto Protocol, and in the event of a further agreement addressing post-2020 emissions emerging from ongoing negotiations, the international regime plays a hierarchical role, setting top-down rules with which compliance is expected. Yet if the Kyoto Protocol is any guide, the UN climate rules will provide states with considerable flexibility to determine for themselves the manner by which greenhouse gas emissions are reduced. Because reciprocity, or at a minimum, comparability, is required at a global level, there is little demand for actual targetsetting at a regional level. However, given the high degree of flexibility that states are granted to implement their national targets, regional cooperation in implementation is likely to be an attractive option where, for example, efficiencies can be gained through high levels of cross-border cooperation, or competiveness concerns require common approaches. Thus, while regional climate governance is likely to be oriented towards implementation of climate change policy commitments made elsewhere, the structure and modes of implementation will be influenced by preexisting regional economic and governance structures. In the North American case, climate change governance can be characterized as informal, decentralized, and diverse, as well as dynamic. To be clear, our focus in this volume is on North America as a scale of governance, rather than as a political entity. The literature on North America as a region attempts to set its boundaries on various bases, such as geographic features or contiguity, the institutional imprint, or

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political, economic, and/or sociocultural ties.36 Our approach is to use the lens of governance, which encompasses a multiplicity of public and private authority arrangements, both formal and informal. We focus here on transnational governance occurring trilaterally, bilaterally, and within cross-border arenas, in a variety of configurations.37 These configurations – which can operate via horizontal, vertical, and diagonal pathways and among diverse governmental and private actors – constitute the system of climate change governance in North America. In the absence of any hierarchical governance institutions, environmental trans-boundary interactions within North America most often occur through a combination of ad hoc diplomacy by political officials and, more importantly, a semi-permanent web of trans-governmental networks.38 As a more informal mechanism for intra-system interactions through which domestic agency officials can construct alliances and coalitions with their counterparts across the border, trans-governmental networks generally have limited or no independent authority to impose rules on members.39 Instead, they tend to operate within the realm of “soft law,” based not on legally binding obligations (such as those in a treaty), but rather on results-oriented commitments achieved through pragmatic problem-solving.40 Although soft law, in such forms as a memorandum of understanding (MOU), joint programming, or collective action plans, is not legally binding, it can nonetheless influence domestic policy choices and generate actors’ compliance.41 For example, the seemingly prosaic acts of sharing technical information and regulatory best practices, or negotiating and implementing arrangements on regulatory cooperation (which are at the heart of trans-governmental networking), have distinctly normative aspects, often encouraging what Rene Kemp and Rifka Weehuizen refer to as a “conscious change in thinking” about a problem and its associated policy.42 Transgovernmental networking is also interpersonal and reciprocal; as John Kirton and Jenilee Guebert point out, “the actors that make [soft law] commitments do so with the intention of complying with them.”43 One would expect that as network participants move into the more ambitious realms of creating joint climate change action plans these informal normative influences will continue to shape interactions. Because “super-wicked” problems engage governments at every level and require coordination across governance levels and across agencies within levels, the governance system will also reflect the jurisdictional and political configurations of the interacting governance bodies.44 The North American environmental regional system is

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profoundly multi-level, engaging national officials across both borders as well as trilaterally and also involving a wide range of sub-national units. As underlined by Studer in the next chapter, bilateral and trilateral climate cooperation has been slow to develop,45 surely reflecting the hesitant national approach to climate change in the United States under the Bush administration (and by Congress during the Clinton administration). Yet, after the election of a new Democratic administration in 2008, President Obama and Prime Minister Harper announced a Clean Energy Dialogue charged with expanding clean energy research and development, developing and deploying clean energy technology and building a more efficient electricity grid based on clean and renewable energy in order to reduce greenhouse gases and combat climate change in both countries. A series of working groups were put in place to formulate action plans in each of these areas. Shortly thereafter, the United States and Mexico created a Bilateral Framework on Clean Energy and Climate Change – focusing on renewable energy, energy efficiency, adaptation, market mechanisms, forestry and land use, green jobs, low carbon energy technology development and capacity building – which is similarly structured.46 Looking upward at the trilateral level, the North American Commission for Environmental Cooperation (CEC), which has a mandate to promote tri-national cooperation for sustainable development, conservation, and environmental protection, was created in 1994 in response to concerns over the impact of NAFTA on environmental regulation.47 Yet the CEC has been involved only peripherally in climate policy, through its research work and stakeholder discussions on the relationship between energy choices, particularly in the electricity sector, and carbon emissions.48 While this reluctance cannot be attributed exclusively to any one party, the CEC decision-making structure requires, as a matter of practice, that all three states agree upon the work of the CEC. As with bilateral relations, however, a recent shift in attitude is evident. In 2009, the three governments decided that the CEC should carve out for itself a clearer role in defining the terms of climate policy cooperation on the continent; one of the three priorities for the CEC in the 2010–2015 Strategic Plan is the “Climate ChangeLow-Carbon Economy.”49 The advent of “soft law summitry” via the trilateral 2005 Security and Prosperity Partnership (SPP) of North America created additional impetus for joint action on environment through the “prosperity” side of programming. Attention to the environment and energy grew over

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the course of the 2006 and 2007 summits; in 2007, an Agreement for Cooperation in Energy Science and Technology was signed, focusing on clean energy and energy efficiency. This was followed by a more specific agreement between the United States and Canada on research and development cooperation relating to carbon capture and storage. But like the CEC, express climate policy under the aegis of the SPP was largely absent until the 2008 Leaders Meeting, where the Joint Leaders Statement included a lengthy reference to the need for regional climate change cooperation, “including, but not limited to, advancing innovative and suitable clean energy technologies, building the capacity to adopt and deploy them and developing appropriate financial and technical instruments.”50 As noted above, the 2009 Declaration on Climate Change and Clean Energy provided a basis for broadening interactions. Although the absence of any Leaders Summits in 2010 and 2011 did not point to vigorous trilateral activity on climate change, the 2012 Summit did reiterate the support of the three leaders for continuing “our efforts to advance a lasting global solution to the challenge of climate change,” advancing “the transition to a clean energy economy” and deepening “our trilateral cooperation.”51 However, no significant climate policy initiative has arisen from trilateral processes, nor is one likely to arise. Instead, cooperation between national governments is restricted to piecemeal initiatives on matters such as energy standards harmonization, fuel efficiency measures, transportation initiatives, and some research and development coordination. While political direction is being provided at the most senior levels of national governments, the actual processes of cooperation are left to inter-agency cooperation. Perhaps most interesting has been the climate policy role played by sub-national governments on the continent over the past decade or so. U.S. states, Canadian provinces, and Mexican states have undertaken innovative and cooperative climate policy action; in some cases, action has become more formalized and more intense in functional terms.52 There are multilateral clusters of cross-border initiatives – including the New England Governors / Eastern Canadian Premiers’ Climate Change Action Plan, the Pacific Northwest agreement to reduce greenhouse gas emissions by 33 per cent by 2020 through a range of cooperative transportation and clean energy actions, and the Arizona-Sonora Regional Climate Change Initiative. There have also been three sub-national emissions trading regimes in various stages of discussion or completion: the northeastern states’ Regional Greenhouse Gas Initiative (RGGI), the Western Climate Initiative (WCI)

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involving western U.S. states and Canadian provinces (with Mexican states as observers), and the Midwest Greenhouse Gas Reduction Accord (MGGRA), also with American-Canadian participation. Further, subnational units like California and British Columbia have been pioneers in bringing new climate policy tools online. Although imperilled more recently by economic constraints and political opposition (e.g., MGGRA is effectively dead), in terms of what is going across borders with respect to climate policy in North America, some of the most ambitious and varied initiatives have emerged from lower levels of governance.53 Looking at bilateral, trilateral, and sub-national climate change governance in North America, and concluding that the climate change policy system is multi-level, yet bottom-heavy, is overly simplistic, of course. This vertical approach does not nearly convey the sheer diversity of climate change policy interactions on the continent. Even if we assume that governments dominate in trans-boundary environmental cooperative spaces in North America,54 we must nonetheless take into account the myriad connections across government units, the private sector, and societal actors, and the connections of these actors across levels. Further, the picture that we draw of regional climate policy cooperation must include the possibility of, and need for, diagonal (e.g., federal to sub-national or sub-national to trilateral) relationships.55 Thus, the regional system, as we define it above, encompasses interactions across and among semi-autonomous, but networked government units, with many of these interactions drawing force from the bottom up. Federal leadership, particularly in the United States, where federal pre-emption of state climate policy remains a possibility, can shift this balance among units, pushing back down, as we have seen on other environmental policy issues such as air pollution – and which we may now be seeing with U.S. Environmental Protection Agency (EPA) greenhouse gas (GHG) regulations. A similar shifting of authority between levels is evident in Canada, with the federal government entering “equivalency agreements” with provinces, which would allow them to enact their own rules to meet national environmental goals – for example, in relation to federal rules on phasing out coal-fired electricity generation plants.56 In this sense, interactions are dynamic and fluid, able to respond to changes in the political and economic environment.57 Certainly, the relative informality of cooperative climate policy arrangements in North America facilitates the dynamic nature of interactions, where the forms

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of regional climate change cooperation in North America are derivative of the relative – and shifting – position of components within the system. Integrating Climate Policy in North American A significant challenge inherent in climate policy coordination in North America, then, is the density and heterogeneity of the interactions involved, particularly given that the constituent governments and subdivisions maintain their external identities and are responsive to parochial political and economic conditions. The governance system in North America clearly lacks a formal framework of hierarchically structured institutions that might direct coordinated effort, raising the question of how such a highly differentiated system can respond to a policy challenge that requires collective effort over the longer term. As argued by the SES and international relations analysts surveyed above, this does not necessarily have to be problematic, as there are distinct benefits arising from the decentralization, diversity, and pluralism that characterize complex systems; since environmental change is driven by multiple drivers and interactions, one should expect a wide range of tactics that target these drivers in different ways. As Arild Underdal explains, “No single cure can deal with more than a small fraction of these activities.”58 Yet how these “cures” and “tactics” might be orchestrated is a thorny question, and a common tension that runs through the complex systems literature is the need to balance flexibility and integration in order to achieve effectiveness. As a political concept, integration refers to the interconnectedness of political and economic institutions (often within geographic regions) and can be measured on a continuum from highly decentralized systems of coordination to supra-national structures where authority is vested in a separate and hierarchically superior institution.59 Our interest in this volume, however, is with integration in the more generic sense of processes that enable the constituent parts of a system to work together to achieve a shared goal. As an analytical concept, integration is a systems-level process, and in complex systems it is unlikely that integration will take a single form or even involve similar processes. As a purposive process, integration is not an end itself; instead, it is a means to achieve collective ends. Daniel Bodansky and Elliot Diringer, in their consideration of an “integrated multi-track” approach to global climate governance, identify

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three processes associated with integration that may affect collective responses to climate change.60 First, reciprocity among cooperating partners promotes integration through the creation of commensurable measurement of efforts and activities. Some states or firms may prefer to address greenhouse gas mitigation through support for research and development, while others may wish to reduce emissions directly. Being able to compare efforts and, importantly, to demonstrate reciprocal levels of effort assures cooperating partners of each other’s commitments to achieving the shared goals. Second, the pursuit of economic efficiency through the creation of larger and more open markets, thereby allowing emission reductions at lower costs, can advance integration. Finally, policy coherence can emerge out of attempts to ensure that activities in one jurisdiction do not undermine activities undertaken elsewhere. Examples here include common technology standards or the development of physical infrastructure that can operate across borders to optimize cooperative efforts across the system. Very clearly, these forms of policy integration are overlapping and work in the same direction. On the other side of the coin, flexibility provides sub-units within a system with the autonomy and capacity they need to engage in bottom-up activities and innovate in order to contribute to the collective response. The North American system is characterized by a high degree of flexibility, where governance units have been largely free to choose the level of mitigation without fear of having emission reduction requirements imposed on them. In this respect, flexibility is an outgrowth of differing economic conditions within each country and across sub-regions, as well as across different sectors. For example, in geographical regions and sectors that rely heavily on emissionsintensive energy production, such as oil and gas production in Western Canada and coal-fired electricity production in much of the central United States, technological solutions, such as carbon capture and storage, are likely to be preferred. Mexico, on the other hand, has placed considerable emphasis on reducing emissions from deforestation and forest degradation (REDD), given the political constraints on the oil and gas sector. Further, flexibility reflects the search in North America for political feasibility, as a climate governance approach that allows governance units and sub-units to determine the means that best suits their economic and political requirements is more likely to gain and maintain system support. Finally, flexibility in climate policy has been facilitated by features of the UN climate regime, as discussed above,

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including broad economy-wide targets, the principle of differentiated responsibility, and the use of flexibility mechanisms that allow for diverse national responses. Yet the failing of too much flexibility is that it can undermine effectiveness. The non-binding character of climate governance in North America has made deeper and more comprehensive emission cuts elusive. Because climate change is a collective action problem, free riders can undo the benefits of cooperation. At a minimum, free-rider concerns necessitate that North American climate policy be integrated with global climate policy. Formally, the integration between the UN climate regime and domestic governments is structured by legal obligations, with formal compliance requirements. But in the case of informal, political commitments, such as those contained in the Copenhagen Accord, policy congruency is structured to achieve broader global objectives. Interestingly, the Copenhagen Accord has a bottom-up orientation in that the pledges made by all three countries reflect their domestic climate goals. The relationship between domestic climate goals and global commitments is dialectic, as greater reciprocity internationally is likely to make deeper domestic reductions more palatable. The ratcheting effect of international agreement is reflected in the EU’s Copenhagen Accord commitment, which contains a deeper reduction commitment that is contingent on the commitments of other developing states.61 Importantly, flexibility does not preclude reciprocity, but instead recognizes that states may take a different path to achieve common goals. Effectiveness is also a concern on a regional and domestic level. Free-riders may be states, but they may also be sub-national governance units or under-regulated sectors. Leakage concerns, whereby production shifts to under-regulated jurisdictions (with lower carbon associated costs) abound at both national and sub-national levels. Competitiveness concerns and the basic requirements of fairness operate below the global level, requiring consideration of distributional consequences on a regional, domestic, and sub-regional basis. The decentralized approach to climate policy in North America, which has proceeded largely voluntarily and without regard for reciprocity, has avoided direct discussions of fairness that have animated international discussions. Yet in the event that climate policy requires more stringent actions, Canada, Mexico, and the United States will no doubt need to confront the regional dimensions of fairness and competitiveness. Thomas Courchene and John Allen argue that much of Canada’s carbon emissions (and their future growth) relate to energy exports to the

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United States. The burden of these emissions falls on Canadian firms, while U.S. firms get the economic benefit of the energy produced.62 Courchene and Allen argue that the current carbon accounting structure under Kyoto works to the considerable advantage of energyconsuming countries. Debates surrounding competitiveness currently animate policy discussions on trade-related aspects of climate policy and are particularly salient in North America, given that the liberal trade and investment regime under NAFTA amplifies competitiveness among North American firms. These discussions are likely to intensify as Mexico seeks emission reductions that may play out differently in specific industrial sectors. A further objective of regional climate policy is the desire to make reductions at the lowest cost and with the least disruption to economic activity. For example, regulatory standards prescribing fuel and energy efficiency may fragment markets in the absence of common or mutually recognized standards. There is no North American mechanism to impose common standards. Instead, individual governments must coordinate their regulatory activities. Carbon-pricing measures, whether through emissions trading or a carbon tax, are at the centre of promoting least-cost reductions. A unified, North American carbon market remains unlikely, but linkage between separate markets may provide an important source of improved economic efficiency within those markets. Broadening market access through linkage reduces volatility (as price spikes are more likely to occur in particular sectors or geographic regions) and ought to lower the overall compliance costs. But market linkage comes with risks and possibly different incentives for linkage. Indeed, if the challenge of North American climate governance lies in accommodating flexibility while maintaining coherence with global climate goals, as well as maintaining regulatory efficiency, then attention must be paid to the manner in which cooperative activities on the continent are linked (or not). Many of the initiatives and arrangements in operation already interact with one another, in the sense that policy decisions and rules in one governance sub-system will affect decisions and rules made in other governance sub-systems. Yet these interactions among different cooperative mechanisms for climate change policy may not be immediately observable; linkages may be rooted in such technical mechanisms as financial and trade requirements, legal frameworks, or accounting practices. The interactions between international trade and investment rules and climate policy, for example, have

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implications across a number of initiatives. Along the same lines, as carbon markets become operational across different areas within North America, the benefits from interlinked markets will demand common approaches on key issues, such as emissions accounting measures, safety valves, banking and borrowing, and, in the case of offset credits, additionality. In this volume, we are concerned not only with the ways in which individual, often voluntary, initiatives might be linked but also with their capacity to be mutually reinforcing, in the sense that policy actors can communicate and share information, learn from one another, and ultimately develop greater trust in one another so as to engender deeper cooperation. Policy officials need to be able to transmit, in a conscious way, lessons of policy innovation success and failure among jurisdictions and actors. The information requirements and level of uncertainty inherent in complex socio-ecological change, such as climate change, are tremendous. Aggravating this is the “profound asymmetry between our ability to determine short-term and long-term policy consequences.”63 Moreover, successfully managing a differentiated governance structure means having a good understanding of local conditions and incentives. Clearly, then, the system needs to be one that can learn through the regular exchange of information, the constant monitoring of policy initiatives, and then adaptation to the lessons inherent in policy success or failure. It needs to be able to generate new responses and adapt approaches in response to such information. Stephen Young and Clint Abbott in this volume emphasize the benefits of institutional learning whereby new instruments can be adopted without “triggering a wholesale shift in the basic character of the arrangement.”64 If policy experimentation, which is touted as one advantage of decentralized governance structures, is to be leveraged, there must be avenues for sharing and scaling up successful policy measures. Learning thus contributes to resilience across the system by creating governance structures that can more successfully respond to changing conditions. Critical to this enterprise is what Ostrom refers to as the trust– reciprocity relationship.65 Central to Ostrom’s understanding of how collective goods, particularly environmental resources, might be governed is her argument that a set of implicit relationships among individuals can contribute to the resolution of problems. Not only do individuals adopt norms but they also make calculations about the likeliness of others to be trustworthy reciprocators who will bear their share of the costs of overcoming a dilemma.66 This suggests a social dimension to

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integration, whereby the future prospects of cooperation are improved or deteriorate over time, depending on the perceived legitimacy of current efforts. Process values, such as transparency and inclusive decision-making are, therefore, important preconditions for effective adaptive governance.67 Part One: Cooperation and Integration in North American Climate Governance North American climate cooperation provides, in our view, an important opportunity to consider the benefits and limitations of decentralized and self-organized governance. Yet we also recognize that climate cooperation occurs within a particular political and economic context. In North America, as elsewhere, climate politics shapes climate policy. In order to provide the context for the chapters that follow, this introductory section turns, in the chapter by co-editor Isabel Studer that follows, to an overview and analysis of the political and economic factors that have influenced the nature of climate change cooperation in North America. Studer begins by describing the most salient forces acting on climate policy across Canada, the United States, and Mexico – asymmetrical power relations, a bias towards domestic political concerns, and a related lack of strong trans-border institutions or transnational communities that might frame cooperation at a continental level. In the climate case, Studer argues that, despite an increase in high-level contacts taking place bilaterally and trilaterally, and while noting some broader areas of policy convergence, there is no regional framework for carbon emissions reduction. Even if the high levels of energy interdependence in North America provide the economic rationale to address climate change through energy security concerns, particularly in Mexico and the United States, the reluctance of the U.S. Congress to pass comprehensive legislation for emission reductions is a key obstacle to moving forward on both a global and a regional climate regime. Domestic political and economic constraints in Canada and the United States make it difficult even to supply sound national climate policies, let alone establish regional (top-down) climate initiatives that may benefit all three countries. Unlike the case with NAFTA when powerful transnational corporations demanded regional free trade to improve their competitiveness, there is little private sector demand for formalized North American climate governance institutions. However, there is a

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cross-border convergence of national regulations for fuel production, energy efficiency, freight transportation, and sustainable urban design underway in North America, which is driven by the desire to reduce non-tariff trade barriers. Part Two: Cases of North American Climate Cooperation As expressed by Andreas Duit, Victor Galaz, Katarina Eckerberg, and Jonas Ebbeson in an introduction to a collection of papers on governance, complexity, and resilience, “Governance solutions for many of those problems rooted in complex systems dynamics will, as always, consist in incrementally implemented, heterogenic, and piecemeal mixes of policy instruments, institutions, networks and organizations.”68 Part Two (chapters 3–7) of this volume – with its focus on specific cooperative processes and how they are themselves being integrated – provides insight into policy tools that complex systems may call upon to promote coherence amidst seemingly chaotic governance conditions. Here our contributors explore specific examples of coordinated activity in areas that are significant to continental carbon reduction. Each investigates the actors and objects of cooperation, as well as the means by which cooperation occurs, thereby providing insight into the range of policy tools and institutions that have been established to support these interactions. Each contribution also highlights the points of interaction within a specific area, across governance levels and scales, between governments and private actors, and across policy fields. Finally, the authors provide analysis of both the actual level of and potential for mutually reinforcing exchanges, with reference to Bodansky and Diringer’s three goals of reciprocity, efficiency, and policy coherence. Chapter 3, by Barry G. Rabe, begins our exploration of cooperative activities with an analysis of the three sub-national cap-and-trade regimes that sprang up within North America in the 2000s: RGGI, WCI, and MGGRA. He begins by examining the factors that might encourage sub-national governments to join forces in cap-and-trade efforts, and finds that the desire to influence a presumably more coherent national climate policy and to pursue a cost-effective approach to launching cap-and-trade programs are both significant incentives. Trust relationships and bonds of reciprocity are critical to designing multi-jurisdictional networks at the sub-national level; high levels of trust and familiarity in the American Northeast have helped RGGI

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create a more resilient governing network, one in which the bonds of reciprocity have been cemented through a set of clear expectations, and where policy coherence is encouraged by a professional organization overseeing implementation. By contrast, the WCI has been unable to capture the potential efficiencies associated with broader coverage of carbon sources and also a broader membership, at least in part because its members lack any real common experience in shared policy development and have been unable to agree on the major features of the trading system. MGGRA, for its part, has also fallen prey to political opposition by new administrations in states that have little in common. Even the stronger RGGI continues to be dogged by the threat of leakage and the difficulties associated with establishing a level playing field among market players. Given the absence in all three countries of economy-wide reduction targets and comprehensive implementation plans, Debora VanNijnatten in chapter 4 explores the prospects for moving forward with greenhouse gas emission reductions via bottom-up standards convergence. The chapter investigates the degree of convergence in key sectors – transportation, electricity generation, and energy efficiency – and finds that there are, in fact, multiple processes underway. Standards convergence tends to follow a “sub-regionalized” pattern, with adoptions occurring in the Pacific Northwest, the Northeast, and, to a lesser extent, the Midwest cross-border regions. Moreover, in all but one of the standards surveyed here, the California effect appears to be in operation; California has acted as first adopter, and other states and provinces – and even many federal proposals – have used significant aspects of the sunshine state’s standards. VanNijnatten also analyses the architecture supporting standards adoption across jurisdictions in North America and concludes that it is too “light,” making the prospects for using GHG emissions convergence as the backbone of a North American regime quite uncertain, subject to the challenging political and economic pressures faced by different jurisdictions. Ian Rowlands shifts our lens to a different prospective arena of climate cooperation, namely the coordination of “smart grid” technologies and infrastructure across borders, in chapter 5. Rowlands first establishes the potentially significant contribution of smart grids to the regional climate policy enterprise, given the disproportionate role of electricity generation in the carbon emissions profiles of Canada, the United States, and Mexico. He then lays out the linkage mechanisms – at the international, continental, bilateral, and sub-national levels, as

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well as across the private sector – that are attempting to coordinate emerging aspects of the smart grid across borders. However, Rowlands finds that the communities with an interest in smart grid – elected officials, system operators, and private sector businesses – are highly fragmented in both material interest and policy area; as a consequence, they are not generally familiar with one another and they also lack experience in shared policy development. Tools and mechanisms that might facilitate and support cross-community and cross-sectoral dialogue are only now emerging, but at this point they are relatively informal. While Rowlands sees, as “virtually inevitable,” the emergence of a variety of international standards to capitalize on the benefits of broader smart grid deployment, the extent to which the associated processes will create the basis for reciprocity and policy coherence remains to be seen, particularly given the diversity of interests involved. José Etcheverry’s chapter 6 focuses on the tools and instruments that encourage renewables development in Mexico, both domestically and across borders in North America. Etcheverry’s investigation highlights, above all, the lack of policy coherence across the renewables sub-system. Within Mexico’s governmental framework, there are considerable barriers to renewables development and application, including outmoded policy and legal arrangements, limited governmental infrastructure and support, inadequate market incentives, and a lack of resources and capacity, particularly at the local level. While much might be done to address these barriers within the country – and Etcheverry makes specific recommendations in these respects – he also notes the critical role that might be played by cross-jurisdictional collaboration in developing local capacity and ensuring that new technical and policy initiatives are informed by the know-how accumulated in lead jurisdictions. However, Etcheverry argues that the various cooperative efforts – such as the U.S.-Mexico Renewable Energy Program, the U.S.-Mexico CrossBorder Electricity Program, and the RETScreen program under the auspices of Natural Resources Canada – are not mutually reinforcing. After analysing the nature of the linkages themselves, Etcheverry suggests ways in which the cross-border policy infrastructure might be strengthened. In the final contribution of Part Two, Clare Demerse and Sandra Guzmán explore the current state of play for climate financing across the three North American countries. While specifically regional initiatives in this area are limited, this chapter highlights critical linkages between climate finance and implementation of other aspects of climate

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policy in North America. Demerse and Guzmán argue that financing mechanisms being formalized at the international level play a critical role in fostering broader levels of trust and reciprocity at both the global and continental levels, in a way that may strengthen the regional governance system. Further, there are prospective avenues for collaboration on financing in North America that are linked to policy tools and institutions already in place, as well as other pieces of the climate policy puzzle that may be put in place continentally; for example, there is potential for interactions within the regional climate system between future financing efforts and mechanisms that facilitate carbon markets, emission mitigation efforts in various sectors, and accountability measures – all of which have the capacity to be mutually reinforcing. Part Three: Policy Infrastructure This volume also examines the role of institutions, rules, and processes that themselves influence cooperation – what we have termed collectively “policy infrastructure.” Part Three (chapters 8−11) considers a variety of institutional structures and mechanisms that tend to operate between governance sub-systems in order to promote policy integration at the systems level. In chapter 8, Neil Craik examines the Commission on Environmental Cooperation’s role in facilitating regional climate policy in light of the CEC’s identification of “climate change and low carbon economy” as a strategic priority for 2010–15. Craik argues that while the CEC has many of the hallmarks of an international organization, it functions much more like a trans-governmental network in its programmatic activities. As a consequence, Craik examines the ability of the CEC to influence policy outcomes by providing and disseminating information that is salient, credible, and legitimate. Chapter 9, written by Brian Murray, Peter Maniloff, and Jonas Monast, describes the design of requirements for linking carbon markets. The background for this chapter is the proliferation of multiple sub-regional cap-and-trade systems in North America (described in Rabe’s contribution), as well as the presence of other carbon market instruments, such as the European Union Emission Trading System and the clean development mechanism. While each market responds to the economic and political goals of its respective creator, it is recognized that allowing for separate market systems to trade within one another has important efficiency benefits. The analysis examines the particular design elements of a cap-and-trade system and the particular challenges that inhere in

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linking systems that have diverse goals and design features. Murray, Maniloff, and Monast also consider the significant market oversight challenges that accompany linking, particularly in light of the deep scepticism of financial markets that accompanied the financial crisis that erupted in 2008. An essential aspect of climate cooperation is developing a uniform understanding of how CO2 emissions are calculated, reported, monitored, and ultimately verified. At the centre of these processes are standardized systems of emissions measurement and reporting. In chapter 10, Steven Young and Clint Abbott describe the growing diversity and complexity of these systems, which are required to penetrate deeper into the economy because of the growing need to measure and report on the carbon emissions of specific processes, projects, and individual products. Young and Abbott describe a standardization structure that is driven largely by abstract principles, not precise rules, and employs tools that still involve a great deal of discretion. While measuring emissions appears to be a technical exercise, Young and Abbott describe a system that is highly contingent upon diverse regulatory goals. From an integration standpoint, the chapter points to the immense technological challenges that the ever-increasing scope and diversity of greenhouse gas regulation poses for measurement, and in turn, for maintaining the environmental integrity of regulatory systems. Finally, Andrew Green, in his contribution on the intersection of North American trade rules and climate cooperation, reminds us that regional climate change cooperation operates within a dense web of rules and institutions that both constrain and enable cooperation. The dominant narrative around trade rules and environmental measures is one of hindrance and incompatibility, but Green argues that in the context of climate, trade rules also provide a highly complementary function by reducing the possibilities that climate policies will be used by states and firms to improve their competitive position. At the heart of the debate surrounding trade rules and climate cooperation is the difficulty in discerning legitimate environmental goals from illegitimate protectionist measures. Green examines the contours of this debate as it arises in North America (where there is a single dominant economic power), and his explorations leads him to very specific governance reforms respecting the processes for review and adjudication of contested policies. In the final chapter of the volume, Craik and VanNijnatten return to the nature and form of North American climate cooperation, with

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a focus on the way in which governance sub-systems within North America are interacting with one another. The picture that emerges is neither top-down nor bottom-up, but rather a complex mixture of top-down policy initiatives pushing into North America from international climate governance activities, as well as bottom-up governance activities combining and influencing (or seeking to influence) broader regional cooperation. The prospects for integrating the strands of climate cooperation across levels and across overlapping policy domains are examined with reference to the capacity of the North American climate governance system to generate interactions that are efficient, reciprocal, and coherent. This analysis, in turn, provides the basis for considering the broader resilience of the system of North American climate governance. NOTES 1 Government of Canada, Office of the Prime Minister, “North American Leaders’ Declaration on Climate Change and Clean Energy,” Guadalajara, Mexico, 10 August 2009. 2 Debora L. VanNijnatten, “North American Environmental Regionalism: Multi-Level, Bottom-Heavy and Policy-Led,” in Comparative Environmental Regionalism, ed. Lorraine Elliot and Shaun Breslin, 147–62, ET Series (Guadalajara, Mexico: Routledge/GARN, 2009). 3 See Barry Rabe, ed., Greenhouse Governance: Addressing Climate Change in America (Washington, DC: Brookings, 2010); and Henrik Selin and Stacey VanDeveer, eds., Changing Climates in North American Politics: Institutions, Policymaking and Multilevel Governance (Cambridge, MA: MIT Press, 2009). 4 Kelly Levin, Steven Bernstein, Benjamin Cashore, and Graeme Auld, “Overcoming the Tragedy of Super-Wicked Problems: Constraining Our Future Selves to Ameliorate Global Climate Change,” Policy Sciences 45, no. 2 (2012), 123–52. See also Richard Lazarus, “Super Wicked Problems and Climate Change: Restraining the Present to Liberate the Future,” Cornell Law Review 94 (2009): 1153. 5 M. Hoffman, Climate Governance at the Crossroads: Experimenting with a Global Response after Kyoto (New York: Oxford University Press, 2011); Rabe, Greenhouse Governance; Selin and VanDeveer, Changing Climates in North American Politics. 6 See, for example, C. Redman, M.J. Grove, and L. Kuby, “Integrating Social Science into the Long Term Ecological Research (LTER) Network: Social Dimensions of Ecological Change and Ecological Dimensions of Social

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10 11 12 13 14 15 16 17

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Debora VanNijnatten and Neil Craik Change,” Ecosystems 7, no. 2 (2004): 161–71; L.H. Gunderson and C.S. Holling, Panarchy: Understanding Transformations in Human and Natural Systems (Washington, DC: Island, 2002); F. Berkes, J. Colding, and C. Folke, Navigating Social-Ecological Systems: Building Resilience for Complexity and Change (Cambridge, UK: Cambridge University Press, 2003). Elinor Ostrom, “A General Framework for Analyzing Sustainability of Social-Ecological Systems,” Science 325, no. 5939 (2009): 419–22. See Demerse and Guzman, chapter 7; and Murray, Maniloff, and Monast, chapter 9, in this volume. In the literature, the identification of networks as a significant mode within governance structures – distinguishable from state hierarchies or markets – has been a preoccupation of international relations scholars, including those focused on climate change governance. See, for example, M. Betsill and M.J. Hoffman, “Who Governs Emissions for Greenhouse Gases” (paper prepared for the Frontiers of Global Environmental Governance workshop, Waterloo, ON, 30 January 2009). We use the language of networks to refer to relations among government agencies at multiple levels and with private actors. For us, networks are informal institutions that facilitate interactions within the system, not a method used to discover the properties of these structures. See E.M. Hafner-Burton, M. Kahler, and A. Montgomery, “Network Analysis in International Relations,” International Organization 63, no. 3 (2009): 559–92. Elinor Ostrom, “A Polycentric Approach for Coping with Climate Change” (working paper 5095, World Bank Policy Research, 2009). Ibid. David Victor, Joshua House, and Sarah Joy, “A Madisonian Approach to Climate Policy,” Science 309, no. 5742 (2005): 1820–1. Hoffman, Climate Governance, 72–3, 153–8. Robert Keohane and David Victor, “The Regime Complex for Climate Change,” Perspectives in Politics 9, no. 1 (2011): 7. Ibid., 8. Ibid. See also Karen Alter and Sophie Meunier, “The Politics of International Regime Complexity,” Perspectives on Politics 7, no. 1 (2009): 13. Frank Biermann, Philipp Pattberg, and Fariborz Zelli, eds., Global Climate Governance beyond 2012: Architecture, Agency and Adaptation (Cambridge, MA: Cambridge University Press, 2010). Ibid., 11. We are thus not focusing on the integration of political entities, as those who study regions and regionalism would.

Designing Integration 31 20 See discussion in Brian Walker, C.S. Holling, Stephen R. Carpente, and Ann Kinzig, “Resilience, Adaptability and Transformability in SocialEcological Systems,” Ecology and Society 9, no. 2 (2004), online. 21 Jutta Brunnée and Kelly Levin, “Climate Policy beyond Kyoto: The Perspective of the European Union,” in A Globally Integrated Climate Policy for Canada, ed. Steven Bernstein, Jutta Brunnée, David G. Duff, and Andrew J. Green, 57–78 (Toronto: University of Toronto Press, 2008). 22 United Nations Framework Convention on Climate Change, 9 May 1992, 1771 U.N.T.S. 107, Art. 2. 23 Copenhagen Accord, U.N. doc. FCCC/CP/2009/L.7, 18 Dec. 2009, draft decision/CP.15, para. 2. 24 See Government of Canada, Office of the Prime Minister, “North American Leaders’ Declaration”; see also Group of Eight, “G8 Leaders Declaration: Responsible Leadership for a Sustainable Future,” 10 July 2009, L’Aquila, Italy. 25 The clearest example of this reticence was the use of intensity-based targets by the United States and Canada (as well as sub-national governments, such as Alberta), which tied reduction limits to productivity levels, as opposed to environmental outcomes. 26 The obligation for developing countries to adopt “nationally appropriate mitigation actions” is found in the United Nations Climate Change Conference, Thirteenth Session, Bali, 3–15 December 2007, Report of the Conference of the Parties, part 2, Action Taken by the Conference of the Parties at Its Thirteenth Session, FCCC/CP/2007/6/Add.1 (“Bali Action Plan”), para. 1(b)(ii). 27 Mexico, along with South Korea and Switzerland, negotiates as part of the “Environmental Integrity Group.” 28 For example, the Mexican government’s Copenhagen Accord emissionreduction pledge is contingent on “the provision of adequate financial and technological support from developed countries as part of a global agreement.” See Copenhagen Accord. 29 Copenhagen Accord, appendix I: Quantified Economy-Wide Emission Targets for 2020, U.S. communication, 28 January 2010. 30 Ibid., Canadian communication, 29 January 2010. 31 Ibid., appendix II: Nationally Appropriate Mitigation Actions of Developing Country Parties, Mexican communication, 31 January 2010. 32 Protocol to the Framework Convention on Climate Change (Kyoto), 37 ILM (1998) 22, in force 15 February 2005, articles 6 (joint implementation), 12 (CDM), and 17 (emissions trading).

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33 As of January 2008, Mexico accounted for 100 of the nearly 900 CDM projects registered worldwide, having been awarded with 2.3 million carbon emission–reduction credits, making Mexico the second-largest creator of carbon credits in Latin America. Center for American Progress, “Transcending the Rio Grande,” 16 April 2009, http://www.american progress.org/issues/security/report/2009/04/16/5858/transcendingthe-rio-grande/. 34 Michael Wara, “Measuring the Clean Development Mechanism’s Performance and Potential,” UCLA Law Review 55 (2008): 6. 35 Brunnée and Levin, “Climate Policy beyond Kyoto.” 36 Compare, for example, the treatments of S. Clarkson, Does North American Exist (Toronto: University of Toronto Press, 2008); M. Gattinger and G. Hale, Borders and Bridges: Canada’s Policy Relations in North America (Don Mills, ON: Oxford University Press, 2010); and R.A. Pastor, The North American Idea: A View of a Continental Future (New York: Oxford University Press, 2011). 37 We have deliberately excluded certain forms of intergovernmental cooperation, particularly collaborations among local governments, on the basis that much of the collaboration is not occurring at a North American scale, but rather the central vehicles for collaboration among local governments tend to be organized on a global scale. For example, the c40 Cities Climate Leadership Group. 38 Neil Craik and Joseph DiMento, “Climate Law and Policy in North America: Prospects for Regionalism,” San Diego Journal of Climate and Energy Law 1 (2009): 195; VanNijnatten, “North American Environmental Regionalism.” 39 Andrew Baker, “The Transgovernmental Politics of the Global Financial Architecture: Participation and Representation in Deliberative Spaces” (paper presented at GARNET Conference, 27–9 September 2006, Amsterdam). 40 John Kirton and Jenilee Guebert, “Soft Law, Regulatory Coordination, and Convergence in North America,” in Borders and Bridges: Canada’s Policy Relations in North America, ed. Monica Gattinger and Geoffrey Hale (Don Mills, ON: Oxford University Press, 2010), 59–60. 41 Judith Goldstein, Miles Kahler, Robert O. Keohane, and Anne-Marie Slaughter, “Legalization and World Politics,” International Organization 54, no. 3 (2000): 385–99; Anne-Marie Slaughter, A New World Order (Princeton: Princeton University Press, 2004), 178–81. 42 R. Kemp and R. Weehuizen, “Policy Learning: What Does It Mean and How Can We Study It?” PUBLIN Project – Innovation in the Public Sector, Nordisk institutt for studier av innovasjon, forskning og utdanning (NIFU STEP), Oslo, 2005, 10.

Designing Integration 33 43 Kirton and Guebert, “Soft Law,” 60. 44 Michelle M. Betsill and Harriet Bulkeley, “Cities and Multilevel Governance of Global Climate Change,” Global Governance 12 (2006): 141; see also Hari Osofsky, “Is Climate Change ‘International’? Litigation’s Diagonal Regulatory Role,” Virginia Journal of International Law 49 (2009): 3. 45 Prior to the election of the Obama administration, there was only one Canada-U.S. agreement – a “Joint Statement between the Canadian and American Governments to Expand and Intensify Bilateral Efforts to Address Climate Change.” The statement provided an umbrella under which information-sharing and project cooperation could take place on climatechange science and research as well as energy technologies, including carbon sequestration and “clean” coal. In one example of cooperation under the statement, the U.S. Department of Energy initiated a Regional Carbon Sequestration Partnerships Program in 2003, a government/industry effort to determine the most suitable technologies, regulations, and infrastructure needs for carbon capture and sequestration in different regions of the United States and Canada. On the U.S.-Mexico side, limited cooperative efforts were also undertaken in clean energy technology, as well as capacitybuilding programs through the USAid Global Climate Change program. 46 White House, Office of the Press Secretary, “U.S.-Mexico Announce Bilateral Framework on Clean Energy and Climate Change,” news release, 16 April 2009. 47 North American Agreement on Environmental Cooperation (1993), 32 ILM 1480, in force 1 January 1994. 48 See Neil Craik, chapter 8, this volume. 49 CEC Ministerial Statement, Denver, CO, 24 June 2009. 50 Government of Canada, Prime Minister’s Office, “Joint Statement by President Bush, President Calderon, Prime Minister Harper – North American Leaders’ Summit, 22 April 2008.” 51 White House, Office of the Press Secretary, “Joint Statement by North American Leaders,” news release, 2 April 2012, http://www.whitehouse. gov/the-press-office/2012/04/02/joint-statement-north-american-leaders. 52 Debora L. VanNijnatten, “Towards Cross-Border Environmental Policy Spaces in North America: Province-State Linkages on the CanadaU.S. Border,” in “Quebec and Canada in the Americas,” special issue, AmeriQuests: The Journal of the Center for the Americas 3, no. 1 (2006), http:// ejournals.library.vanderbilt.edu/ameriquests/viewissue.php?id=7. 53 Barry Rabe, “Governing the Climate,” Environmental Forum 26, no. 5 (2009): 36. 54 VanNijnatten, “North American Environmental Regionalism.” 55 See, for example, Osofsky, “Is Climate Change ‘International’?”

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56 Environment Canada, “Canada and Nova Scotia Working Together to Reduce Greenhouse Gas Emissions,” news release, 19 March 2012, http:// www.ec.gc.ca/default.asp?lang=En&n=714D9AAE-1&news=C57FE6E98B0D-487E-8B31-58B3FE776DBC. 57 Constitutional law theorists have referred to this adaptive model of federalism as “dynamic federalism.” See Kirsten Engel, “Harnessing the Benefits of Dynamic Federalism in Environmental Law,” Emory Law Journal 56 (2006): 159. 58 A. Underdal, “Complexity and Challenges of Long-Term Environmental Governance,” Global Environmental Change 20 (2010): 386. 59 Alec Stone Sweet and Wayne Sandholtz, “Integration, Supranational Governance, and the Institutionalization of the European Polity,” in European Integration and Supranational Governance, ed. Wayne Sandholtz and Alec Stone Sweet (Oxford: Oxford University Press, 1998), 1. 60 Daniel Bodansky and Elliott Diringer, “Towards an Integrated MultiTrack Climate Framework,” Pew Center on Global Climate Change, 2007, http://www.c2es.org/docUploads/Multi-Track-Report.pdf. 61 Copenhagen Accord, appendix I: Quantified Economy-Wide Emission Targets, communication from EU, 28 January 2010. 62 Thomas Courchene and John Allen, “Carbon Pricing and Environmental Federalism,” in Canada: The State of the Federation 2009; Carbon Pricing and Environmental Federalism, ed. Thomas Courchene and John Allen, 75–94 (Montreal and Kingston: McGill-Queen’s University Press, 2010). 63 Underdal, “Complexity and Challenges,” 387. 64 O. Young, “Institutional Dynamics: Resilience, Vulnerability and Adaptation in Environmental and Resources Regimes,” Global Environmental Change 20 (2010): 382. 65 E. Ostrom, “Beyond Markets and States: Polycentric Governance of Complex Economic Systems,” Nobel Lecture, 8 December 2009, http:// www.nobelprize.org/nobel_prizes/economics/laureates/2009/ostromlecture.html. 66 Ibid. 67 Frances Westley, Per Olsson, Carl Folke, Thomas Homer-Dixon, Harrie Vredenburg, Derk Loorbach, John Thompson, Mans Nilsson, Eric Lambin, Jan Sendzimir, Banny Banerjee, Victor Galaz, and Sander E. van der Leeuw, “Tipping toward Sustainability: Emerging Pathways of Transformation,” Ambio 40 (2011): 762, 769. 68 Andreas Duit, Victor Galaz, Katarina Eckerberg, and Jonas Ebbeson, “Introduction: Governance, Complexity and Resilience,” Global Environmental Change 20 (2010): 363.

2 Supply and Demand for a North American Climate Regime isabel studer1

In conceiving of North American climate change governance as a system, chapter 1 noted that the system as a whole will exhibit common institutional features that fundamentally influence the nature and potential of cooperative activities.2 In this respect, a key feature – one that echoes throughout the contributions in this volume – is the lack of hierarchical or “top-down” institutions that might coordinate and integrate the policy activities of the myriad public and private entities in North America engaged in climate change policy. This remains the case, even though high levels of economic integration and energy interdependence between the three countries prevail, and high-level contacts across the three countries have intensified in recent years. This chapter highlights the ways in which domestic political-economic dynamics and the current form of nation-to-nation interactions underlie the polycentricity of the North American regime. Specifically, this chapter argues that the climate dynamic in North America is underlain by power asymmetries that flow from Canadian and Mexican dependence on the U.S. energy market, making it very difficult for Canada and Mexico to address climate policy without U.S. leadership. As a result, there is a level of policy convergence at the national level, particularly when the United States expresses a will to lead, but this convergence is unlikely to crystallize into a regional framework for carbon emissions reduction. The obstacles to a centralized, top-down regional climate policy arise chiefly as the result of the political and economic influences on the U.S. Congress, but also the disparate regional interests in Canada and constitutional constraints within the Mexican energy sector. In view of these political constraints, this chapter also considers whether private sector actors, quite apart from governments,

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could act as a transnational constituency “demanding” a regional approach to climate change, thereby providing the impetus to link climate policy efforts across the continent. However, this has not generally been the case. Although this discussion shows how policy convergence on climate change (or the supply of policy leadership) in the absence of shared North American institutions is possible, policy coordination is lacking, as there remain significant domestic constraints to regional climate cooperation capable of effecting deep emission reductions. Understanding North American Climate Policy Interactions Following the dictum of neo-institutional theory that institutions are the result of their members’ dynamics,3 it is worth noting that, in contrast with Europe, North American states have been, and continue to be, highly reluctant to establish supranational institutions that deal with regional or transnational problems, partly because of significant power asymmetries in the region.4 The particular political structure and domestic politics of the United States have framed the North American Free Trade Agreement (NAFTA) institutions, as well as the manner in which other North American issues have been addressed; these institutions were designed specifically to ensure the least disruption to national policies and governance, reflecting the strong U.S. preference for maintaining policy autonomy in both its foreign and domestic policies. Canada and Mexico also have a strong preference to develop a limited trade and investment regime that requires the United States to comply with the rules of access to the U.S. market while preventing the United States from encroaching on their national sovereignty through regional norms developed by supranational institutions dominated by the largest partner.5 From this perspective, North America as an interactive entity is perhaps best characterized by the term soft regionalism, which denotes a more informal type of regionalism based on social interactions, and contrasting with the notion of regionalism that implies state-led efforts to support institutionalized cooperation and collective action.6 North America shows high levels of regionalization in the economic and social realm, yet low levels in political cooperation. The North American institutional framework is feeble,7 and regional norms, where they exist, are negotiated largely through the prism of a U.S. “hub-and-spoke” approach. However, in explaining why state actors decide to cooperate regionally, adequate attention also needs to be paid to the role of non-state actors, whether transnational corporations or non-governmental actors;8

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these are critical variables that define the parameters for policy action in North America. In the North American context of deep economic integration, the nation state is just another policy actor, although a powerful one, which uses national sovereignty as a powerful bargaining tool where complex transnational networks seem to prevail. As such, the process of integration in North America is the result of complex domestic and transnational politics.9 A political economy analysis needs to be able to account for state behaviour due to changes in the attitudes of political elites in favour of integration as well as the role of economic actors that demand regional rules in order to reduce transactional costs. Mattli argues that explaining regional dynamics requires an analysis of the “supply” (ideological or political changes in the political elites within influential institutions or simply in the overall political context) and “demand” for such integration, coming particularly from economic actors. Yet, surprisingly, the role of non-state actors, particularly business, in promoting regional integration is one of the least studied aspects of regionalism.10 How interest groups influence foreign economic policy, particularly policies that favour free trade, is a question sufficiently studied in the international political economy literature.11 However, little systematic research exists on how economic actors, their preferences and strategies, and the interdependent networks that they build through trade and foreign direct investment, also trigger a demand for regional integration.12 In the North American context, these political dynamics are a critical piece of the puzzle in explaining why governments cooperate and what kinds of mechanisms they use – a point made in various ways by the contributing authors in this volume. And, in this respect, a key development has been the emergence of policy coordination and convergence as a pragmatic response to the difficulties facing political elites who must manage political and economic interdependence among the three countries and, from non-state actors, the demand for smooth (and cheaper) cross-border flows. NAFTA is a good example here. The high levels of economic interdependence in North America during the 1980s increasingly created tensions between transnational corporations (mainly in the manufacturing sector) and national regulators, and prompted the demand for legal frameworks that protected the private investments being made to boost the competitiveness of cross-border operations through the rationalization of production on a cross-border and continental basis. Yet NAFTA was also the outcome of a convergence of values and beliefs amongst political elites in the three countries regarding the overall social benefits to be accrued through

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freer trade and closer economic ties. Similarly, the 2005 Security and Prosperity Partnership of North America, which was a looser institutional framework than NAFTA and which operated until 2008, could be seen as a pragmatic response to the transaction costs that U.S. security policies, imposed unilaterally, exacted on transnational systems of production and trade.13 Owing this logic, one might assume that energy interdependence and close economic ties in North America would provide a favourable context for regional coordination on climate change policy and thus some form of cooperation framework that benefits all three countries (see appendix for a list of climate and energy agreements). Indeed, as discussed below, climate change policies in the three countries have converged in broad terms, but this has not led to a regional climate regime. Understanding the nature of this interdependence and how its interaction with power dynamics affects cross-border coordination among the three countries requires closer examination. The goal here is to focus on the top-down, rather than bottom-up, and to look at the supply and demand factors for a regional regime on climate change to explain why such a regime has not emerged. Power Asymmetries: Canada and Mexico as Energy and Climate Policy Takers Trade in energy reveals high levels of regional interdependence in North America, but also significant power asymmetries (appendix). As the result of its market size, the United States tends to dominate energy policies in North America. Certainly U.S. energy consumption is formidable. In this respect, American domestic reserves and fossil fuel production are substantial. However, the country is also highly dependent on energy imports, particularly from its neighbours; the United States imports over 20 per cent of its oil from Canada and over 10 per cent from Mexico. Put another way, Canada and Mexico are also dependent on the U.S. market for their oil exports. The United States, together with Mexico, is also a large importer of natural gas. Along with the United States, Canada is one of the largest energy consumers and producers in the world.14 Canada’s consumption of global energy and its total emissions of carbon dioxide are high by global standards and disproportionate to the size of its population. Not surprisingly, Canada’s climate policies are shaped by the country’s historic dependence on low-cost energy sources and its large trade dependence on the United States: “The oil and gas industry is

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now the largest source of Canadian exports to the U.S., after nearly doubling in value over the last five years.”15 Canada has thus become increasingly vulnerable to environmental concerns, and particularly to policies adopted in its most relevant export market relating to unconventional fossil fuels, especially oil sands and shale, which have gained prominence in Canada’s energy supply.16 Perhaps the most visible example of this vulnerability is President Obama’s decision to reject TransCanada’s application to construct the Keystone pipeline that would cross the United States from Alberta all the way south to Texas. Canada has also been extremely cautious in the adoption of climate change targets and timetables, and aware of the need to strategically consider its climate policies in relation to those adopted in the United States. Canada’s recent decision to withdraw from the Kyoto Protocol has de facto harmonized its international negotiation policies with those of the United States. Mexico’s dwindling oil resources are also altering North American energy security and explain to a large degree the country’s recent leadership in climate change policies. While Canada’s oil and petroleum exports to the United States have continued to grow over the years, Mexico’s proven hydrocarbon reserves are down to a level of nine years of production for petroleum and twenty years for natural gas. The International Energy Agency (IEA) and other studies predict that, within a decade, Mexico will turn into a net importer of energy.17 In fact, Mexico’s oil exports peaked in 2006 and fell continuously after depletion of Mexico’s largest oil field, Cantarell.18 Mexico is already a net importer of gas, which is increasingly needed to meet the rapidly growing domestic energy demand. For Mexico, then, even though its carbon emissions are much lower than those of its two North American partners, addressing climate change is not a goal incompatible with energy security, as the country needs substantial investments to develop alternative and economically accessible energy sources. It is worth noting that the income generated from oil exports funds many of Mexico’s social programs and constitutes 35–38 per cent of the Mexican government’s total revenue. As a World Bank study has boldly stated, “Reducing greenhouse gas emissions is critical in Mexico, not only to address climate change but also to facilitate economic development, a key emphasis of the country’s climate change agenda.”19 Their dependence on access to the U.S. market for oil and gas makes both Canada and Mexico reliant on U.S. energy and climate policies, as became evident during debates on recent U.S. legislative proposals on energy reform, particularly the American Clean Energy and Security

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Act (ACES), approved by the House of Representatives in June 2009 but never acted on in the Senate, and the American Power Act (APA), which failed in the U.S. Senate shortly thereafter. Measures included in those legislative proposals – particularly trade sanctions, border adjustments, and the competitive challenges for industries in energy-intensive and trade-exposed (EITE) sectors – had raised some concern in Canada and Mexico over U.S. protectionism.20 While the political atmosphere suggests that direct diplomacy with U.S. officials could prevent bilateral trade flows from being disrupted as a result of climate legislation, protectionist measures against Canada and Mexico cannot be ruled out completely. Since 2006, “green protectionist” voices in the United States have portrayed Canadian oil from the tar sands as a “dirty” source of energy.21 As President Obama’s decision to deny the application for construction of the Keystone pipeline shows, independence from foreign oil and the reduction of environmental impacts of fossil fuels consumption, at least from foreign sources, are seen as compatible goals for American decision-makers. The situation poses certain challenges for its neighbours, who also have to face an increasingly uncertain energy context as unconventional sources of gas gain prominence. The combination of slow economic growth, high prices for oil, and the emergence of shale gas as an economically viable energy option, even in spite of its environmental implications, may change overall North American energy dynamics.22 The ACES and APA sought to establish an economy-wide cap-andtrade system in the United States, and both Canada and Mexico made clear their interest in participating in such a scheme, particularly after the election of the new Democratic administration in late 2008. While a North American cap-and-trade system now seems unlikely, the informal linkage of North American systems, for example through offset schemes, remains economically desirable.23 Certified emission reductions, particularly those coming from Mexico, could help drive costs down for U.S. companies and provide the necessary funding for Mexico to make the transition to the low-carbon economy. In the current context of U.S. climate and energy policy uncertainty, there are voices in Canada in favour of implementing a parallel, transitional climate policy that addresses the different energy and emissions mix that exists between Canada and its southern neighbour. Canada’s energy mix contains more hydro and is less reliant overall on coal- and gas-fired generation, meaning that the United States can achieve significant, lower cost reductions by replacing its coal-fired

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electricity plants with less carbon-intensive alternatives. Canada thus requires, according to the National Round Table on Environment and the Economy (NRTREE), “a broader range of measures across multiple sectors to reduce emissions.”24 Certainly the costs to Canada of adopting mitigation targets similar to those implemented in the United States will be higher, given that Canada’s industrial power base is newer than that of the United States. Investment in clean technologies in Canada does not necessarily pair with regular infrastructure updating as it does in the United States.25 In addition, while matching carbon prices with those in the United States would reduce competitiveness concerns, fewer emission reductions would actually occur, as a result of projected higher emissions growth in Canada than in the United States and higher marginal mitigation costs in Canada.26 The competitive challenge for Canada, as it seeks to meet its climate targets, stems from emissions-intensive industrial/resource sectors, particularly mining, oil, and gas, which have experienced strong growth over the past decade.27 Although Mexico’s greenhouse gas (GHG) emissions are not high compared to those of the United States and Canada, and are relatively low when measured on a per capita basis and particularly when compared to the per capita levels of its North American partners, the projected growth of Mexican GHG emissions on a business-as-usual scenario is significant. In fact, between 1995 and 2005 total Mexican emissions increased by 34 per cent.28 For Mexico, the possibility of negotiating a sector-based accord to provide offsets for a carbon market in North America could represent a considerable resource base to channel very much needed financing to strengthen domestic climate change programs, and to promote development in impoverished Mexican forest communities. As in the United States, fossil fuels dominate the Mexican economy and constitute the largest sources of electricity generation, with natural gas having substantially increased in the last decade.29 While restrictions in the ACES would probably have ruled out Mexico as a provider of international offsets, the APA left more room to explore this possibility; indeed, the latter would have allowed the use of offsets with developing nations that have appropriate mitigation, reporting, and verification guidelines in place. Developing these capabilities in Mexico – particularly in avoided deforestation, one of the most significant sources of greenhouse gas emissions in the country – becomes strategically important in accessing the financing necessary for curtailing the growth of GHG emissions.30

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Other U.S. measures, such as the low carbon fuel standard adopted in California, could have significant impacts on Mexican or Canadian exports of oil to the United States.31 The implementation of a renewable electricity standard, were it to accept out-of-state renewable power,32 would be potentially beneficial for both Canadian and Mexican border states working on hydro, wind, and solar power. Yet a trade dispute on the ways in which renewable power has been defined in recent U.S. policy proposals cannot be ruled out. Such definitions tend to discriminate between power generated by type of hydro plant, and in some cases they do not recognize hydropower – particularly from large-scale Quebec operations – as “renewable.”33 Electricity trade is variable across North America and tends to be dominated by Canada-U.S. exchanges. Given the projected growth in demand for electricity across the Mexico-U.S. border, the adoption of renewable portfolio standards at the state level in the United States could create the impetus for policy coordination and for advancing the deployment and cross-border grid interconnections of non-CO2-emitting sources of electric power. These projects are more challenging, as they necessitate the reconciliation of quite differing regulations and targets on both sides of the border, although the Canada-U.S. experience might provide a model for this exchange. They also require substantial investments in infrastructure development and must be part of a longterm cooperation program. As Etcheverry,34 as well as Duncan Wood, argues, Mexico in particular may offer a reliable and relatively low-cost power supply from wind energy farms in the north, but the challenge is to develop the transmission lines across the borders and reconcile the state and federal regulatory frameworks on both sides of the border.35 A more significant challenge for Mexico, as explained below, is to remove the constitutional restrictions that postpone faster development of cleaner energy sources. Perhaps the most critical message from the above discussion is that both Canada and Mexico lack the infrastructure to diversify their energy exports, at least in the medium term, and they therefore strongly depend on the decisions made by their large, common neighbour. In addition, Mexico’s development of renewable energy sources, particularly solar and wind, will require a substantial transfer of technology and financial resources. Yet, in the absence of a comprehensive U.S. program on climate change, the policy cues transmitted to Canada and Mexico are by no means clear. The American policy influence may operate differently on national and sub-national decision-makers,

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particularly in Canada, where provinces have tended to adopt different climate policy approaches and the federal government has focused on boosting carbon capture and storage technologies. In Mexico, climate legislation is not as clearly driven by U.S. policy, largely because Mexico is not obligated, under the UNFCCC, to adopt mitigation measures. Nevertheless, in the absence of a comprehensive U.S. policy on climate change, Mexico faces significant institutional and financial barriers that will make it difficult for the country to achieve its climate and clean energy objectives. Convergence on National Climate Change Policies Over the past several years, the broad policy preferences of the political leadership in the three countries of North America have gradually converged. Political changes, particularly with the arrival of Barack Obama in the White House, strongly motivated such a policy convergence, which has sparked increased policy dialogue on climate change and clean energy (appendix). At the same time though, the three countries face significant domestic political hurdles to undertaking aggressive carbon reduction policies and establishing a North American climate change framework that is a mutually beneficial proposition. The United States: From Laggard to Leader to Laggard? As president, George W. Bush abandoned a campaign promise to curb carbon emissions and also declared that the United States would not ratify the Kyoto Protocol, although that was not likely in any event, given the 1997 Byrd-Hagel Resolution setting the terms (requiring emission reduction commitments from developing countries) upon which the Senate would agree to international GHG emission reduction commitments.36 Instead, the administration’s climate change approach centred on reducing national emissions intensity (emissions produced per unit of GDP), emphasizing voluntary emission reductions from industry, and offering tax incentives for clean energy technologies and co-generation. Most significant in its damage to the emergence of an international climate change regime was, first, the administration’s questioning of the science of climate change, particularly the claim that anthropogenic activity is causing the rise in temperature, and, second, its promotion of the use of fossil fuels and the deregulation of the oil and gas sector.37

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In 2007, the administration shifted its approach. After having resisted this option for many years, the administration adopted higher Corporate Average Fuel Standards (CAFE) for automobiles, as well as renewable fuel standards.38 It also became more engaged in multilateral climate cooperation. It established the Major Economies Forum, which includes those countries that are responsible for 80 per cent of greenhouse gas emissions and aims at creating a post-Kyoto framework to cut emissions, thereby building on the work of the 2005 Asia-Pacific Partnership on Clean Development and Climate.39 With the goal of engaging developing countries in mitigation, the United States joined other voluntary partnerships focusing on technology development, including the Carbon Sequestration Leadership Forum, the International Partnership for the Hydrogen Economy, and the Methane to Markets Partnership.40 Perhaps most importantly, by 2007 the U.S. administration was ready to consider long-term actions under the auspices of the UNFCCC, supported both the 2007 G8 summit declaration and the Bali Action Plan,41 and announced that it would attempt to end U.S. emissions growth by 2025. It also indicated a willingness to sign an internationally binding agreement, if the other major economies (including developing economies) did so.42 Democratic presidential candidate Barack Obama campaigned on commitments to end U.S. dependence on foreign oil, promote alternative energy and green jobs, adopt a mitigation target to stabilize greenhouse gas emissions at their 1990 levels by 2020, with an 80 per cent reduction by 2050, and establish a cap-and-trade system to help reduce mitigation costs.43 A few days after taking office, Obama sent two policy signals that showed his determination to lead on the climate change file. The first was the signing of a memorandum requiring increased fuel efficiency immediately for 2011 model passenger vehicles. The second was a memorandum asking the Environmental Protection Agency (EPA) to reconsider California’s petition – turned down earlier by the Bush administration – for a federal waiver that would allow that state and others to impose stricter regulations limiting GHG emissions from motor vehicles than those set by the federal government. Then, under the 2009 American Recovery and Reinvestment Act, the Obama administration devoted about 10 per cent of new resources under the bill to renewable energy, energy efficiency, the introduction of smart grids, and energy-related jobs. The Obama budget of 2009 also proposed a ten-year revenue of $645 billion that would come from auctioning permits from oil, electric power, and heavy industries that are responsible

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for the majority of CO2 emissions. Most of that revenue would be used to provide tax credits to workers, offsets to higher energy costs and clean-up costs for small businesses. The EPA also received the largest budget in its history, amounting to $10.5 billion.44 In addition, with the instruction that the EPA follow up on the U.S. Supreme Court ruling in Massachusetts vs EPA, declaring carbon dioxide to be a pollutant under the Clean Air Act, the Obama administration inaugurated a period of active regulation regarding carbon emissions. After issuing an endangerment finding for six key greenhouse gases, the EPA finalized a mandatory GHG reporting rule and moved to regulate emissions from motor vehicles. Negotiations between government, states, and the automotive industry resulted in the first-ever GHG standards for model 2012–16 vehicles in April 2010.45 The EPA and the National Highway Traffic Safety Administration (NHTSA) also issued new CAFE standards, requiring a performance of 35.5 miles per gallon by 2016. In addition, in September, EPA and NHTSA proposed a new labelling system that would include information on fuel efficiency and the GHG emissions of new passenger vehicles. Further, the EPA is proceeding with GHG regulations for heavy-duty engines and vehicles.46 The endangerment finding’s repercussions have gone well beyond the transportation sector, however; once greenhouse gases were identified as pollutants, a new push for using the Clean Air Act to regulate emissions from stationary sources began. Now considered pollutants, GHG emissions by new and modified facilities would, under the existing Prevention of Significant Deterioration program, require permits. In May 2010, the EPA finalized the “Tailoring Rule,” which set new emission thresholds for stationary GHG sources.47 The EPA states that this regulation will cover 70 per cent of current GHG stationary sources, thus affecting manufacturing facilities, oil refineries, and large power plants whose emissions clearly exceed the new GHG emissions thresholds. With the 2010 midterm elections strengthening the political power of Republicans (and climate policy opponents) in Congress, there were concerted attempts to block the administration’s piecemeal attempts to regulate GHG emissions reductions. It is thus not clear how far the Obama administration and the EPA will be able to take this strategy. Yet the American climate change policy approach has had an impact on Canada and Mexico, though this impact is manifested in different ways in the two countries.

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Canada While Canada did sign and ratify the Kyoto Protocol, thereby assuming a commitment to reduce greenhouse gas emissions to 6 per cent below 1990 levels by 2012, de facto Canada seems to have followed U.S. climate policies in the last two decades. Certainly, Canada has failed to comply with its Kyoto commitments; Canada’s greenhouse gas emissions increased 27 per cent between 1990 and 2004.48 As Douglas Macdonald notes, in recent years Canada’s national policy on climate change has “disintegrated into a shamble of uncoordinated and wildly different objectives, policy instruments and programs.”49 The Conservative government of Stephen Harper, with strong representation in the western provinces, particularly Alberta, abandoned Canada’s commitment under the Kyoto Protocol. The new greenhouse gas emissions reductions set for 2020 were 20 per cent relative to 2006, compared with the Kyoto goal of 6 per cent below 1990 levels.50 In April 2007, the federal government’s climate change program, as outlined in Turning the Corner: An Action Plan to Reduce Greenhouse Gases and Air Pollution, introduced an industry requirement to reduce emissions intensity by 18 per cent by 2010.51 The action plan included, in addition to a regulatory framework for industrial emissions of greenhouse gases and air pollutants, a mandatory fuel-efficiency standard for automobiles beginning with the 2011 model year, as well as action to reduce emissions from the rail, marine, and aviation sectors, and from on-road and off-road vehicles and engines. It also committed to strengthening energy efficiency standards for a range of products and appliances. At the same time, however, the Canadian delegation in Bali “acted deliberately to obstruct any hard targets in post-Kyoto discussions.”52 The Harper government made it clear that Ottawa would to a significant degree move towards the “less Kyoto, more Washington” approach.53 The day after the 2008 U.S. election, the Harper government announced that it would “propose to the Obama administration a bilateral climate change agreement, in order to harmonize policy in the two countries and guarantee that the U.S. would not shut out imports of dirty oil from Alberta tar sands.”54 It then decided to mirror the U.S. pledges expressed in the Copenhagen Accord and, accordingly, set its pledges at 17 per cent below 2005 emission levels or 3 per cent above 1990 levels.55 It would achieve this goal, first, through regulatory initiatives, mainly passenger automobile and light truck greenhouse gas emission regulations that mirrored those established in the United States; a pledge to introduce regulations that restricted heavy-duty

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vehicle emissions, also in alignment with regulations being developed in the United States; and regulation on coal-fired electricity generation.56 Another means to achieve its greenhouse gas emissions reduction goal would be through a strong emphasis on technology development. It committed to invest $795 million over five years through the Clean Energy Fund for research and development of green technologies; “$4.2 billion through ecoENERGY Initiatives which encourage Canadians to invest in energy efficient products and services; and $1 billion over five years for the Green Infrastructure Fund which invests in green and sustainable infrastructure.”57 Not surprisingly, most bilateral U.S.-Canada agreements or programs have emphasized research and technology, as well as marketbased approaches. The 2002 Joint Agreement to Fight Climate Change, the Smartway Transport Partnership, and ecoENERGY for Fleets are good examples. Further, the U.S.-Canada Clean Energy Dialogue was established in February 2009 and has become the most important forum for bilateral action in research and development on carbon capture and storage, smart grid technology, and renewable energy sources. With a majority government secured for five years, Stephen Harper formally announced Canada’s withdrawal from the Kyoto Protocol immediately after the Durban Climate Summit in December 2011. The decision removed any ambiguity in Canada’s policies regarding climate change and, at least from an international negotiation perspective, Canada aligned with the position taken by the United States in requesting developing countries to adopt mitigation targets in order to subscribe to a universal, binding agreement that would effectively reduce global GHG emissions. Mexico With the presidency of Felipe Calderón, Mexico has assumed a position of global leadership on climate change. Not only did Mexico host, very successfully, the 2010 round of global climate negotiations, which took place in Cancun,58 it also became the first developing country to announce, in 2008 at the Poznan conference, actions to reduce carbon emissions – by 50 per cent from 2002 levels by 2050. The 2009 special national program on climate change (the Programa Especial de Cambio Climático, or PECC) introduced commitments to reduce carbon emissions across all sectors by 51 million tons by the end of 2012 and 30 per cent below business-as-usual levels by 2020.59 These commitments were further enshrined in the General Climate Change Law that was

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approved by the Mexican Congress in April 2012. These commitments represent a stark departure from Mexico’s previous climate change policies, as shown by Pulver.60 They also depart from the traditional developing country interpretation of the principle of common but differentiated responsibilities, by which developing countries have historically rejected obligatory mitigation targets, an issue that has been a source of contention between developed and developing countries. China and India, for example, have committed to reduce the intensity of future carbon emissions, an approach that would allow for an increase of their absolute emissions. In spite of Mexico’s efforts, strong private sector opposition remains, particularly to Mexico’s adopting international binding commitments unilaterally and in the absence of a universal climate agreement where major emitters also commit to effective emission reductions.61 Furthermore, Mexico’s goals are aspirational, as they depend upon financial support from international sources and, as such, its climate change policies are far from being fully implemented.62 The Mexican government also introduced major pieces of legislation that represent important, although symbolic, efforts to promote a clean energy growth path. The Law for the Use of Renewable Energy and Financing the Energy Transition established a renewable energy fund, set an 8 per cent target for renewable energy generation, and put in place rules for the purchase of surplus energy from self-supply and cogeneration. The Law for the Sustainable Use of Energy created a number of programs to increase energy efficiency; and the General Climate Change Law, introduced by Senator Alberto Cardenas, contemplates a wide range of policy instruments and comprehensive programs for a low carbon emissions strategy.63 Mexico’s international climate position under the Calderón government represents a fundamental change from the country’s historically limited involvement in multilateral negotiations.64 More active participation in earlier global negotiations on climate was constrained by at least three factors: the country’s decision to become a member of the OECD, which excluded it from the G77 bloc representing developing countries in international climate change negotiations; the key importance of oil production in the national economy, with high levels of energy inefficiency; and its strong economic association with the United States, which, like Canada, and by virtue of its dependence on the United States for energy exports, limited Mexico’s ability to follow a policy path different from the one set by its large neighbour. The withdrawal of the United States from the Kyoto Protocol also undermined

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Mexico’s interest in participating more actively in the global climate change negotiations, as such a move represented both the collapse of the potential market size of the Clean Development Mechanism, as the United States was expected to be the main purchaser of emissions, and the limited prospects for a North American emissions trading scheme.65 Interestingly, and in spite of these setbacks, Mexico’s foreign policy rhetoric continued to make climate change a key priority, thus reflecting concerns about the country’s high vulnerability to the effects of global warming. The high visibility that climate change has gained in Mexico also stems from the country’s dwindling oil resources at a time of a rapidly expanding energy demand. The prospect for expanding the United States–Mexico cooperation agenda through clean energy and climate change with the arrival of Barack Obama at the White House was also a factor at play. With the United States, Mexico established in 2009 a Bilateral Framework on Clean Energy and Climate Change, which became a mechanism for political and technical cooperation and information exchange, and for facilitating common efforts to develop clean energy economies as well as cut greenhouse gas emissions, strengthen adaptation capacities, and enhance the reliability of electricity trade at the border. One year later, the two countries created a Binational Expert Group on a Low Emissions Development Strategy, an Academic Forum on Clean Energy and Climate Change, and fast-track tariff negotiations on climate-friendly technologies. They also committed to modernize the electricity grid and announced a fund for investments in wind technology in Mexico, as well as training programs and capacity-building for energy efficiency and GHG emissions mitigation. A Cross-Border Electricity Task Force was also established to stimulate power generation and trading from renewable sources in the border region. Not much progress has been reported on these initiatives or those undertaken under the trilateral, North American umbrella. The three North American countries converged in several multilateral forums, including at the 2009 G20 meeting in Pittsburgh, at which they committed, for example, to phase out fossil fuel subsidies. They have also joined the Energy and Climate Partnership of the Americas, created during the Fifth Summit of the Americas in April 2009. With the support of several international organizations and development banks, this initiative is set to enhance hemispheric collaboration on energy efficiency, renewable energy sources, fuel efficiency, and energy infrastructure.66 Clearly, changes in policy positions in the United States in 2009 and

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the momentum built around the global climate talks in the run-up to Copenhagen and then Cancún were germane to the flurry of activity at the highest levels in North America. Yet despite this activity, the policy intentions of the North American governments have not been converted into significant concrete national actions to reduce GHG emissions. Obstacles to Developing a North American Regime on Climate Changes In a context of increasing complementarity in the broad climate policy approaches of the United States, Canada, and Mexico, and in light of existing levels of economic integration and energy interdependence, policy coordination in more specific areas is possible. However, such regional coordination is hampered by the complex and unique mix of domestic political dynamics within each country. American political developments cast by far the longest shadow over the region. The U.S. Congress and the Political Economy of Energy Resources It is clear now that the Obama administration did not make climate change as high a priority in his legislative agenda as many had expected. However, even had the Obama White House pursued an ambitious climate policy agenda, it did not harvest the kind of support it needed from Congress. Well before the election of President Obama, a growing number of legislative proposals emanating from the U.S. Congress aimed at crafting a new climate change policy through a cap-and-trade system and targets for long-term carbon emission reductions. According to the Pew Center on Global Climate Change, as of June 2008, 235 bills, resolutions, or amendments had been proposed to the 110th Congress. Many of those proposals expressed hope for change, particularly as the votes reflected a reality contrasting sharply with the Byrd-Hagel resolution that the U.S. administration not sign any international agreement that did not include a commitment by developing countries to cut emissions. The 111th Congress also saw a number of proposals for comprehensive climate and clean energy legislation.67 By 2009, the political momentum seemed to have built around comprehensive climate legislation. A new, progressive government had vowed to address global warming, a Democratic congressional supermajority was in place, and anticipation related to the U.S. position in

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the Copenhagen climate change conference also encouraged domestic action on climate change. Optimism peaked in June 2009, when the ACES passed the House of Representatives with a final vote of 219 against 212. The 932-page document built on earlier proposals to present a comprehensive plan that would have increased energy efficiency and renewables in America’s energy mix, and established a very controversial economy-wide cap-and-trade system. Yet Senate action on the bill stalled for almost a year as the result of a series of political circumstances discussed below, and the bill died at the close of the 111th Congress. Presented in the Senate in May 2010, the APA was probably the last significant attempt to pass energy and climate legislation in the 111th Congress. The 987-page proposal included a series of negotiated provisions to procure a bipartisan approach and, rather than opting for an economy-wide cap-and-trade system, the APA introduced a sectoral approach; it supported lower- and middle-income American consumers through rebates, and it relied on the promotion of nuclear power development and increased offshore drilling, provisions that were meant to garner Republican support. The fate of the proposal was marked from the beginning, however, by the sudden withdrawal of support by the sole Republican drafter of the bill, Lindsey Graham of South Carolina, and by the highly polarized political environment of the day. The fragile bipartisan environment that had been built around energy and climate legislation quickly vanished. The basic structural challenge posed by the political economy of energy resources in the United States explains, in large part, the inability to get broad-based agreement on national legislation. The vast coal, oil, and natural gas resources of the United States are unevenly distributed; while more than 80 per cent of U.S. oil reserves are concentrated in only four states (Texas, Alaska, California, and Louisiana), U.S. coal reserves are distributed among twenty-six states.68 As Skodvin and Andresen note, if the U.S. car industry is added, as well as other states that depend on imports of coal-based electricity, it means that “well over half of the U.S. states would be affected by policies and measures to reduce greenhouse gas emissions.”69 Therefore, in what appears to be a permanent feature of energy and climate change policy in the United States, the geographical dimension “significantly increases the likelihood of voting no to climate related legislation, regardless of party affiliation.”70 Skodvin and Andresen also conclude that, “even though Democrats strengthened their position significantly in the

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2008 elections, the political opportunity space on climate policy was not radically different from the 110th (2006–2008) to the 111th (2009–2011) Congress.”71 The regulatory approach to GHG emissions reduction adopted by the Obama administration was regarded as a way to push climate legislation in Congress, under the assumption that the private sector clearly preferred a cost-effective market-based policy over regulations. However, moved by letters from over twenty state governors and twenty-five congressional representatives – mostly coming from fossil-fuel dependent states – seeking congressional blockage of EPA’s regulation of stationary GHG emission sources, Democratic Senator Jay Rockefeller and Republican Senator Lisa Murkowski introduced resolutions to either prevent the EPA from requiring permits for GHG sources or to block the EPA’s authority to regulate GHG emissions altogether.72 After a contentious debate in the Senate that resulted in a vote of fifty-three to forty-seven, including six Democrats voting in favour of the resolution, Murkowski’s resolution was discarded in June 2010. 73 Meanwhile, industry associations, conservative law firms, and the states of Texas and Virginia filed petitions asking the EPA to reconsider the endangerment finding, particularly given the recent questioning of scientific accuracy of studies by the Intergovernmental Panel on Climate Change (IPCC). All of them were turned down in August 2010.74 However, efforts by Senator Rockefeller to remove the EPA’s authority to regulate GHG emissions under the Clean Air Act continue and have even gained additional Democratic support. Adding fire to the already polarized U.S. political context, the Sierra Club, the Environmental Defence Fund, and the Natural Resources Defence Council threatened to sue the EPA if it did not set New Source Performance Standards for new and existing sources of GHG emissions.75 Climate legislation is not foreseeable in the near future, given the current political configuration of the U.S. Congress. A GHG emissions reduction regime led by the EPA makes policy development in the United States harder and trickier for the smaller NAFTA partners to read. Disputes, not only among national trade partners, but within the United States itself, may very well bring the overall system’s efficiency down and create an uncertain environment for business and clean technology deployment. Multiple state initiatives, which are discussed in Barry Rabe’s chapter in this book, while struggling to survive, may be leading climate policies in the United States for some time, resulting in a map of divergent state regulations, overlapping jurisdictions,

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and cumbersome permitting processes that could very well be every Canadian and Mexican trade-exposed industry’s worst nightmare. Canadian Provinces While the parliamentary system in Canada provides the federal government with more power over the other branches of government than is the case in the United States, the highly decentralized nature of the Canadian political system represents the most fundamental challenge for climate policymakers. The distribution imbalance of energy resources across geographical regions in Canada, as well as the tensions implicit in the decentralization of political power that gives provinces absolute control over natural resources, has complicated the articulation of national policies that tackle the climate change challenge. In recent years Manitoba and Ontario have followed the policy path established by Quebec and British Columbia, adopting multifaceted climate change plans, which include a range of initiatives to target GHG emissions, including regulations on vehicles and buildings, and incentives for renewable energies. Ontario, for example, has introduced feed-in-tariffs to promote renewable energies. As Rabe’s chapter shows, all four provinces had committed to cap-and-trade systems with U.S. states (although Manitoba has recently pulled out) that include “hard” caps on emissions.76 Saskatchewan, a province that had been moving from a position of hostility to climate action to one more favourably inclined,77 is once again less supportive under the premiership of Brad Wall. However, the province with the highest greenhouse gas emissions, Alberta, is doing very little to control them, and without its participation, Canada will not be able to meet its international commitments. Alberta’s emissions, coming largely from the oil sands, have increased by 121 per cent since 1990.78 At the root of Canada’s chaotic climate and energy policies lies the uneven distribution of mitigation costs across provinces, which have absolute control over natural resources. While Alberta, Saskatchewan, and Newfoundland are oil and gas production provinces, British Columbia, Manitoba, and Quebec have plentiful hydroelectric power. Ontario, for its part, is highly dependent on power because of its strong manufacturing base, oriented mainly to automotive production. Douglas Macdonald, an expert on federal–provincial climate policy relations, explains how these relations have evolved over recent years. He notes that the federal government, under the leadership of

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Prime Minister Jean Chrétien, designed national programs on climate change that relied largely on voluntary actions and on collaboration established with provincial governments through the Joint Meeting of Ministers (JMM), a forum that included ministers of the environment and energy and operated under a consensual rule.79 With the Chrétien government’s ratification of the Kyoto Protocol in 2002, the consensus collapsed, and the federal government resorted to spending on research and development as a means to strike bilateral agreements with willing provinces, which departed from the traditional multilateral federalprovincial process.80 Also part of the post-2002 context, Macdonald notes, was the transition to direct federal regulation through the Canadian Environmental Protection Act, although the oil and gas industry negotiated an agreement that any cost of compliance with such regulations over fifteen dollars a tonne would be paid by the federal government.81 Most significant in undermining Canada’s climate policy, Macdonald argues, are the twin problems of having an obstructionist player, such as Alberta, at the same time that no other actor is willing to lead (as is the case of California in the United States).82 The result is an uncoordinated policy approach that makes it difficult for a national consensus to emerge. In addition, leadership from the federal government has been “confused, confrontational, and lukewarm,”83 as it has favoured the extraction and export of coal, oil, and natural gas at the same time that it makes modest efforts to pursue GHG mitigation through clean energy technologies and, more recently, regulation that mirrors the EPA’s approach. Mexico’s Energy Monopoly A highly centralized decision-making system and a publicly held monopoly over oil and electricity – through Petroleos Mexicanos (PEMEX – Mexican National Petroleum Company) and the Comisión Federal de Electricidad (CFE – Federal Electricity Commission) – should in theory facilitate the adoption and implementation of climate change policies in Mexico. Unfortunately, the financial requirements to meet Mexico’s climate goals – between US$7.2 billion a year between 2011 and 2015, and US$18.0 billion a year between 2026 and 203084 – are substantial and will have to come from international sources. One significant institutional constraint is Mexico’s constitutional prohibition on foreign investment in strategic energy sectors. While recent reforms allow for limited participation by foreign capital, foreign ownership

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of the oil produced continues to be prohibited, and investment in the industry is therefore not attractive for foreign oil producers.85 Also limiting the ability of the Mexican government to finance the transition to a low-carbon economy is the reliance of the federal budget on PEMEX revenues, as discussed above, making it impossible to reinvest needed resources in new exploration that could address the imminent challenge of Mexico becoming a net importer of oil. Fossil fuel subsidies, for both electricity and gasoline, are a related problem that also inhibits the Mexican federal government’s ability to invest in new renewable energy projects. According to one estimate, the total cost of such subsidies reached 2 per cent of Mexico’s GDP in 2008 or US$20 billion.86 The constitutional requirement that CFE purchase power at the lowest possible cost is another institutional restriction on the development of renewable electricity in Mexico. Under these conditions, renewable energy projects cannot compete with fossil fuel energy sources, despite Mexico’s global competitiveness in the development of some renewable energy sources, such as wind and solar.87 For this and other reasons that are explained in more detail in Etcheverry’s chapter, private sector participation in the Mexican electricity market is quite low, holding about a fifth of the total market share.88 It is interesting to note that in the late 1990s PEMEX became a vocal advocate for action on climate change, becoming the “first and only developing country oil company” to have developed a company-wide carbon emission reduction target.89 It also piloted an internal corporate emissions trading system, which was implemented between 1999 and 2002. The program was then extended to the CFE, the public nationwide electric utility in Mexico. Many of these energy efficiency projects participated in the CDM and were seen as a way to channel foreign investment. Today, Mexico is fourth on the list of countries who registered the largest number of CDM projects, and the fifth in receiving Certified Emission Reductions.90 Over 100 large-scale projects were developed by PEMEX and CFE. While there were plans to develop an internal market for Carbon Emissions Permits that would operate from June 2001 to May 2005, to reduce carbon emissions mainly through energy efficiency projects, the project never took off. In fact, there is a large potential for GHG emissions reductions through co-generation projects at PEMEX facilities and reduction of gas flaring and venting, but these have not materialized.91 In addition, according to a recent review, while the program laid down the basis for structural changes

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that are needed to decouple emissions from economic growth, the Mexican government has failed to effectively implement the policies that were designed under the PECC.92 The Absence of Market Forces Demanding a Climate Change Regime A trilateral cooperation agenda to make the transition to a low carbon economy can emerge only if domestic political obstacles, particularly in the United States, are removed. The political momentum in favour of substantial climate action is unlikely to change in the near term without increased demands for a nationally led climate policy by market actors. As one of the largest gas and oil producers in the world, the petroleum industry in Canada has important political clout and has been a factor at play in the climate policy outcomes. Also influencing those policies are U.S. firms who have considerable investments in the natural resources sectors of Canada and who have woven strong linkages between the Canadian and the U.S. energy markets. Yet the business community, particularly in the U.S. market, does not yet seem prepared to be at the forefront of climate policies, particularly given the persistently low economic U.S. growth rates and the high energy prices. A special reference to the adoption of targets and policies by U.S. business groups is needed, as these groups are increasingly responding to the expectations of future constraints on carbon and related regulatory developments. In Mexico, as already explained, the energy sector is controlled by two public monopolies, with the limited participation of private firms largely in gas and more recently in renewable energies. Other relevant Mexican business groups have been only marginally engaged in favour of climate policies, largely through voluntary reporting mechanisms for greenhouse gas emissions.93 The role of business is critical in building incentives for a North American climate change regime, particularly considering that transnational corporations in key sectors, including automotive, steel, glass, and cement, among others, do have a stake in maintaining the competitiveness of their transnational systems of production in North America. Most actions of the private sector in favour of climate change have focused largely on international negotiations. At the 2002 World Summit on Sustainable Development (WSSD), Greenpeace and the World Business Council on Sustainable Development (WBCSD), which includes more than two dozen U.S. multinational corporations, issued a call to governments “to be responsible and to build

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the international framework to tackle climate change on the basis of the UN Framework Convention on Climate Change and its Kyoto Protocol.”94 This type of pronouncement from the business sector is becoming more common. The Pew Center on Global Climate Change has been constructing a broad coalition of U.S. business leaders behind a progressive climate policy, and ever more business leaders are calling for the U.S. federal government to adopt mandatory emissions reductions in preparation for a post-Kyoto international regime.95 Influential environmental NGOs, including the World Resources Institute and Environmental Defence Fund, have partnered with business to develop opportunities for emission reductions. Competitive pressures have also compelled companies to respond to each other’s moves, as the example of Toyota’s launch of the Prius, a hybrid electric-gasoline engine car in 1998, indicates. While at the time most U.S. executives were initially dismissive of the prospects for the car in the United States, recalling that GM’s electric vehicle had been a commercial failure when was launched in 1995, they have since announced plans for their own hybrid vehicles, a number of which were launched in 2006.96 Pre-emptive actions taken by private companies have emerged since 2005, when the Kyoto Protocol entered into force and the European emissions trading system began operating. As a consequence, “decarbonizing commercial operations has increasingly become a routine part of corporate strategy for international industries such as chemicals and electronics,” and the effects have become “evident in a number of transnational private governance mechanisms that U.S. companies have helped to create.”97 One example was the Carbon Disclosure Project (CDP), an effort to create transparency through the release of information on greenhouse gas emissions and their contribution to global warming. “This initiative, which in 2007 included 225 investment firms representing over $31 trillion dollars,” is a means for governance mechanisms to target highly polluting companies.98 More than twentyfive companies participate in the World Bank Prototype Carbon Fund (PCF), a private-public initiative established in 2000, and include HydroQuébec, Daimler-Chrysler, Shell-Canada, BP-Amoco, and numerous Japanese firms. The twenty-two members of the Chicago Climate Exchange, which operated from 2003 to 2010, committed to reducing emissions from North American operations by 1 per cent a year for four years, and could engage in trading to meet those commitments.99 At the same time, several studies indicate that climate change is still widely ignored in major industrial sectors such as coal and airline

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companies, while others argue that companies are making real investments and organizational changes. More puzzling is the resurgence of corporate political activity in the United States against climate policy initiatives, particularly those emerging at the state level. The U.S. auto industry continues to oppose raising CAFE standards or their extension to heavier vehicles, and is vigorously contesting efforts by California and New York to exert direct regulatory control over vehicular carbon emissions. Corporate lobbying has been implicated in the withdrawal by Massachusetts from a proposed Regional Greenhouse Gas Initiative (RGGI) in early 2006. Other initiatives to question regulations to reduce greenhouse gases include the establishment of the Competitive Enterprise Institute (CEI), “an industry think tank that sponsored ads in May 2006 attacking the concept of carbon dioxide as a pollutant,” and the American Legislative Exchange Council (ALEC), which aims at stopping regulation of GHGs.100 Levy and Jones explain this apparent contradiction by noting that North American business is prepared to undertake organizational and technological preparations for a carbon-constrained future as long as they are “consistent with a weak, fragmented, and largely voluntary carbon regime.”101 Business envisages a long-term transition that does not immediately threaten core business activities. Conclusions The absence of a strong demand from economic constituencies in North America that can push for the creation of a regional climate change regime explains, in large part, the limited scope of high-level interactions and commitments to develop a sound bilateral and trilateral climate change and clean energy agenda. But domestic political constraints in all three countries, and particularly in the United States, also show the limited supply for a regional climate change regime. This limits the translation of such bilateral and trilateral North American policy dialogues into relevant projects that can effectively address climate change from a regional perspective. In the absence of both a supply of and a demand for a climate change regime, bottom-up, transgovernmental collaborative networks are not strong enough to push for the emergence of such a regime, even if there are high levels of energy interdependence and strong linkages between energy security and vulnerabilities to climate change. Power asymmetries are also relevant in North America. Canada and Mexico are policy takers and have no powerful incentives to move

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aggressively in favour of building a climate change regime. However, in the face of its energy insecurity stemming from dwindling oil resources, Mexico has undertaken political leadership in the fight against climate change but does not have the financial or technological resources to implement a more comprehensive low emissions growth path. Canada, particularly with a majority Conservative government, has few incentives to follow Mexico or to follow a path different from the one defined by its southern neighbour. A politically divisive and controversial issue such as climate change cannot be at the forefront of any U.S. government policy in the present context of substantial political polarization in the U.S. Congress. Without the positive engagement of the U.S. Congress to introduce energy reform and measures to reduce carbon emissions comprehensively, Mexico’s climate efforts will have a narrow impact on the North American region. NOTES 1 I want to express special gratitude to Sofia Viguri and Rachel Litsinsky, who provided research assistance and gathered statistical information and other bibliographical resources for this chapter. I am fully responsible for all factual errors or problems of interpretation that may appear here. 2 See Debora VanNijnatten and Neil Craik, chapter 1, this volume. 3 Robert O. Keohane, International Institutions and State Power: Essays in International Relations Theory (Boulder, CO: Westview, 1989); Keohane, “Internationalist Theory and the Realist Challenge after the Cold War,” in Neorealism and Neoliberalism: The Contemporary Debate, ed. David A. Baldwin, 239–300 (New York: Columbia University Press, 1994). 4 Robert O. Keohane, Power and Governance in a Partially Globalized World (London: Routledge, 2002), 74. See also Isabel Studer and Carol Wise, eds., Requiem or Revival? The Promise of North American Integration (Washington, DC: Brookings, 2007). 5 Isabel Studer, “Obstacles to Integration,” in Studer and Wise, Requiem or Revival?, 53–75. 6 Andrew Hurrell, “Explaining the Resurgence of Regionalism in World Politics,” Review of International Studies 21 (1995): 331–58. 7 Robert Pastor, Toward a North American Community: Lessons from the Old World for the New (Washington, DC: Institute for International Economics, 2001), 36–9; Lauren McKinskey and Kim Richard Nossal, “Managing Canada–United States Relations in the Context of Multilateral Alliances,” in America’s Alliances and Canadian–American Relations, ed. McKinskey and Nossal, 12–20 (Toronto: S.L. Summerhill, 1988); Carol

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Isabel Studer Wise, “Unfulfilled Promise: Economic Convergence under NAFTA,” in Studer and Wise, Requiem or Revival?, 27–52; Peter Hakim and Robert E. Litan, The Future of North American Integration: Beyond NAFTA (Washington, DC: Brookings, 2002). Walter Mattli, “Explaining Regional Integration Outcomes,” Journal of European Public Policy 6, no. 1 (March 1999): 1–27; Stefan A. Schrim, Globalization and the New Regionalism (Cambridge, UK: Polity, 2001). Studer and Wise, Requiem or Revival? Isabel Studer Noguez, “Las teorías de relaciones internacionales y la integración económica regional desde la perspectiva de la política exterior de México,” in Temas de política exterior de México, ed. Ana Covarrubias, 161–88 (Mexico: El Colegio de México, 2008); Richard Baldwin and Anthony Venables, “Regional Economic Integration,” in Handbook of International Economics, vol. 3, ed. Gene Grossman and Kenneth Rogoff, 1597–644 (Amsterdam: Elsevier, 1995). Helen V. Milner, “Trading Places: Industries for Free Trade,” World Politics 40, no. 3 (1988): 350–76; Edward D. Mansfield and Hellen V. Milner, “The New Wave of Regionalism,” in The Politics of Global Governance: International Organizations in an Interdependent World, ed. Paul F. Diehl, 313–60 (Boulder, CO: Lynne Reinner, 2001); Jeffrey Frieden, “Sectorial Conflict and Foreign Economic Policy, 1914–1940,” International Organization 42, no. 1 (1988): 59–90. Mattli, “Explaining Regional Integration Outcomes”; Studer, Isabel (2008). Isabel Studer, Ford Global Strategies and the North American Auto Industry, Routledge Series of International Business and the World Economy (London: Routledge, 2002); “North America,” ed. Studer, special issue, Revista Mexicana de Política Exterior 86 (October 2009). Statistics Canada states, “The United States and Canada consume almost 200 gigajoules per capita – the equivalent of each Canadian and U.S. resident using 5,000 litres (32 barrels) of crude oil per year, or approximately twice the per capita energy consumed in other OECD countries.” “Canada Year Book: Energy,” 15 March 2010, http://www41.statcan.gc.ca/ 2009/1741/cybac1741_000-eng.htm. Canada, National Round Table on the Environment and the Economy, Parallel Paths: Canada-U.S. Climate Policy Choices (Ottawa: NRTEE, 2011), 30, http://nrtee-trnee.ca/wp-content/uploads/2011/08/canada-us-reporteng.pdf. Danielle Droitsch, Marc Huot, and P.J. Partington, Canadian Oilsands and Green House Gas Emissions: The Facts in Perspective (Ottawa: Pembina Institute, 30 July 2010), http://pubs.pembina.org/reports/briefingnoteosghg.pdf.

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17 Office of Integrated Analysis and Forecasting, U.S. Department of Energy, International Energy Outlook (Washington, DC: Department of Energy, 2011); Kenneth B. Medlock III and Ronald Solifo, The Future of Oil in Mexico / El futuro del sector petrolero en México (James A. Baker III Institute for Public Policy and Oxford University, 29 April 2011), http://bakerinstitute.org/ publications/EF-pub-MedlockSoligoScenarios-04292011.pdf. 18 Charles F. Doran, “Turning the Mexican Energy Crisis Around,” North American Dialogue Series (Mexico, DF: Center for Dialogue and Analysis on North America, Tecnológico de Monterrey, policy brief no. 10, January– June 2010), http://cedan.org.mx/sites/default/files/DORAN%20 Turning%20the%20Mexican%20Energy%20Crisis%20Around.pdf. 19 Todd Johnson, Claudio Alatorre, Zayra Romo, and Feng Liu, LowCarbon Development for Mexico (Washington, DC: International Bank for Reconstruction and Development / World Bank, 2010), 2, http://issuu. com/world.bank.publications/docs/9780821381229?mode=window&pag eNumber=1. 20 Robert Stavins, “The Wonderful Politics of Cap and Trade: A Closer Look at Waxman Markey,” Huffington Post, 28 May 2009, http://www.huffing tonpost.com/robert-stavins/the-wonderful-politics-of_b_208581.html. 21 Bob Weber, “More Major U.S. Corporations Join Boycott of Alberta Oilsands Fuels,” Winnipeg Free Press, 26 August 2010, http:// dirtyoilsands.org/news/article/more_major_u.s._corporations_ join_boycott_of_alberta_oilsands_fuels. 22 For a quick review of major studies on the implications of shale gas, see “The Influence of Shale Gas on US and Canada Energy and Environmental Policy,” Climate Policy Watcher, 22 March 2012, http://www.climate-policywatcher.org/?q=node/281. See also Jad Mouawad, “Fuel to Burn: Now What?,” New York Times, 10 April 2012, nytimes.com/2012/04/11/business/ energy-environment/energy-boom-in-us-upends-expectations.html. 23 See Murray, Maniloff, and Monast, chapter 9, this volume; see also Judson Jaffe, Matthew Ranson, and Robert N. Stavins, “Linking Tradable Permit Systems: A Key Element of Emerging International Climate Policy Architecture,” Ecology Law Quarterly 36 (2009): 789–808, http://www.hks. harvard.edu/fs/rstavins/Papers/Jaffe-Ranson-Stavins-ELQ.pdf. For an explanation of the failure of efforts to establish a North American emissions-trading regime, see Michele M. Betsill, “NAFTA as a Forum for CO2 Permit Trading?,” in Changing Climates in North American Politics: Institutions, Policymaking, and Multilevel Governance, ed. Henrik Selin and Stacy D. VanDeveer, 161–80 (Cambridge, MA: MIT Press, 2009). 24 Canada, NRTEE, Parallel Paths, 23.

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25 “There is a minimum 4% reduction in the US national GHG inventory embedded in the normal US power generation stock turnover rate.” See Aldyen Donnely, “What the Waxman Markey Bill Means to Canada,” Energy Probe, 1 September 2009, http://ep.probeinternational. org/2009/09/01/what-waman-markey-bill-means-canada/. 26 According to the UNFCCC, Canada’s emissions grew by over 35 per cent between 1990 and 2008, compared with a 15 per cent growth in the United States, meaning that Canada’s efforts to reduce its emissions growth will require greater efforts (and higher carbon prices) than in the United States to achieve the same target relative to 2005. Canada, NRTREE, Parallel Paths, 33–4. 27 According to the NRTEE 2011 report, emissions from industry are forecast to account for nearly 50 per cent of total GHG emissions in Canada in 2030 – compared to around 15 per cent in the United States. 28 World Resources Institute. Available at: http://www.wri.org. 29 Johnson et al., Low-Carbon Development for Mexico, 23–4. 30 Jeffrey J. Schott and Meera Fickling, Setting the NAFTA Agenda on Climate Change, Peterson Institute for International Economics, August 2009, 8, http://www.iie.com/publications/pb/pb09-18.pdf. 31 Rachael Pulfer, “Waxman-Markey House Vote Today,” Canadian Business Online Blog, 26 June 2009, http://www.canadianbusiness.com/ blogs-and-comment/waxman-markey-house-vote-today/. 32 Currently, twenty-seven of thirty-one state RES do not accept renewable energy certificates from other states, so international supply of renewable electricity is not a given in legislative proposals. See Donnely and Aldyen (2009). 33 Jeffrey Schott and Meera Fickling, “Competitive and Distributional Issues: A Domestic versus Regional Approach,” CEDAN policy brief, Sustainable Development and Climate Change Series no. 3, July 2009. 34 José Etcheverry, chapter 6, this volume. 35 Duncan Wood, Environment, Development and Growth: U.S. Mexico Cooperation in Renewable Energies (working paper, Mexican Institute at the Woodrow Wilson International Center for Scholars, May 2010), 3, http://www.statealliancepartnership.org/resources_files/USMexico_ Cooperation_Renewable_Energies.pdf. 36 105th Congress, 1st Sess., Senate Res. 98. 37 A. Rosencranz and R. Conklin, “National Policy,” in Climate Change Science and Policy, ed. Stephen Schneider, Armin Rosencranz, Michael Mastrandrea, and Kristin Kuntz-Duriseti (Washington, DC: Island, 2010), 344–5; M.E. Kraft, “U.S. Global Environmental Policy in the PostBush Era” (paper presented at the annual meeting of the ISA’s 50th

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40 41 42 43

44 45

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Annual Convention, New York, 9 February 2009), 19, http://www. allacademic.com//meta/p_mla_apa_research_citation/3/1/2/3/7/ pages312370/p312370-1.php; Tora Skodvin and Steinar Andresen, “An Agenda for Change in U.S. Climate Policies? Presidential Ambitions and Congressional Powers,” International Environmental Agreements: Politics, Law and Economics 9, no. 3 (2009): 269–70. “CAFE Standards Bill to Be Signed by Bush Today,” Washington Post, 19 December 2007; “Strong CAFE Needed,” Washington Post, 20 June 2007. Jutta Brunnée, “Europe, the United States and the Global Climate Regime: All Together Now?,” Journal of Land Use 24 (2008), http://www.law.fsu. edu/journals/landuse/vol24_1/Brunnee.pdf; and Skodvin and Andresen, “Agenda for Change,” 270. Skodvin and Andresen, “Agenda for Change,” 268. Rosencranz and Conklin, “National Policy,” 346–7. Brunnée, “Europe, the United States and the Global Climate Regime,” 13. Rosencranz and Conklin, “National Policy,” 243. In his campaign he committed to invest approximately $15 billion a year for ten years in cleaner energy, associated with five million new jobs; reduce oil imports by volumes equal to the imports from Venezuela and the Middle East within ten years; modernize the national electricity grid; re-engage in international negotiations; reduce emissions 20 per cent by 2020, and 80 per cent by 2050 using a cap-and-trade system; a $1,000 energy rebate for every family (from oil company profits); fuel efficiency through a $4 billion loan program for the auto industry; ensure that 10 per cent of electricity is generated from renewable resources by 2012, 25 per cent by 2025; and extend tax credits for renewable five years more. Kelly Gallagher and David T. Ellwood, Acting in Time for Energy Policy (Washington, DC: Brookings, 2009), 4. Rosencranz and Conklin, “National Policy,” 349. Set to accomplish an average 5 per cent reduction of GHG emissions per year. See U.S. Department of Energy, Office of Public Affairs, “DOT, EPA Set Aggressive National Standards for Fuel Economy and First Ever Greenhouse Gas Emission Levels for Passenger Cars and Light Trucks,” 1 April 2010, http://www.nhtsa.gov/PR/DOT-56-10. See White House, Office of the Press Secretary, “Presidential Memorandum regarding Fuel Efficiency Standards,” news release, 21 May 2010, http://www.whitehouse.gov/the-press-office/ presidential-memorandum-regarding-fuel-efficiency-standards. Facilities under regulation for other pollutants and emitting more than 75,000 metric tons of CO2e a year became subject to the PSD program, starting 2 January 2011; unregulated and new facilities – whose GHG

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54 55 56

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Isabel Studer emissions surpass 100,000 metric tons of CO2e – required permits after 1 July 2011. See U.S. Environmental Protection Agency, Final Rule: Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, 13 May 2010, http://www.epa.gov/NSR/documents/ 20100413fs.pdf. Dale Marshall, Provincial Power Play: Breaking Away from Federal Inaction on Climate Change (Vancouver: David Suzuki Foundation, 2008), 3. Douglas Macdonald, “The Failure of Canadian Climate Change Policy: Veto Power, Absent Leadership and Institutional Weakness,” in Canadian Environmental Policy: Prospects for Leadership and Innovation, 3rd ed., ed. Debora L. VanNijnatten and Robert Boardman (Toronto: Oxford University Press, 2009), 1. Canada, NRTEE, Parallel Paths, 42. Macdonald, “Failure of Canadian Climate Change Policy,” 5. Peter Stoett, “Looking for Leadership: Canada and Climate Change Policy,” in Selin and VenDeveer, Changing Climates in North American Politics, 7–16. Harper has asserted, “If the Americans don’t act, it will severely limit our ability to act. But if the Americans do act, it is essential that we act in concert with them.” See Shawn McCarthy, “Canada’s Strategy: Promise Now, Implement Later,” Globe and Mail, 31 December 2009, http://www.theglobe andmail.com/news/world/climate-change/canadas-strategy-promisenow-implement-later/article1406232/; see also Stoett, “Looking for Leadership,” 52. Macdonald, “Failure of Canadian Climate Change Policy,” 6. Canada, NRTEE, Parallel Paths, 42. Len Coad, Greenhouse Gas Mitigation in Canada, Conference Board of Canada, June 2011, http://www.conferenceboard.ca/e-library/abstract. aspx?did=4251. Environment Canada, “Canada’s Total Greenhouse Gas Emissions Decreased in 2008,” news release, 15 April 2010, http://www.ec.gc.ca/ default.asp?lang=En&n=714D9AAE-1&news=FC46978A-85F8-4BB5-B1BF3DE20350E0C0. Isabel Studer Noguez, “Un nuevo paradigma climático Post-Cancún” [A new climate paradigm post-Cancun], Foreign Policy Edición Mexicana [Mexican edition], to be published. Sustainable forest management, landfill gas-management, co-generation plants, self-supply of renewable energy, and wind-power generation by the Federal Electricity Commission were some of the actions proposed by PECC.

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60 Simone Pulver, “Climate Change Politics in Mexico,” in Selin and VanDeveer, Changing Climates in North American Politics, 25–46. 61 Although Pulver argues that a number of Mexican companies, primarily from energy-intensive sectors, “were lauded publicly for participating in a GHG inventory initiative (Programa GEI Mexico 2007), there remains strong opposition against climate change.” Ibid., 37. 62 Ecofys and Climate Analytics, Evaluación del impacto de las políticas de México sobre su perfil de emisiones de gas con efecto invernadero, 2012, http://www.ecofys.com/files/files/ecofys_2012_cat_mexico_country_ report_es.pdf. 63 For a review of the progress made by Mexico in many renewable energy projects and on deforestation, see Meera Fickling and Jeffrey J. Schott, “NAFTA and Climate Change,” in Aligning Nafta with Climate Change Objectives, ed. Jeffrey J. Schott, Meera Fickling, and Tanya Lat, 1–20, 107–25 (Washington, DC: Peterson Institute for International Economics, 2010). 64 See Pulver, “Climate Change Politics in Mexico.” 65 Inter-ministerial wrangling, electoral politics, and the leadership of Victor Lichtinger as secretary of the environment are factors emphasized in Pulver’s analysis. Ibid. 66 U.S. Department of State, “Energy and Climate Partnership of the Americas,” http://www.state.gov/r/pa/prs/ps/2012/04/187877.htm. 67 H.R. 620 by Congressmen John W. Olver (D-MA) and Wayne Gilchrest (R-MD), H.R. 1590 by Henry Waxman, s. 2191 by Joseph Lieberman (I-CT), Barbara Boxer (D-CA), and Mark Warner (D-VA), s. 1766 by Jeff Bingaman (D-NM) and Arlen Specter (D-PA), s. 280 by Joseph Lieberman (I-CT) and John McCain (R-AZ), s. 309 by Bernie Sanders (I-VT) and Barbara Boxer (D-CA), s. 485 by John Kerry (D-MA) and Olimpia Snowe (R-ME). Pew Center on Global Climate Change, Economy-Wide Cap-and-Trade Proposals in the 110th Congress, 8 June 2010, http://www.c2es. org/docUploads/Chart-and-Graph-120108.pdf; Pew Center on Global Climate, Change Climate Policy Memo #9: Major Climate and Energy Proposals in the 111th Congress, http://www.c2es.org/publications/ major-climate-energy-proposals-111th-congress. 68 D. Fisher, National Governance and the Global Climate Change Regime (Lanham, MD: Rowman & Littlefield), 117, as quoted in Skodvin and Andresen, “Agenda for Change.” 69 Skodvin and Andresen, “Agenda for Change,” 263. 70 G. Bang, “Does Public Policy Set the Scope for U.S. International Climate Negotiation Mandates?” (paper presented at the 50th annual convention

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77 78 79 80 81 82 83 84 85 86

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Isabel Studer in New York, 15–18 February 2009); J.M. Broder, “Geography Is Dividing Democrats over Energy,” New York Times, 27 January 2009. Skodvin and Andresen, “Agenda for Change,” 273–4. Ben German, “GOP Govs to Congress: Block EPA Climate Rule,” Hill, 10 March 2010, http://thehill.com/blogs/e2-wire/677-e2-wire/86077gop-govs-to-congress-block-epa-climate-rules. Carl Hulse, “Senate Rejects Republican Effort to Thwart Carbon Limits,” New York Times, 10 June 2010, http://www.nytimes.com/2010/06/11/us/ politics/11epa.html?_r=1. U.S. Environmental Protection Agency, “Denial of Petitions for Reconsideration of the Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act,” 2010, http://epa.gov/climatechange/endangerment/petitions.html. Van Ness Feldman Weekly Update, “Environmental Organizations Threaten Suit if EPA Does Not Issue NSPS for GHGs,” http://www.vnf .com/news-policyupdates-500.html. Barry Rabe, “The Absence of Governance: Climate Change in Canada and the United States,” in Transboundary Environmental Governance in Canada and the United States, Occasional Paper Series of the Canada Institute at Woodrow Wilson Center for Scholars, June 2009, 53–70, http://www.wil soncenter.org/topics/pubs/CI_090415_Occasional%20Paper3.pdf. Dale Marshall, Provincial Power Play: Breaking Away from Federal Inaction on Climate Change (Vancouver: David Suzuki Foundation, 2008), 2. Droitsch, Huot, and Partington, Canadian Oilsands, 86. For a history of the evolution of federalism and climate policy in Canada, see also Stoett, “Looking for Leadership,” 47–64. Macdonald, “Failure of Canadian Climate Change Policy,” 154–5. Ibid., 155. Ibid., 153, 162–3. Stoett, “Looking for Leadership,” 50. Johnson et al., Low-Carbon Development for Mexico. Sydney Weintraub, Unequal Partners: The United States and Mexico (Pittsburgh: University of Pittsburgh Press, 2010), 81–92. Gabriel Quadri, El cambio climático en México y el potencial de reducción de emisiones por sectores (Mexico: Secretaria de Medio Ambiente y Recursos Naturales, 2009). Wood, “Environment, Development and Growth,” 33. Jorge M. Huacuz, “The Current Status of Renewable Energy in Mexico,” North American Institute, 2007, http://link.springer.com/chapter/1

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0.1007%2F978-3-540-71345-6_17; Elizabeth Lokey, “Barriers to Clean Development Mechanism Renewable Energy Projects in Mexico,” Renewable Energy 24 (2008): 504–8. For a discussion of Pemex’s program, see Pulver, “Climate Change Politics in Mexico,” 37–40. UNFCCC, CDM statistics, http://cdm.unfccc.int/Statistics/Public/ CDMinsights/index.html. Centro Mario Molina, “Low Carbon Growth: A Potential Path for Mexico (discussion draft, Poznan Climate Change Conference, 2008). Ecofys and Climate Analytics, “Evaluación de las políticas de México.” See Pulver, “Climate Change Politics in Mexico,” 37–40. Greenpeace and World Business Council on Sustainable Development, “Traditional Adversaries Call for Action on Climate Change,” 28 August 2002, http://www.greenpeace.org/international/en/news/features/ greenpeace-bp-agree/; “Corporate Giants Join Greens in Attack on US over Environment,” Agence France Presse, 29 August 2002, http:// www.commondreams.org/headlines02/0829-01.htm. See, for example, EPA, “Climate Leaders Take Big Steps to Leave Smaller Carbon Footprints” news release, 8 October 2008, http://yosemite.epa. gov/opa/admpress.nsf/d0cf6618525a9efb85257359003fb69d/4eecb4 8cdc939dd3852574dc00682c4a!OpenDocument; CERES, 2010 Investor Statement on Catalyzing Investment in a Low-Carbon Economy: Investors Urge Policymakers to Act Swiftly, http://www.ceres.org/files/2010InvestorSt atementCatalyzingInvestmentinaLowCarbonEconomy.pdf; J.P. Morgan, “Leading Wall Street Banks Establish the Carbon Principles,” February 2008, http://www.morganstanley.com/about/press/articles/6017.html. David L. Levy and Charles Jones, “US Business Strategies and Climate Change,” in VanDeveer and Selin, Climate Change Politics, 73–84. See Hoffman and Bäckstrand as cited in R. Falkner, “The United States and the Global Climate Norm: Who’s Influencing Whom?” (paper presented at the annual meeting of the ISA’s 50th annual convention, New York, 15 February 2009), 27–8. Falkner, “United States and the Global Climate Norm,” 28. Levy and Jones, “Business Strategies and Climate Change,” 74. See Zabarenko as quoted in ibid. Ibid.

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PART TWO Cases of North American Climate Cooperation

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3 Building on Sub-Federal Climate Strategies: The Challenges of Regionalism barry g. rabe

Sub-federal (sub-national) governments around the world have proven unexpectedly central players in the formation and implementation of policies designed, at least in part, to reduce greenhouse gas (GHG) emissions and to attempt to mitigate the threat of climate change. From New York to New South Wales, British Columbia to Bavaria, and Baja California to Catalonia, numerous state and provincial governments have regularly proven more adept in developing climate policies than their federal counterparts. Indeed, this sub-federal dynamism has coincided with inertia in federal capitals and inconclusive international bargaining sessions designed to find common ground in attempting to address a global problem. While it is true that American states, Canadian provinces, and Mexican states have generally sought to design climate policies that end at their own borders and exclusively benefit their constituents, efforts at regional cooperation via cap-and-trade systems for greenhouse gases have been undertaken – in the Northeast via the Regional Greenhouse Gas Initiative (RGGI), in the West through the Western Climate Initiative (WCI), and in the Midwest by means of the Midwestern Greenhouse Gas Reduction Accord (MGGRA). This chapter explores the conditions under which “interest-driven state policy” development might yield to some form of regional burden sharing and resilient governing networks.1 It also examines the kinds of challenges that have emerged as these regional entities have attempted to transition to implementation of carbon cap-and-trade policies within their boundaries. The chapter concludes with consideration of possible future steps. The examination below shows that building a sustainable network that promotes trust and encourages bonds of reciprocity is critical to

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the emerging efforts to design regional programs – particularly given changing political and economic conditions, leadership transitions, various levels of capacity, and also varying levels of prior interaction among jurisdictions participating in these networks. High levels of trust and familiarity in the American Northeast have helped RGGI create a more resilient governing network, one in which the bonds of reciprocity have been cemented through a set of clear expectations and where policy coherence is encouraged by a professional organization overseeing implementation. By contrast, the WCI has been unable to capture the potential efficiencies associated with broader coverage of carbon sources and also a broader membership, at least in part because its members lack common experience in shared policy development and have been unable to agree on the major features of the trading system. MGGRA has also fallen prey to political opposition by new administrations in states that have little in common with one another. Where the bonds of trust are weaker, then, it may be harder to put in place conditions for ensuring reciprocity. Moreover, a continuing concern for all of the sub-national experiments in cap-and-trade – including RGGI – is the threat of leakage and the difficulties associated with establishing a level playing field among market players. In all of these cases, governance challenges are compounded by the uncertainty of any future federal government role from either the United States or Canada that could markedly influence the future viability of the regional entities. Problematizing Sub-Federal Activism The collapse of climate negotiations in the 111th and 112th Congresses tabled the possibility of federal legislation that might have pre-empted state policies, either eliminating them outright or putting them into a deep freeze for a specified period of time. States had been operating in recent years under this uncertainty, attempting to maximize their influence on any future federal policy design but also preparing for the possible eradication of their efforts. They thus received a proverbial green light to move policies into full implementation and consider new initiatives if they so chose. They are also free to back away from any established commitment, given the absence of any federal pressure or incentive to continue. Even the American federal initiative to begin in 2011 to impose greenhouse gas regulations through clean air permits, via executive branch action and the Environmental Protection Agency (EPA), does not restrict any pre-existing state program. Indeed,

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it has opened the possibility of intergovernmental bargaining to provide added flexibility for states that took early policy steps on climate change, in effect offering possible credits towards future compliance as a reward for early engagement. Considerable latitude in policy development is also evident in the other two federations of North America. In Canada, provinces have faced few constitutional or political constraints to unilateral climate policy development but were slow to take action through the mid2000s. But several provinces have become increasingly active in this arena in more recent years, having not only begun to keep pace with state trends, but perhaps surpassing them in some instances with new policy design and scope.2 One prominent example is the development of carbon taxes to deter consumption of fossil fuels, most notably in British Columbia’s far-reaching initiative.3 In Mexico, states have increasingly focused on developing their own climate change action plans, in concert with federal authorities. In turn, policy development in renewable energy and energy efficiency has expanded notably in recent years, particularly in jurisdictions close to the American border. There has also been some minor experimentation with carbon trading. None of this, however, is as expansive as what is being attempted to the north, nor has it yet led to formal policy linkages with American states or Canadian provincial efforts.4 What emerges from this intergovernmental policy process is a patchwork of regulatory mandates and market-based programs that varies by state and province. Much scholarly work has examined the factors that have compelled individual polities to take such steps. These commonly emphasize policy entrepreneurship by both elected and agency officials who frame policy proposals that emphasize mutual environmental and economic development benefits. States and provinces regularly devise their own climate policies in response to emerging threats unique to their own climates, but also do so in a way that maximizes the likelihood that any steps will promote new technologies and skills that can offer long-term economic advantages. Consequently, states and provinces have tended to advance their strategies unilaterally, eager to contribute to any reduced loading of carbon in the atmosphere but also keen to contain any economic advantages within their boundaries. But under what conditions might multiple states or provinces in a federation join forces and design common policies? Are there any circumstances under which sub-federal polities in two or more North American federations might join a common cause? There is considerable

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precedent for this kind of activity, particularly in areas related to environmental and natural resource protection. In the United States, for example, a considerable body of regional governance involves formal agreements between two or more states. More than two hundred interstate compacts currently operate, with approximately half of these devoted to such environmental concerns as common protection of a shared water body. The average state belongs to twenty-five different compacts, which must be approved by Congress, and some include formal provision for participation by neighbouring sub-federal governments in Canada and Mexico. But regionalism can also take other forms, in the United States, Canada, or Mexico, and does not necessarily have to require any federal participation or approval. Indeed, recent scholarship has noted that this may be far more common than is generally recognized, reflecting the existence of “cross-border regions” in numerous areas of environmental governance.5 The mode of governance we focus on here implies formation of a network that links two or more sub-federal polities in a common policy initiative. It lacks the formal structure of a guiding constitution or treaty, and may instead be particularly dependent on facilitating governance methods that foster trust and reciprocity. Such a model of governance is reflected in research on common pool resources that has been developed by Nobel Laureate Elinor Ostrom.6 As discussed in chapter 1, this scholarship has explored key design elements in such governing arrangements, including the disclosure and sharing of information, promotion of familiarity and trust among key actors, and application of sanctions for non-compliance with any common agreement.7 This body of work has been applied to cross-jurisdictional networks operating in virtually every continent, including North America, and is increasingly being applied to the formation of “polycentric” climate policy.8 This analysis parallels a growing body of scholarly work on governing networks. Such entities tend to involve multiple jurisdictions and often cross common sectoral boundaries. Consistent with Ostrom’s work on common-pool resources, network scholars routinely emphasize the importance of developing a viable network structure and management system, commitment to a common purpose or mission, reliable generation and distribution of information, access to essential resources, and measures to promote accountability and responsibility.9 The absence of centrally imposed metrics places a particular premium on interpersonal linkages to sustain the network beyond initial creation into effective governance. In the case of environmental protection in the Chesapeake Bay, for example, Paul Posner has concluded that “the

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presence of social capital and bonds of trust among actors throughout the Bay region has been one of the important assets supporting the network.”10 The capacity to form and sustain a coherent network will be a central consideration as we review early efforts to promote regional climate policy strategies at the sub-federal level in North America. Sub-Federal Climate Regionalism in North America Many sub-federal jurisdictions in North America have not participated in climate policy development on either a unilateral or regional basis. In turn, a good number of policies may have diffused across multiple states or provinces but remain operational in forms that vary across single-jurisdictional boundaries. This is very common in the arena of renewable electricity promotion, where a tapestry of renewable mandates (known as portfolio standards), subsidies (one version of which is known as feed-in tariffs), and other policies remain tailored to individual states. They are generally designed to maximize the likelihood that new renewable capacity is generated within state or provincial boundaries and thereby secure any economic gain exclusively for that jurisdiction. This is entirely consistent with more general understandings in much of the literature on political economy in federal systems.11 There is no sign of a movement towards the creation of a regional network for shared governance of many of these policies among sub-federal governments in North America. Amid this flurry of state-centric and province-centric policy development, some jurisdictions are actively exploring possible partnerships with other entities. A good deal of this appears largely symbolic, rather than designed to foster any long-term policy collaboration. Established multi-state or multi-provincial entities, ranging from the Eastern Canadian Premiers to the Western Governors’ Association, have periodically set non-binding emission reduction targets and issued non-binding pronouncements endorsing various regional positions or strategies. Beyond these, California and former governor Arnold Schwarzenegger have been central players in bringing jurisdictions together, including a pair of climate change summits held in 2008 and 2009 in Beverly Hills that gathered leaders from sub-federal governments in Canada, Mexico, and many other nations to discuss common strategies. The subsequent governor, Jerry Brown, attempted to continue this work, building on his active engagement in climate change in his prior role as state attorney general. In some cases, these produced broad communiqués or bilateral agreements suggesting

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a willingness to share various technologies or skills. This resulted in spin-off organizations such as the Governors’ Climate and Forest Task Force, a loose network designed to bring together sub-federal officials from around the world to explore climate policies related to forestry. Most prominently, Schwarzenegger and numerous other sub-federal leaders attended the 2009 Copenhagen Conference of Parties, where he launched the Club of 20 Regions (R-20), designed to bring together sub-national officials from all North American federations, as well as others in Asia, Europe, Africa, and Latin America, to position them to fast-track sub-federal involvement in any agreement that might have emerged from Copenhagen. Schwarzenegger continued to promote R-20 meetings and collaboration in 2010 during his final months in office. None of these were translated directly into a formal, multijurisdictional policy strategy, but they could indeed set the groundwork for such a coalitional effort over time. In contrast, one climate policy tool has emerged as a magnet for collaborative activity that collectively involved as many as twenty-three states and four provinces in a formal manner, and a smaller subset of provinces and both American and Mexican states in a less formal way. This entails the use of a cap-and-trade system for carbon dioxide and other GHGs in three distinct regions. In one case, the Regional Greenhouse Gas Initiative (RGGI), a geographically compact set of ten states, began working out the terms of a carbon trading system for the electric utility sector since 2005 and put it into operation in 2009. The regional program built on state policies enacted earlier in Massachusetts and New Hampshire, and was launched via strong leadership from New York and former governor George Pataki in making the case for a regional collaborative. But not all climate regions are so cosy. In 2007, seven Western states and four provinces that stretch from British Columbia to Quebec joined forces through the Western Climate Initiative (WCI). They proposed to cover a broader set of GHGs and intended to launch operations in January 2012. Much of the policy leadership for this collaboration emerged initially from California in the aftermath of its 2006 enactment of the Global Warming Solutions Act, which included potential creation of a cap-and-trade program for the state. Also in 2007, a group of six midwestern states (four from the Great Lakes Basin, in addition to Iowa and Kansas) joined with the province of Manitoba to create the Midwestern Greenhouse Gas Reduction Accord (MGGRA). This regional effort was the least fully developed of the three, though

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it had formally pledged to begin operations in the same month as the WCI. All three of these entities remained open to the possibility of adding members and began working with each other on some issues. As the WCI noted in a July 2010 report, it was “in discussion with other regional greenhouse gas initiatives (RGGI and MGGRA) to further broaden collaboration on mitigation activities.”12 More broadly, all remained open to the idea of joining forces in a more formal way or possibly connecting officially with other carbon emission trading programs in Europe. British Columbia premier Gordon Campbell, who had been a strong supporter of the WCI initiative as well as climate policy steps taken unilaterally by his province, stated, “It is vitally important that as we design our own market systems we coordinate with other provinces, states, nations, and continents.”13 In each case, participating states, as well as provinces where applicable, were drawn to the regional collaboration in concert with ongoing exploration of climate policy options within their own boundaries. Each emerging regional entity consistently noted that it made more sense for federal authorities to design cap-and-trade systems on a national or larger scale. Their efforts were clearly designed to give them added influence over the design of such a system and to also position themselves for advantages if any were created. Potential benefits included credit for early emission reductions under a regional system that could be incorporated into any larger system, as well as expertise that could influence decisions for allocating emission allowances under such a system. One further potential advantage was the possibility of being allowed to continue operation in some form even if a federal (or broader) system took shape, perhaps through a “second tier” whereby states and provinces might set a more rigorous cap and continue with their own trading regime.14 Beyond potential influence at the federal level, states and provinces were also drawn to this collaborative approach in that it appeared to offer a more cost-effective way to launch a cap-and-trade program than simply operating it within their state boundaries. The state government of New Hampshire was the first government in the world to enact carbon trading legislation, but its 2001 statute addressed only the state’s three coal-burning power plants and so offered a very confined scope for trading operations. Hence, the state found it very promising to enter RGGI and place its facilities in a much larger trading zone. Operation on a larger scale also offered opportunity for states to promote sectors

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particularly important for their internal economic development, such as establishment of expansive forest-based carbon offsets in a regional trading regime or expansion of sources of low-carbon electricity such as hydro. None were launched with quite the fanfare of the California climate legislation in 2006, but all received considerable media attention in various regional outlets and did not trigger considerable political controversy. The signing of a regional memorandum of understanding (MOU) by state and provincial authorities and the launch of a website are only the beginnings of regional climate governance. RGGI, WCI, and MGGRA each represented long-term commitments to establish a multijurisdictional partnership to cap and trade greenhouse gas allowances over an extended period of time. They are pioneers in this effort, in that the only other operational cap-and-trade system in the world is the Emissions Trading System of the European Union.15 In turn, the American state participants are likely to have the greatest prior experience with emissions trading on a large scale, reflecting the U.S. experience with sulphur dioxide emissions trading under the 1990 Clean Air Act Amendments, as well as a set of state and regional experiments for other contaminants. Neither Canada nor Mexico has nearly this level of expertise with emissions trading, although some provinces such as Ontario have developed emissions trading programs in recent years for some conventional air pollutant sources. These ventures into regional climate policy also involve some challenging design elements if implementation is to proceed and ultimately prove effective. First, none of these were deposited into existing organizations or institutions. Although there are many regional environmental organizations, as noted above, none precisely fit the boundaries of RGGI, much less the unusual – and non-contiguous – coalitions established under the WCI and MGGRA. Unlike many of the most prominent cases of cross-border environmental collaboration in which some organization already exists to help guide new policy initiatives, each of the three regional climate ventures must begin with basic organizational design decisions and translate a multi-jurisdictional agreement into a governing entity. Second, many of these jurisdictions have little history of working with one another on environmental protection or any other issue. In some instances, such as the RGGI states or collaboration between Washington and British Columbia, there is ample precedent. However, it is not at all clear that there is familiarity, much less established norms, between such new-found partners as New Mexico

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and Quebec in the WCI, or Manitoba and Michigan in the MGGRA. Building a sustainable network that promotes trust and bonds of reciprocity has already proven to be a considerable challenge. Third, states and provinces have generally sought to design climate policies that end at their own borders and benefit their constituents exclusively. Under the regional design, “interest-driven state policy” development must yield to some form of regional burden sharing.16 States and provinces are clearly attracted to the regional approach under the possibility of mutual benefits, but measuring such benefits and sustaining regional comity is not necessarily easy. These issues and the larger question of the capacity of these three regional entities to move into implementation and operate effectively will be examined in subsequent sections. Case studies follow that examine RGGI, WCI, and MGGRA, each considering its key design features, its record of performance, and its likely capacity to forge a longer-term governing network. The RGGI case will receive the most extensive review, given its longer history and shift from policy design into implementation. This will be followed by a concluding discussion of the prospects for the “three regions” and larger issues of multijurisdictional climate governance in future years. The Northeastern American Region: Narrow Scope, Strong Network Most of the voluminous body of scholarly analysis of carbon cap-andtrade policy has been hypothetical, considering the possible design features of such a system and evaluating its anticipated economic impacts if placed into operation. This reflects the fact that actual experience with this tool for climate change has been exceedingly limited. This leaves opportunity for analysis that may at times be highly sophisticated methodologically but in reality is unable to address what really happens when such policy is implemented. The Regional Greenhouse Gas Initiative allows for North American consideration, for the first time, of what carbon cap-and-trade might actually entail. It operates with a fairly modest scope in terms of participating governments and emission reduction targets but is guided by a coherent and fairly resilient governing network. RGGI began operation in December 2005 through a MOU signed by seven northeastern state governors (Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont). Maryland

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joined in April 2006, followed by Massachusetts and Rhode Island in 2007, bringing formal membership to ten states. Pennsylvania, the District of Columbia, and the provinces of New Brunswick, Ontario, and Quebec are formal observers, enabled to attend RGGI meetings and consider possible participation but not committed to any formal actions. Other jurisdictions, including Florida and Illinois, have periodically expressed interest in the possibility of joining the region, and they have participated in preliminary discussions of what this might entail. RGGI has consistently remained open to the possibility of recruiting additional partners, whether American states, Canadian provinces, or other sub-federal jurisdictions, though most of its discussions have involved American and Canadian candidates. This region establishes a carbon dioxide trading system for all electricity-generating plants that produce more than half of their power from combustion of fossil fuels and more than twenty-five megawatts per year. Each state in the region has at least one such facility. The regional cap was first put into place in January 2009, set at a level that was “approximately equivalent to 1990 emissions,” or 121.3 million short tons of carbon dioxide. This level will remain in place through 2014, when the emissions cap decreases by 2.5 per cent per year, ultimately reaching a 2018 level that is 10 per cent below emissions. Despite the relatively modest scope, the RGGI founding document established significant expectations when stating that “the Signatory States wish to establish themselves and their industries as world leaders in the creation, development, and deployment of carbon emission control technologies, renewable energy supplies, and energy-efficient technologies, demand-side management practices, and increase the share of energy used within the Signatory States that is derived from secure and reliable sources of Energy.”17 Assembling a Governance Network The RGGI states began pursuit of this goal through a deliberative, trans-governmental process that involved teams of senior officials from each state to work out various design elements of the program. This involved regular engagement from the leadership of respective lead departments for environmental protection and energy, who participated in public hearings and planning sessions that rotated across capital cities in the region. These larger sessions were informed by the work of a series of working groups guided by senior state staff with

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particular expertise in specific areas, such as offsets, early reduction credits, and safety valves. Each step in this process reflected a balancing act, weighing the best possible way to approach a particular issue against political constraints imposed by the competing preferences of various states. One enduring challenge was representing the interests of all participating states, despite tremendous variation in their population, capacity to generate electricity from various sources, number of facilities that would be covered under a carbon cap, and resources available for staffing and program costs. This development of a governing network was eased considerably by the extensive prior collaboration between many of these states and their senior officials. The American Northeast is represented by a large and dense set of regional governments, reflecting their longstanding economic interdependence and penchant for operating as what political scientist Daniel Elazar once termed a “sectional confederation.”18 A good deal of this work represented areas directly relevant to formation of a carbon cap-and-trade zone. The Northeast States for Coordinated Air Use Management (NESCAUM) has been a major player for more than four decades on air quality regulation, and there has been a long-standing pattern of cross-state collaboration on energy development and oversight. No previous regional entity has adhered to the exact boundaries established by RGGI, but these states entered into this process with considerable familiarity, trust, and experience in reconciling interstate differences. Political scientist Jorgen Knudsen has compared RGGI’s regional cohesion to the Nordic countries of the European Union, noting that such “network constellations” have helped in the “formulation and execution” of climate strategies in both regional cases.19 This network proved adept at sustaining cohesion and momentum, even in the face of such controversies as the short-term withdrawal (and later return to membership) of a pair of states, Massachusetts and Rhode Island. The working group process tended to take issues where consensus appeared within reach earlier in the process, deferring other questions for longer-term consideration. One issue that was addressed towards the end of the process was the method for allocating allowances under the cap-and-trade umbrella. Under most prior experience with emissions trading, allowances were allocated free of charge, usually on the basis of some baseline for emissions. The RGGI process reached an understanding on this baseline and agreed to adjustments that would give some added allowances to smaller states. But it extended the

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review of how to best allocate allowances until later stages of its process, ultimately deciding to auction the allowances on a regional basis and return to each state its share of the revenues that were generated. This proved controversial in that it potentially heightened compliance costs for utilities that would not only have to stabilize and then reduce their emissions, but also pay a price for each allowance.20 In turn, this approach was attractive to those who supported the idea of pricing carbon to deter consumption, consistent with the goal of direct taxation of the carbon content of fossil fuels. At the same time, the revenue generated through the auctions could be targeted to advance a range of climate-related goals, including promotion of renewable energy and energy efficiency and the possible easing of any transition for customers to address higher electricity costs due to the trading program. The auctioning component was one of the final pieces put into place as the RGGI states created a non-profit organization that would be responsible for day-to-day program implementation. Based in New York City, RGGI, Inc. operates with a staff of six policy professionals, who run all key elements of the program and are overseen by an executive board that has two members from each member state. This organization further contracts with other units for services such as monitoring and reporting on each quarterly auction, assessing overall performance and transparency of the process, and also operating an online trading platform. This has reduced the burdens on staff from state government agencies after several intensive years of interstate negotiations, although they maintain oversight through the executive board. The non-profit organization was envisioned in the original MOU, although not defined in great detail. The design of RGGI, Inc., as well as its staffing needs, became clearer through the deliberative development of the cap-and-trade program, and strong emphasis was placed on hiring policy professionals who could work across boundaries and deal with the kinds of issues likely to emerge, given the complexities of mounting a credible carbon emissions program. This included the need to sustain a cooperative network among the participating states, which under the terms of the MOU could withdraw at any time with only thirty days’ notice, as well as specialized skills in such areas as trading, offsets, and communications. This network of state governments and both public and non-profit governing organizations has held together, through the sequence of quarterly allowance auctions between 2008 and 2013. No major changes have occurred in this auctioning, even after considerable gubernatorial

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transition following the November 2010 elections. State involvement and oversight has generally remained high, despite the near-total departure of the governors and state agency officials who were most supportive of RGGI and most active in its formation. Indeed, many leading state department heads moved into other prominent positions outside the RGGI orbit, including senior leadership roles in the U.S. Environmental Protection Agency, a senior advisory position with the United Kingdom, and prominent posts in think tanks and consultancies. But transitions have gone relatively smoothly and the network appears to operate with a high level of trust and expertise. Indeed, RGGI has faced none of the controversies of the EU ETS, including allegations against the latter in 2010–11 of electronic theft of substantial numbers of allowances. RGGI’s early implementation success has perhaps been best reflected in the allowance auction process, as this represented the first attempt in the world to undertake such an approach for carbon emissions.21 In the case of the EU ETS, allowances were allocated initially at no charge, and only later versions began to phase in some auctioning on a modest scale in some member states. In RGGI’s first quarterly auction for 2010, all of the available allowances for the first three-year control period (2009– 11) were sold at a price of $2.07, and the vast majority of the available allowances for the second three-year control period (2012–14) were sold at the same price. Collectively, this generated nearly $88 million that would be divided among the states. In response, David Littell, commissioner of Maine’s Department of Environmental Protection and chair of the RGGI Board of Directors, stated, “With each successful auction, the RGGI states continue to show that cap-and-trade works and can jumpstart a green economy with fewer emissions, lower electric bills and more jobs.”22 Alongside the regional report on the overall auction results, each state announced its plans for use of the funds that it will be receiving. These have included expansion of home weatherization and retrofitting programs to promote energy efficiency, financial support for energy costs to low-income residents, and expanding rebate programs for the installation of solar energy technology in homes. Moving Beyond Pre-emption One major threat that has imperilled the continued operation of RGGI throughout its existence appears to have been eliminated. The decision of the U.S. Senate in July 2010 to end consideration of a comprehensive

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climate and energy bill that would have featured a federal version of carbon cap-and-trade gave RGGI a clearer sense of its future prospects. This halted federal deliberations on the cap-and-trade option, not only for the balance of the 111th Congress but likely much longer (and perhaps permanently). The possibility of eventual congressional embrace of a federal program that might literally pre-empt RGGI operations has hovered over the regional partnership since its inception, as reflected in cap-and-trade bills introduced into every Congress in the past decade. None of these followed an identical form, but many would have significantly restricted or, in some cases, eliminated pre-existing state or regional programs such as RGGI. RGGI officials were cognizant of this from the outset and publicly expressed hope that their program might ultimately prove to be a model for any federal or larger program, but they consistently noted that any such transition should involve generous terms to reflect early state and regional leadership. Even U.S. senators representing RGGI states took note of this during deliberations in the 111th Congress, responding to a July 2010 proposal that would pre-empt the program by noting, “We cannot support the potential pre-emption of state-based programs (such as RGGI and WCI) without ensuring equity for those states that have taken early action to reduce carbon pollution at their own expense.” The letter from the senators emphasized the need to “provide replacement revenue streams to states with existing programs so that they might continue with investments that have already been made.”23 RGGI has lived with this uncertainty throughout its existence. During much of the period in which it has operated auctions, the prevailing assumption in climate policy circles was that Congress would ultimately enact some form of the American Clean Energy and Security Act, which passed the House of Representatives in June 2009. This 1,482-page bill included a provision that would put RGGI and any other sub-federal cap-and-trade program into a deep freeze for five years once it began operation. Congress reserved the right to allow regional programs to resume operations after this period but made no such commitments, leaving uncertain whether there would be any vestige of a state or regional program by the end of the decade. There is very little evidence that Congress either consulted with or gave serious consideration to lessons that might be derived from the real-world experience with RGGI during its many hearings on climate policy in 2009 and 2010.24 Ironically, the last-ditch effort to maintain a working

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coalition in the Senate narrowed the cap-and-trade focus to the electric utility sector as RGGI had done a half-decade earlier; some early postmortems on the 111th Congress suggest that this might have proven to be a politically viable strategy on a federal scale, if had been embraced earlier.25 The collapse of political support in 2010 in Congress for any form of carbon cap-and-trade appeared to give RGGI a new lease on life. Its ability to sustain a governing network is all the more remarkable when realizing that it has consistently operated with the possibility of being eliminated or constrained through federal legislation at any point where Congress might have chosen to act. As political scientist Robert Axelrod has noted, “Institutions that are successful in governing common-pool resources often take decades of trial-and-error learning to develop. Such institutions need to be capable not only of dealing with immediate problems but also of adapting over time to new circumstances.”26 RGGI seems to have fared well during its first half-decade of trial-and-error learning, but it faces several considerable challenges as it moves beyond its initial stages of operation. Failure to Expand and the Threat of Leakage The very narrow geographical scale that helps to foster unity among RGGI states may also conspire to limit its effectiveness. RGGI’s longstanding desire to find additional partners, and thereby expand its territorial range, reflects early recognition of the risks of leakage. Approximately one-quarter of the electricity consumed within RGGI boundaries is generated in neighbouring states and provinces. This includes coal plants in Pennsylvania and West Virginia, hydro facilities in Quebec, and natural gas plants in New Brunswick and Nova Scotia. Many of these facilities already produce electricity at lower cost per unit than facilities operating within RGGI states. Their power may prove increasingly attractive only for import, since they are not required to comply with the cap-and-trade provisions and attendant carbon price. As a result, leakage via expanded imports to escape the emissions trading program is an enduring concern within RGGI. RGGI’s electricity supply is thus not conveniently confined to a region coterminous with its regulatory scope. Indeed, the current set of RGGI states spans three distinct interconnected power markets, each operated by a separate transmission entity. Beyond the technical interdependence, RGGI states have little legal latitude to try to impose

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carbon constraints on generators outside their boundaries, given wellestablished Commerce Clause constraints on any effort to impede cross-border movement of goods and services. In 2007, RGGI produced a report outlining a range of policy options to combat potential leakage, but all raised legal, political, and technical concerns that have not been resolved.27 Instead, RGGI has long hoped to begin to contend with the leakage issue in large part by literally expanding its territorial boundaries and thereby bringing an ever-larger set of electric utilities under its jurisdiction. This has included regular invitations to other states and provinces to enter into negotiations about possible membership, as well as the option to give jurisdictions formal observer status, and thereby begin to become part of the RGGI network. However, there has been no expansion since the addition of three states in late 2006 and 2007, and no indication of any active candidates for membership in the coming years. Perhaps the greatest prospect for new partners would involve collaboration with the WCI or the MGGRA, which is discussed later in this chapter, although only the addition of Quebec via the WCI would have an immediate impact on regional leakage. Potential partners were cultivated, but all pulled away for various reasons. To the south, the addition of Maryland carried with it the possible inclusion of Virginia, particularly as that state began to explore a range of climate policy possibilities. Florida also entered these discussions somewhat later, during periods of climate policy exploration under Governor Charlie Crist, but these never approached a point of serious negotiation. To the west, Pennsylvania remained an attractive target for membership, given its large coal-generating capacity and major role in exporting electricity into the RGGI zone. Governor Edward Rendell and his senior environmental advisor, Kathleen McGinty, expressed interest in joining RGGI in 2007–8 at the same time that the state began to expand its involvement in other areas of climate policy. The commonwealth has remained an observer, but there has been no serious exploration of involvement in more recent years, particularly under the governorship of Tom Corbett. To the north, RGGI curiously lost neighbouring Quebec as a potential partner when it chose instead to join the WCI in 2007, although Manitoba’s membership in both the WCI and MGGRA and Ontario’s varied forms of affiliation with all three regional programs suggest overlapping participation is possible. Quebec never actively engaged the RGGI process, most likely out of its eagerness to expand its

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hydro-generating capacity and increase its electricity exports into RGGI territory. Among the Maritimes, attendance at meetings was sporadic at best, and inter-jurisdictional negotiations never advanced very far. Even the common bond between the Eastern Canadian premiers and their gubernatorial counterparts in New England on shared greenhouse gas emission reduction goals did not prompt serious exploration of provincial participation in RGGI. Consequently, the issue of leakage remains as salient in the advanced years of operation of the RGGI auction process as it did when the regional program was established. Collapsing Economy, Collapsing Cap One potential threat to RGGI that was not anticipated at the time of its creation was the possibility of an economic cataclysm that might significantly suppress electricity demand. Such a development would render suspect the significance of emission caps and required reductions that were established amid expectations of ever-growing electricity consumption. As early as 2007, it was noted that there appeared to be a significant shift in some states away from coal and oil (which has endured in Massachusetts as a major electricity source) towards natural gas, and some sign of actual decline in electricity use.28 This concern expanded with the onset of the Great Recession and an attendant American GHG emissions decline of approximately 7 per cent between 2005 and 2009, according to a 2011 U.S. Environmental Protection Agency report, although these emissions levels appeared to be rebounding slightly in subsequent years. The states that comprise RGGI fully reflect this pattern, including significant decline in GHGs generated by both commercial and manufacturing use of electricity. This unanticipated development has reduced any potential impact on emissions of initially freezing the cap at 2009 levels and is perhaps best reflected in the plunging price of RGGI allocations via auction. Initial auctions among the ten states drew a clearing price of $3.38 in December 2008 and $3.51 in March 2009. The price declined in all but one of the subsequent five auctions, reaching $2.07 in March 2010 and $1.88 in June 2010. It hovered below $2 through the end of 2012. Demand for allowances has remained high, reflecting the fact that considerable electricity continues to be generated that requires an allowance. But the low price underscores the question of what impact the program is having on deterring generation as external economic factors appear far more influential.

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Under these circumstances, it would seem likely that RGGI would want to revisit the cap and adjust it, given these new realities. But the MOU does not allow for such a modification without formal support from all participating states. Formal recruitment of one or more states or provinces might allow for such a reopening, as this would necessitate creation of a new allowance budget. One senior observer noted, “RGGI is desperately seeking another partner so it can open up the cap,” but there is no short-term promise that this will occur. In turn, the decade-long plan to stabilize and then reduce the cap from essentially 1990 levels may be rendered far less relevant by the economic collapse and attendant decline on electricity demand. Reallocating Revenues: RGGIcide? The capacity of RGGI to generate significant funds that have been allocated to other state programs to reduce carbon emissions was not widely discussed or anticipated in its early development. This reflected its rather belated embrace of auctioning and limited public discussion of potential revenue generation. It has, however, emerged as an extremely popular output of the cap-and-trade process, at least for states eager to diversify their revenue bases and for potential beneficiaries of funds related to expansion of energy efficiency and renewable energy. Many have enacted legislation to create a specific fund that makes clear that this revenue is to be linked for purposes related to climate change. Indeed, this method of linking climate regulation that generates revenue with targeted funding allocation tends to receive high marks in public opinion. The public appears considerably more receptive to any strategies such as cap-and-trade or carbon taxes if they transfer funds directly into related energy programs, as occurs under RGGI.29 Thus, it is possible that this kind of linkage can solidify or expand the base of support for cap-and-trade programs at the state and regional levels, especially given the adverse fiscal conditions of most American state governments in the early 2010s. However, nothing in the RGGI MOU specifies that funds generated through auctions must be used for carbon-related activities. Such usage was instead an unofficial pattern that began to emerge as early as September 2008. At that time, the first auction proceeds of $38.6 million were allocated to the six states prepared to participate in that early auction. This was followed by a common decision to target those funds into related areas. New York had initially been a particularly strong

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proponent of this approach but was the first RGGI state to explore alternative uses. In 2009, it decided to transfer $90 million of its auction revenues, which reached a total of $243.3 million by mid-2010, to help alleviate a mid-year budget gap. These funds were combined with additional transfers from the New York Environmental Protection Fund, with both announced as one-time transfers that did not alter the state’s commitment to target these revenues for environmental purposes. In the case of RGGI, New York reiterated its commitment to using its funds to implement new state green jobs legislation. But this issue attained new saliency in March 2010 when New Jersey governor Christopher Christie proposed shifting $65.2 million from the New Jersey Global Warming Solutions Fund to assist in reducing a projected $10.7 billion deficit. This represented essentially all of the money that RGGI had generated for New Jersey to that point. It was originally intended to be used for energy efficiency retrofits for homes and other renewable energy projects, including links to the state’s ambitious solar program. Christie contended that this was not “an abandonment of our interest in alternative energy,” but his move proved extremely controversial among environmental groups and other proponents of the original fund use plan. Some went so far as to suggest that this would represent a trend across the region to reverse the initial plan for funding, invoking the term “RGGIcide” to describe a process that, in the words of the New Jersey Sierra Club director, “undermines the whole purpose of having the RGGI fund in the first place.”30 As of March 2012, the RGGI auctions, even accounting for the unexpectedly low bidding price, had generated $993.8 million for member states. Almost all of this has been allocated to energy efficiency and renewable energy, except for the New York and New Jersey shifts. But the longer-term future for these funds remains uncertain, given these two cases, as well as the desperate search for revenue among all state governments within the RGGI region in the aftermath of the recession. New Jersey took a more radical step in 2011, as Governor Christie decided to pull the state out of the RGGI auctioning process entirely. He contended that the program had no demonstrable effect on GHG emissions and instead served as a back door to raise electricity prices. Given the strong authority vested in the New Jersey governorship under that state’s constitution, Christie’s powers were decisive in this case. RGGI responded by simply collapsing its regional scope and pursuing subsequent auctions within the nine remaining states. Several other participating states began to consider their own version of the exit option in

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2011 and 2012, including withdrawal legislation introduced in several state legislatures, even though the nine-state coalition remained intact into early 2013. This uncertainty complicated any multi-state effort to consider revisions to RGGI to reflect significant decreases in regional electricity consumption by altering the emissions cap, although the auctioning process continued in 2013. In turn, any hopes that RGGI might link with the other emerging regional initiatives were dashed as these initiatives encountered far more severe governance challenges. Moreover, there appeared little appetite in 2012 to reopen the question of the regional emissions cap and attempt to impose a more consequential limit, given the decline in regional demand for electricity. American West Meets Canada: Broad Scope, Wobbly Network The WCI is often clustered in the same category as RGGI, the second multi-state region that has formed to establish a carbon cap-and-trade regime for its members. There are indeed important parallels and yet, in some important respects, the WCI is antithetical to the RGGI. In every possible way, it has a much more expansive agenda. While it could have far greater impact in total GHG reductions, it has also experienced far more problems in moving from policy formation to implementation. Indeed, its continued existence is far less certain than that of RGGI. Consequently, WCI constitutes a case with a very wide scope in geographic range and targeted emission reductions but one that has failed to produce a resilient governing network. The WCI differs from RGGI in at least four significant ways. First, it addresses fossil-fuel electricity generation facilities, but also includes a wide range of manufacturing and related entities. After initial operation between 2012 and 2015, the program was also expected to address transportation fuels. Second, the WCI covers not only carbon dioxide, but all other greenhouse gases as well. When combined with the larger scope of covered sources, WCI is projected to address nearly 90 per cent of its total regional greenhouse gas emissions by 2015, whereas RGGI is projected to cover less than one-third of its total regional emissions by that point. Third, it uses a different baseline and establishes a different emissions reduction trajectory. The year 2005 replaces 1990 as the baseline, to be followed by a 15 per cent emissions reduction by 2020. Fourth, it features a geographically sprawling network of partners and observers, including a significant number of Canadian provinces and territories and Mexican states. As of August 2010, eleven sub-federal

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jurisdictions were formal partners and fifteen others were formal observers. Partners include Arizona, British Columbia, California, Manitoba, Montana, New Mexico, Ontario, Oregon, Quebec, Utah, and Washington. Observers include Alaska, Baja California, Chihuahua, Coahuila, Colorado, Idaho, Kansas, New York, Nova Scotia, Nuevo Leon, Saskatchewan, Sonora, Tamaulipas, Wyoming, and Yukon. The WCI was officially launched in 2007 and, much like RGGI, followed unilateral policy development in a number of jurisdictions. However, California’s enactment in 2006 of AB 32, the Global Warming Solutions Act, was the clear driving force behind a regional strategy. This legislation set bold state-wide emission reduction targets through the middle of the twenty-first century and outlined the elements of an emissions cap that could ultimately evolve into a cap-and-trade program. In anticipation of this legislation, Schwarzenegger issued an executive order (S-3-05) that gathered sixteen state departments, agencies, and commissions with some role in climate policy under the umbrella of the California Climate Action Team. The California Environmental Protection Agency was given the lead role but would clearly need to work collaboratively and effectively with other major players such as the California Air Resources Board, the California Energy Commission, and the California Public Utilities Commission, among others, if it was to effectively oversee a set of climate policies and integrate them with anticipated comprehensive legislation. Along with the formation of this team came considerable new resources for staff expansion, creating in Sacramento what was arguably the largest and most active governing unit for climate in North America at that time.31 Several other states and provinces were moving in this general direction in these years, but none approached the reach of what was being attempted in California. In the push to move comprehensive legislation through the legislature before the 2006 elections to enable proponents to claim credit for this step towards “global leadership” on climate change, bold reduction targets coincided with a very vague set of statutory guidelines on how these would be achieved. Beyond the commitment to a GHG emissions cap, there was no explicit discussion of a trading system or many other key provisions. As a result, these and many other common design elements were delegated to members of the state Climate Action Team. State officials subsequently attempted to interpret AB 32 and make its key provisions operational by January 2012, though they ultimately decided to use 2012 as a practice round, with formal operations delayed until at least 2013. As will be discussed further below, this process

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has proven highly complex and contentious. Many key components, including the method for allowance allocation, the role of offsets, and the mechanisms to guide any emissions trading market remain works in progress, even before opening the possibility of significant shifts in the very legal foundation of the program. AB 32 also dodged the issue of whether the California program might be linked with RGGI or other individual sub-federal programs. Alongside intra-state policy development emerged a parallel track that examined ways that California might expand the scope of its climate policy efforts by securing formal partnership from other states as well as possible sub-federal partners in Canada and Mexico. Hence, California took the lead in defining and building a multi-jurisdictional coalition, assuming a role far more central to regional development than was the case with New York under RGGI. In some instances, partners emerged as natural allies. For example, both Oregon and Washington State had long-standing histories of working closely with California on a range of environmental and energy issues, in some ways comparable to the RGGI alliance. These states also began fashioning legislation with similar state-wide greenhouse gas reduction targets and had other areas of policy overlap with California. However, other potential state partners, such as New Mexico, Montana, and Utah, among others, had far less history of developing unilateral climate policy initiatives, much less direct collaboration with California on environmental or energy governance. This unfamiliarity also applied to potential partners outside the United States, where California had some history of largely symbolic agreements with British Columbia and Baja California but no real common experience in shared policy development relevant to climate with these jurisdictions or other provinces and Mexican states. Consequently, development of what would become the WCI emerged as a parallel track to the intra-state efforts to implement AB 32, something akin to overlapping domestic and foreign policy processes in a federal or national government. California took the lead in convening early scoping meetings and recruiting allies, ultimately producing a MOU in 2007 that secured broad support but was far less detailed than the RGGI version that had been finalized two years earlier. Somewhat like RGGI, the WCI established working committees to secure input from the participating jurisdictions. These include groups charged to examine and formulate recommendations for reporting, cap setting and allowance distribution, markets development, offsets, economic modelling, and review of complementary policies and their likely

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impact. Many of these have taken considerably longer to reach consensus than their RGGI counterparts, and a number of major agreements still need to be struck. Participation was uneven among partners and observers, reflecting substantial differences in resources and intensity of commitment, though Sacramento remained the nerve centre for the entire operation. The RGGI, Inc. model for long-term governance was embraced by the WCI, albeit with anticipated need for a larger staff and a more complex administrative structure. A July 2010 WCI report on anticipated program design noted that the “WCI Partner jurisdictions are considering creating a regional organization or retaining an existing organization to provide these services,” but provided no further detail.32 WCI thus moved forward with a far more ambitious charge than RGGI, but it also featured far more uncertainties as it approached its projected launch in 2012. In turn, the regional alliance faced a series of significant challenges during 2010–12 that were far more threatening than those encountered under RGGI. These combined to threaten not only its ability to operate effectively but even challenge its continued existence in future years. State Solidarity? The WCI process moved forward under the assumption that participating jurisdictions would back their initial engagement with authorizing legislation or, where appropriate, executive orders. Such steps would be essential if the WCI was to move ahead as originally projected. Laura Sanchez of the Natural Resource Defence Council’s Air and Energy Program has noted, “It’s a state-by-state rollout – each state has to go through their process of getting their cap-and-trade proposal implemented.”33 Most state partners proved unexpectedly slow in providing these more formal commitments, contrary to the experience under RGGI. New Mexico was perhaps the most active in attempting to mesh a package of regulations to be functionally equivalent to what appeared to be emerging in California and under WCI. This took the form of a series of regulations that were issued by the New Mexico Environment Department and approved by the state’s Environmental Improvement Board in 2010. However, this proposal featured a few provisions that could conflict with emerging California and WCI strategies, including a prohibition on any auctioning of allowances. In contrast, an April 2010 WCI white paper on allocations noted that the “design calls for

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a minimum auction level of 10% of the allowance budget in the first compliance period (2012–2014), increasing to 25% in 2020.”34 Other states proved far less capable of filling in the details on their commitments to the WCI. Authorizing legislation in Oregon and Washington was widely anticipated in both states in 2010 but stalled, with no short-term prospects for revival. Perhaps the most dramatic initiative among WCI states was the decision by Arizona governor Jan Brewer in February 2010 to issue an executive order that withdrew her state from involvement in any future cap-and-trade program. The state remained a voting partner of WCI but ceased participation in any deliberations related to an emissions trading system. The executive order stated that “imposing costs on Arizona’s economy associated with a GHG cap-and-trade system that are not borne by national and international rivals would cost investment and jobs in Arizona and put Arizona at a competitive disadvantage without effectively addressing what is a national and global issue.”35 This did not alter other Arizona climate commitments, including its renewable portfolio standard, a low-carbon vehicle procurement program, appliance efficiency standards, or a partnership with the Mexican state of Sonora in developing a regional greenhouse gas inventory and exploring shared energy efficiency and greenhouse gas emission reduction opportunities. As Arizona’s lead environmental official, Benjamin Grumbles, noted in announcing the executive order, “The governor believes that Arizona can become the solar powerhouse of the nation. So we are absolutely committed to advancing the solar industry, as well as wind and geothermal.”36 The state said it would continue to support regional efforts in renewable energy and energy efficiency, drawing the line only at the point of the policy centrepiece of WCI, cap-and-trade, though it has not indicated what these might entail. Other state dominos tumbled after the Arizona decision to exit WCI. Utah followed this path in April 2010, with a joint resolution calling for state withdrawal from WCI. Political support for participation waned after former governor Jon Huntsman departed to become ambassador to China in 2009. New Mexico also took this step after the gubernatorial transition through the 2010 election, when WCI champion Bill Richardson was replaced by opponent Susanna Martinez in early 2011. Ultimately, all participating states except California made clear by early 2012 their unwillingness and inability to enter into the WCI cap-and-trade process, leaving the four Canadian provinces as the only plausible partners for California in a rapidly-shrinking WCI. There was no groundswell of political pressures to reverse these

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state decisions and return them to the WCI fold as 2012 elections approached. Whither California? California and other state leaders have acknowledged that WCI allows for such shifts and that a single state could launch the regional program in 2012 or later with its provincial partners and perhaps expand later if other states wanted to return to the fold. In June 2010, Eileen Tutt, the deputy secretary of the California Environmental Protection Agency noted, “Hopefully, all the partners will join us, but no matter what,” California will pursue cap-and-trade with “whoever joins us.” Although California had been the guiding hand in all facets of WCI development, by 2010 it was no longer clear that even the Golden State would be able to participate in the early stages of any WCI cap-andtrade program. The greatest political threat to WCI, short of federal pre-emption, was a pair of November 2010 elections that threatened a tectonic shift in California’s commitment to WCI as well as the legal status of AB 32 and related state climate legislation. California has long stood as a centrepiece of American state experimentation with direct democracy via ballot propositions, including a great many environmental laws that were enacted through majority vote in a state-wide election.37 In early 2010, a coalition of California legislators and various business and industry interests began to advance the case for placing a “California Jobs Initiative” on the November ballot along with gubernatorial, legislative, and judicial races. This proposed ballot proposition noted the dire status of the California economy, including an unemployment rate that exceeded 13 per cent. It decried the potential for cap-and-trade and related climate legislation to exacerbate economic distress and proposed halting operation of the program until the state unemployment rate returned to 5.5 per cent or lower for four consecutive quarters. The ballot proposition was formally certified for the November ballot in June, and a strong base of opposition emerged in funding a very aggressive campaign, both in securing the needed petitions and in beginning to push for a majority vote in November. This alliance included the California Chamber of Commerce, the California Manufacturers & Technology Association, the Western States Petroleum Association, as well as the state’s Black Chamber of Commerce and Hispanic Chamber of Commerce. Senate Republicans led by leader Bob Dutton called AB 32 an “air tax” that would cost Californians $134 billion through

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higher energy costs. That paralleled findings of a study sponsored by the California Small Business Roundtable that projected costs of $3,857 per household by 2020.38 AB 23 supporters challenged all of these interpretations. Ballot propositions are inherently unpredictable in California and other states, often with substantial swings in opinion in the final days leading up to a vote.39 But public opinion broke decisively against the proposal, dubbed Prop 23, in the months leading up to the November vote, and never reversed course thereafter. It was ultimately defeated by a 61-to-39 per cent margin, following an intensive media campaign that was well funded on both sides. Industries that stood to face the greatest costs, such as oil refiners, put the greatest resources into supporting Prop 23; industries that stood to benefit, including producers of alternative energy technologies, led the effort to reject the proposal. This was not the only item on the 2010 California ballot with significant ramifications for climate policy. The campaign to succeed outgoing governor Schwarzenegger featured two distinct views on sustaining AB 32 and other state climate efforts. Republican challenger Meg Whitman expressed considerable reservations about a climate cap-andtrade program for California and said that, if elected, she would freeze implementation for a year while studying long-term involvement. But she was defeated by a 54-to-41 per cent margin by former governor Jerry Brown, a Democrat who had actively supported state climate efforts in his more recent role as state attorney general. Brown said that his election would generate continued gubernatorial support for AB 32 and related programs, and his initial years in office have confirmed that plan. Moreover, the decisive rejection of the ballot proposal gave California’s policy expanded credibility and resiliency. California also appeared to be taking the lead in launching a new initiative in late 2011 entitled North America 2050: A Partnership for Progress. This project was intended to facilitate “state and provincial efforts to design, promote and implement cost-effective policies that reduce greenhouse gas emissions and create economic opportunities.”40 This built on the initial experience of the Three-Regions Collaborative, whereby leaders of the WCI, RGGI, and the MGGRA launched efforts to share information and consider possible linkages between these proposed carbon trading systems. The collaborative essentially disappeared during 2011–12, but there was a bit of overlap among individual states that assumed the lead under North America 2050. This new network was open to all American and Mexican states, and Canadian provinces.

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It featured the goals of identifying “new leadership opportunities as climate and energy policy in North America continues to evolve.” According to California Air Resources Board chair Mary Nichols, “We have high hopes that this effort will enable our state and provincial partners to join us in taking comprehensive action that reduces greenhouse gas emissions and creates economic opportunities.”41 It remained unclear, however, just what this initiative would attempt to do, although it proposed creation of working groups for policy analysis, the electricity sector, industrial energy efficiency, sequestration, biomass, offsets, and inter-program linkage. This entity appeared to be dominated by environmental agency leaders from five American states (Arizona, California, Illinois, Massachusetts, and New York), all of whom have some experience in attempting to design a regional capand-trade system. No Canadian or Mexican officials or jurisdictions were listed in founding documents as conveners or formal members, suggesting the possibility of an exclusively American leadership core. As of April 2013, very little information had been disclosed about this new entity other than an initial announcement with a two-page fact sheet. It was thus highly unclear whether this body might emerge as a significant player in building cross-jurisdictional collaboration or instead prove a largely symbolic effort to downplay the demise of WCI. Whither the Provinces? In contrast to the member states, three of the member provinces initially made more progress in moving towards cap-and-trade implementation under WCI. Quebec advanced the farthest, enacting authorizing legislation and moving towards finalization of key regulations by 2011. British Columbia and Ontario considered somewhat comparable legislation, although both lagged in 2011–12. Both provinces eventually concluded that they would not be ready to operate in WCI by 2013. Some provincial leaders have continued to claim interest in remaining active in a collaborative system but gave no indication of when they might move towards finalizing provisions essential to enable them to participate. It appeared increasingly likely in 2012 that they wanted to retain any symbolic credit associated with official engagement with California but gave no indication of planning to carry through on their initial commitments. In turn, Manitoba continued to drift away from any active involvement in the WCI process, consistent with its role in the MGGRA system.

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The initial level of provincial engagement seemed somewhat surprising. Many provinces have less experience with cap-and-trade than their American state counterparts. They tended to give more consideration to other climate policy tools over the past decade. In turn, provinces generally lagged behind the states in overall climate policy development during this period, although this pattern began to shift in the late 2000s.42 A large number of issues would need to be addressed in coordinating multi-provincial engagement, much less connecting their cap-and-trade systems with California and any other participating state partners. These included questions such as reconciliation of British Columbia’s carbon tax program into consideration of allowances under cap-and-trade, as well as the fact that, unlike the United States, Canadian law would defer oversight of any evolving derivatives market related to emissions trading to individual provinces.43 Nonetheless, there appeared in the late 2000s to be a growing possibility that WCI could prove far more province-centric than could have ever been anticipated at the point of its formation. Momentum generally mounted within participating provinces during this period, and there was less dramatic opposition to continue engagement than in those states that chose to leave the WCI. Moreover, most of the remaining WCI states remained mired in horrible fiscal straits, generally worse than their Canadian counterparts. This has served to further undermine state ability to remain active in multi-jurisdictional negotiations or continue to work to sustain support within their boundaries. As late as 2010, some provincial officials began to note that they might launch a regional program based exclusively in Canada if state involvement waned further. But these provincial commitments began to quietly dissolve in 2011 and 2012, leaving highly uncertain any future Canadian role other than the likely continued engagement by Quebec with California. Other provinces continued to refer to a WCI role in their public pronouncements but gave little evidence of moving towards preparedness for implementation with California in 2013 – or later. Provinces were conspicuously absent from the list of signatories to the North America 2050 documents introduced by a set of state leaders as a very broad possible alternative to multi-jurisdictional climate collaboration in late 2011. Indeed, by early 2012 it appeared increasingly likely that WCI could ultimately collapse, from a sprawling regional organization with more than ten partners to a far smaller entity involving just one state and one province. Even North America

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2050 appeared to be more of a fig leaf than a serious next step in collaboration, receiving very little media attention and featuring none of the more dramatic roll-out that accompanied the arrival of WCI in previous years. Cap-and-Trade in the Midwest: Broad Scope, Near-Invisible Network States and provinces in the central portions of their respective nations gave consideration to join forces with either WCI or RGGI. Manitoba and Ontario ultimately joined WCI as partners, whereas Illinois never moved past initial negotiations with RGGI. As a growing number of the jurisdictions began to develop their own climate policies, they increasingly turned to the possibility of forging a third regional cap-and-trade alliance. This led to the formation of the Midwestern Greenhouse Gas Reduction Accord (MGGRA) in November 2007. This regional alliance was created through a three-page MOU signed in Milwaukee by the governors of Illinois, Iowa, Kansas, Michigan, Minnesota, and Wisconsin, and the premier of Manitoba. Indiana, Ohio, and South Dakota become official observer states, and Ontario also assumed this role in 2010. This initial agreement outlined the rationale for taking common action to address greenhouse gas emissions, as well as potential economic benefits from taking such early steps. It also expressed a clear willingness to “enable linkages to other jurisdictions’ systems to create economies of scale, increase market efficiencies, diversity and liquidity, while reducing costs” and prepare for “potential interaction or integration with a future federal program.”44 Also, the agreement did not specify details of the cap-and-trade program, calling instead for “complete development of proposed capand-trade agreement and a model rule” within twelve months of the agreement. That work was delegated to multi-jurisdictional working groups somewhat similar to those that were used in the other regional alliances. Perhaps the most significant document to emerge since MGGRA’s 2007 launch was a twenty-seven-page “advisory group draft” featuring “final recommendations” that was released in June 2009.45 This report proposed GHG emission reduction targets of 20 per cent below 2005 levels by 2020, reaching 80 per cent below those levels by 2050, largely consistent with the WCI plan. It also outlined proposals for allowance budgets, offsets, mandatory emissions reporting, and a regional administrative organization that resembled the model

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used in creating RGGI, Inc. (MGGRA 2009). Many of these provisions, however, remained fairly broad and were not embraced officially by the participating states or province, whether through a collective agreement or legislation enacted by individual states. MGGRA not only failed to launch cap-and-trade operations by its projected starting date of 1 January 2012, but rather quietly imploded and went out of business in 2011. As well, not only did the multi-state process move slowly beyond the initial launch to define the contours of a midwestern version of cap-and-trade, but opposition to continued participation in the regional alliance emerged in a number of the state legislatures. Legislators in Illinois, Michigan, Minnesota, and Wisconsin introduced bills calling on their states to withdraw from MGGRA during 2010. The American Legislative Exchange Council (ALEC), a nonprofit organization that provides policy advice to state legislators across the country, provided model legislative language that would enable a state to withdraw from MGGRA and worked with state legislators in individual states to tailor this proposal. Beyond the issue of declining legislative support, a sea change took place among midwestern governors via 2010 elections. Gubernatorial support had been crucial to launching MGGRA, but nearly all of the original alliance of supportive governors had left office by January 2011 as the result of a combination of term limitations (Michigan, Minnesota, and Wisconsin), promotion to the federal Cabinet (Kansas), and impeachment and federal conviction (Illinois). Manitoba participation also ebbed after a change of premiers and it never developed authorizing legislation, as had been the case in its experience as a member of the WCI. In turn, one enormous challenge facing all of these jurisdictions was fiscal viability, with states such as Illinois and Michigan in particular looking at massive structural budget deficits. All of the states in the regions have been attempting to cut budgets and staff, and it is eminently possible that they would have difficulty finding funds and staff to continue to staff working group deliberations and support a cap-andtrade program structure. Yet, it was also evident in the Midwest that the RGGI model has demonstrated that it is possible to use cap-and-trade to generate revenue with far less controversy than a policy labelled as some form of a tax. Each of the participating midwestern states has its own set of renewable energy and energy efficiency programs, which appear to retain cross-partisan support. Therefore, one possibility for MGGRA was to move towards expanded exploration of allowance auctions, à la RGGI, and then target those revenues to related functions.

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Indeed, the 2009 advisory group draft endorsed a hybrid approach that would initially mix free and auctioned allocations, but transition towards greater use of auctioning over various compliance periods.46 However, this option failed to galvanize the MGGRA alliance, resulting in its collapse, although Illinois surfaced as one of the initial proponents of NA 2050. Towards Converging Regions? The emergence of three distinctive regions that bring together different sub-federal jurisdictions in attempting to launch linked cap-andtrade programs for greenhouse gases represented a remarkable step in collective action. These regions moved forward in the absence of any tangible support from their respective federal governments and generally held together amid considerable uncertainty in the late 2000s as to whether they would be allowed to continue operation if federal legislation was enacted. This experience further challenges the initial conventional wisdom that suggested climate governance would be of consequence only for national governments and international regimes. But the transition from policy formation to policy implementation is never easy, and the challenges appear particularly severe in these cases. The Regional Greenhouse Gas Initiative does outline many design features of what appears to be a stable multi-jurisdictional system that has endured early growing pains. It has established a strong and, thus far, rather resilient governing network. RGGI’s allowance auctioning has generated revenues for related policy and sustained support from many elected officials. In contrast, both the Western Climate Initiative and the Midwestern Greenhouse Gas Reduction Accord were considerably more ambitious in scope but struggled to put together a network to provide longer-term direction or to sustain broad political support. In turn, RGGI has proven unable to revisit the crucial issue of altering its regional emissions cap, despite a plunge in electricity demand among participating states that renders the cap-and-trade program far less impactful than originally envisioned. The idea of merging two or more of these regions emerged as a distinct possibility in 2008–10. Perhaps the most tangible effort to move in this direction was demonstrated in a May 2010 report issued jointly by the three regions. The white paper reviewed all dimensions of offsets in considerable detail, including discussion of key process requirements

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that would be essential to ensuring quality offsets and guiding standardized implementation of offset components of each program.47 It also explains, albeit briefly, the “Three Regions collaborative process,” which involved member jurisdictions from each region in a working group process, similar to the way each region operated on its own. According to the white paper, the “Three Regions process is a forum for each of the programs to share information related to the design and implementation of each of the regional cap-and-trade programs and to discuss issues related to potential future linkage of the programs.”48 This appeared to be a harbinger of future collaboration and integration, all the more desirable as the prospects for federal cap-and-trade legislation declined markedly in both nations in 2010. As Environment Minister John Wilkinson of Ontario noted, “Without a doubt, I think an ideal scenario would be that they all eventually merge.” The prospects for such a scenario plunged in subsequent years, however, as each of the three regional initiatives encountered serious governance challenges, particularly WCI and MGGRA. There is no evidence of active collaboration between the RGGI states and the now-dominant partners of WCI, California, and Quebec. The possibility of some new partnership between these remaining entities remains, but it appears that any collaborative synergies between participating jurisdictions have been channelled into the new and rather uncertain form of North America 2050. Ironically, one of the biggest factors that may continue to lure states and provinces to participate in some form of cap-and-trade discussions may have less to do with greenhouse gas emissions and more to do with revenue ramifications. The auctioning processes under RGGI constitute a form of stealth-like carbon pricing, producing quarterly revenues that generally are used to directly fund energy efficiency and renewable energy initiatives linked to state-specific climate strategies. In turn, auctioning design continues to be a major focal point in California as it refines cap-and-trade provisions, with an ever-expanding number of potential claimants for revenues. In fact, this could be part of a larger pattern whereby North American jurisdictions look for policies that enable them to impose a carbon price but avoid using the word taxation that is so controversial in states and provinces, with very few notable exceptions.49 In this regard, the RGGI model is particularly intriguing, in that its member states have found a successful governance structure to not only sustain a regional cap-and-trade program but also share the bounty of auctions transparently. Looking ahead, this

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model may offer some opportunities for future cross-jurisdictional collaboration, making the political linkage of connecting cap-and-trade with the generation of revenue that can be applied to programs that may reduce GHG emissions, and also fund popular programs. A Link to an Emerging American Federal Policy? The collapse of American federal discussion of comprehensive climate legislation did not signal the end to a possible significant expansion of the federal role in climate change, with potentially large consequences for operational regional and state climate programs. Instead, President Barack Obama called upon the U.S. EPA to begin in 2009 to reinterpret the 1990 Clean Air Act Amendments for possible application to greenhouse gases in the event Congress failed to enact new climate legislation. That effort continued to move forward in 2012–13, as EPA began to require greenhouse gas emission permits for very large industrial emission sources under the Best Available Control Technology (BACT) provisions of Title V in the earlier air quality legislation. Given the absence of a singular superior technology to reduce greenhouse gas emissions, the agency increasingly turned to ways to maximize energy efficiency as a method whereby facilities could gain compliance. These federal air permits are issued generally by state environmental agencies in conjunction with state implementation plans negotiated with EPA. Of course, states have varied philosophies and capacities, and the initial intergovernmental experience in this area suggests markedly different application of these provisions in various parts of the nation. Many states with active climate programs, including those participating in some form of carbon cap-and-trade, have approached these new federal requirements as an opportunity to gain credit for their own climate policy commitments and projected early emission reductions. Such credit would be used to ease future state compliance with federal policy as a reward for their prior efforts. Indeed, there have been a series of negotiations between various states and the EPA seeking most-favoured status in exchange for early commitments that would constitute state equivalency with federal provisions. There is considerable precedent for this kind of intergovernmental bargain in other areas of American environmental policy.50 In turn, states lacking any capacity for credit claiming have tended to take a different posture. Texas, for example, has refused outright to cooperate in any way with EPA,

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leading to a literal federal takeover of state air permitting and the possibility that more stringent constraints will be imposed on Texas than on early-mover states. It remains unclear how resilient this emerging American federal policy will be, or what directions longer-term intergovernmental bargaining will take. But this does represent one way in which a new federal government initiative may create an added incentive for states to sustain existing programs or even consider new ones, whether or not these operate individually or in concert with other states. Canada’s federal government has attempted to develop a new regulatory program related to carbon, covering the electricity sector and the oil and gas industry, but it has lagged behind the United States in policy development and is unlikely to approach the scope of the Obama Administration’s application of Clean Air Act Amendment provisions to greenhouse gas emissions from major point sources. Any emerging Canadian model is far more likely to reflect the quite different regulatory approach embodied in the Canadian Environmental Protection Act, the strong role of the provinces in setting emission standards, and the 2012 announcement by the Harper government that it will conclude equivalency agreements with provinces who commit to enacting their own measures to reach national targets. Consequently, there will be different incentives at work within the two federations, and it is not clear whether this will promote growing divergence at the sub-federal level. Chapter Update [July 2013] The Regional Greenhouse Gas Initiative (RGGI) took a significant step toward increasing its viability as a regional carbon trading program in February 2013 when its nine participating states reached an agreement on a substantial reduction in its greenhouse gas emissions cap. The overall regional cap was reduced by 45 per cent from its original target for 2014, from 165 million to 91 million tons, with subsequent reductions of 2.5 per cent per year approved from 2015 to 2020. This collective decision altered the original RGGI Model Rule and reflected the substantial changes in regional electricity consumption that had rendered the initial cap largely inconsequential. Each state then agreed to adjust its own related statutes and regulations to allow the new provisions to take effect on 1 January 2014. Further adjustments were made to the RGGI market, including withdrawal of any unsold allowances from previous years for potential purchase to further tighten supply.

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The first allowance auction following this announcement occurred in March 2013, with the clearing price jumping to $2.80 per ton from the $1.93 level of December 2012. Subsequent allowances traded on the open market above the $3 level. RGGI states viewed this as an encouraging initial sign and anticipated that allowance prices would continue to climb once the revised cap was in place, thereby imposing a steeper carbon allowance price and generating additional revenues for energy efficiency and renewable energy projects through state government reallocation. NOTES 1 Jorgen K. Knudsen, “Environmental Concerns in a Trans-Atlantic Perspective: The Case of Renewable Electricity,” Review of Policy Research 27, no. 2 (March 2010): 127–46. 2 Brendan Burke and Margaret Ferguson, “Going Alone or Moving Together: Canadian and American Middle Tier Strategies on Climate Change,” Publius: The Journal of Federalism 40, no. 3 (2010): 436–60. 3 Kathryn Harrison, “A Tale of Two Taxes: The Fate of Environmental Tax Reform in Canada and the Province of British Columbia,” Review of Policy Research 29, no. 3 (2012): 383–407. 4 Edith Martinez, “Mexico to Combat Climate Change Mostly by Reforesting,” Federations (March/April 2010): 19–20, 31; Simone Pulver, “Climate Change Politics in Mexico,” in Changing Climates in North American Politics, ed. Henrik Selin and Stacy VanDeveer, 25–46 (Cambridge, MA: MIT Press, 2009). 5 Debora VanNijnatten, “Environmental Cross-Border Regions and the Canadian–U.S. Relationship,” in Transboundary Environmental Governance in Canada and the United States, ed. Barry G. Rabe and Stephen Brooks, 115–33 (Washington, DC: Woodrow Wilson International Center for Scholars, 2010). 6 Elinor Ostrom, Governing the Commons (Cambridge, UK: Cambridge University Press, 1990). 7 See Debora VanNijnatten and Neil Craik, chapter 1, this volume. 8 Elinor Ostrom, “Climate Polycentrism” (paper for the World Bank, 2010). 9 Stephen Goldsmith and Donald F. Kettl, eds., Unlocking the Power of Networks (Washington, DC: Brookings, 2009). 10 Posner, Paul. 2009. “Networks in the Shadow of Government: The Chesapeake Bay Program,” in Goldsmith and Kettl, Unlocking the Power of Networks, 62–94. 11 Paul E. Peterson, The Price of Federalism (Washington, DC: Brookings, 1995).

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12 Western Climate Initiative (WCI), Design for the Regional Program (July 2010), 2. 13 Matthew Bramley, P.J. Partington, and Dave Sawyer, Linking National Cap-andTrade Systems in North America (Drayton Valley, AB: Pembina Institute, 2009). 14 Barry G. Rabe, “States on Steroids: The Intergovernmental Odyssey of American Climate Policy,” Review of Policy Research (March 2008): 105–28. 15 A. Denny Ellerman, Frank J. Convery, and Christian de Perthius, Pricing Carbon: The European Union’s Emissions Trading Scheme (Cambridge, UK: Cambridge University Press, 2009). 16 Knudsen, “Environmental Concerns.” 17 Regional Greenhouse Gas Initiative (RGGI), Memorandum of Understanding (20 December 2005), 1–2. 18 Daniel Elazar, American Federalism: A View from the States (New York: Harper and Row, 1984). 19 Knudsen, “Environmental Concerns,” 140. 20 Leigh Raymond, “The Emerging Revolution in Emissions Trading Policy,” in Greenhouse Governance: Addressing Climate Change in the United States, ed. Barry G. Rabe, 101–25 (Washington, DC: Brookings, 2010). 21 Brian J. Cook, “Arenas of Power in Climate Change Policymaking,” Policy Studies Journal 38, no. 3 (2010): 465–86; John Buntin, “Cap & Fade,” Governing, December 2011, 26–31. 22 RGGI Inc., “RGGI CO2 Auctions Yield Millions for Investment in Clean Energy, Job Creation,” news release, 12 March 2010. 23 Letter from Senators Jeanne Shaheen, Sheldon Whitehorse, Benjamin Cardin, Jack Reid, Barbara Mikulski, Robert Menendez, Frank Lautenberg, Ron Wyden, Bernard Sanders, Barbara Boxer, Jeffrey Markley, Kirsten Gillibrand, Patrick Leahy, and Christopher Dodd to Senators John Kerry, Lindsey Graham, and Joe Lieberman, 26 March 2010. Copy available from author of this chapter. 24 Barry G. Rabe, “The Aversion to Loss-Imposition in American Climate Policy,” Governance 23, no. 4 (October 2010): 583–607. 25 Eric Pooley, The Climate War (New York: Hyperion, 2010). 26 Robert Axelrod, “Beyond the Tragedy of the Commons,” Perspectives in Politics 8, no. 2 (June 2010): 582. 27 RGGI, Potential Emissions Leakage and the Regional Greenhouse Gas Initiative, 14 March 2007. 28 “Embracing Reggie,” Economist, 17 November 2007. 29 Christopher Borick, “American Public Opinion and Climate Change,” in Rabe, Greenhouse Governance, 24–57. 30 Christa Marshall, “Money to Fight Climate Change Gets Siphoned into Other Budgets,” E&E News, 19 March 2010, http://www.eenews.net/

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31 32 33 34 35 36 37 38 39 40 41 42 43

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climatewire/print/2010/03/19/6; David W. Halbfinger, “New Jersey Governor Proposed Deep Spending Cuts,” New York Times, 16 March 2010. Barry G. Rabe, “Governing the Climate from Sacramento,” in Goldsmith and Kettl, Unlocking the Power of Networks, 47–8. WCI, Design for the Regional Program, 25. Sindya N. Bhanoo, “Arizona Quits Western Cap-and-Trade Program,” New York Times, 17 February 2010. WCI, Design for the Regional Program. John Pendergrass, “Arizona Pulls Out of Climate Initiative,” Environmental Forum 27, no. 2 (March/April 2010): 12. Bhanoo, “Arizona Quits.” Deborah Guber, The Grassroots of a Green Revolution: Polling America on the Environment (Cambridge, MA: MIT Press, 2003). Varshney & Associates, “Cost of AB 32 on California Small Businesses,” June 2009, submitted to Betty Jo Toccoli, California Small Business Roundtable. Guber, Grassroots of a Green Revolution. Western Climate Initiative, “North America 2050: A Partnership for Progress,” fact sheet posted 10 November 2011. California Air Resources Board, “Air Resources Board Issues Statement of Support for North America 2050,” news release #11-50, 17 November 2011. Burke and Ferguson, “Going Alone.” Regional Greenhouse Gas Initiative, Midwestern Greenhouse Gas Reduction Accord, and Western Climate Initiative, “Ensuring Offset Quality: Design and Implementation Criteria for a High-Quality Offset Program,” May 2010. Midwestern Energy Security & Climate Stewardship Summit, “Midwestern Greenhouse Gas Accord,” 2007, 3. Midwestern Greenhouse Gas Reduction Accord (MGGRA), “Advisory Group Draft Final Recommendations,” 2009. MGGRA, “Advisory Group Draft Final Recommendations.” Three-Regions Offsets Working Group, “Ensuring Offset Quality: Design and Implementation Criteria for a High-Quality Offset Program,” May 2010. RGGI, “Ensuring Offset Quality,” 6. Barry G. Rabe and Christopher P. Borick, “Carbon Taxation and Policy Labeling: Experience from American States and Canadian Provinces,” Review of Policy Research 29, no. 3 (May 2012): 359–83. Barry G. Rabe, “Governance Lessons from the Health Care and Environment Sectors,” in Education Governance for the Twenty-First Century, ed. Paul Manna and Patrick McGuinn (Washington, DC: Brookings, 2013), chap. 13; Daniel Fiorino, The New Environmental Regulation (Cambridge, MA: MIT Press, 2006).

4 Standards Diffusion: The Quieter Side of North American Climate Policy Cooperation? debora vannijnatten

The preceding chapters argue that the prospects for setting economywide GHG reduction targets and establishing (linked) national carbon markets to implement these targets across North America are poor. Even a short while ago, the outlook for carbon trading at the subnational level appeared brighter, but as Barry Rabe explains in the preceding chapter, these projects are also imperilled. What, then, are the other options for moving forward with GHG mitigation on the continent? Although governments have various policy tools available to them to pursue emissions reductions, regulation is potentially the quickest and most effective. Moving ahead with standard-setting, sector by sector, targeting those sources that are major contributors to GHG emissions within the three countries, and having complementary standards across the North American market, could bring about significant reductions over the medium term. Although there remains some room for interpretation, both national and sub-national governments on the continent do have constitutional and legal leverage to address GHG emissions, directly and indirectly. Moreover, GHG standards are likely quite resilient; although they are politically difficult to get in place, once adopted they are not easily changed. This chapter picks up where the previous chapter by Barry Rabe leaves off, exploring the very real prospect that GHG and related standard setting – rather than cap-and-trade – may become an important part of emission reduction strategies across North America. The first task is to investigate the status of standard setting in GHG and related areas in individual jurisdictions. Then, given our focus on the integration of policy tools within the North American regional system, we need to explore the possibility of standards diffusion across borders,

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such that some measure of policy coherence is achieved. Even some initial impressions about the extent of and pathways for standards diffusion can help us to better understand the nature of this “bottom-up” dynamic. The examination below – which focuses on the transportation, heat generation, and energy efficiency sectors – shows some potential for standards diffusion on the particular measures surveyed here, which are arguably representative of the major regulatory options available to governments in limiting GHG emissions in these sectors. The standards themselves tend more often than not to be modelled on California’s approach; however, the pathways for standards diffusion are not uniform, using both vertical and horizontal networks, often at the same time. While the trans-governmental framework does appear to facilitate standards adoption across jurisdictions in North America – through emulation, imitation, and policy learning – the resulting geographically fragmented approach is unlikely to achieve uniform standards adoption. This is clearly problematic in building a higher degree of coherence into the regional system. The more recent engagement of federal governments, especially the United States, in limiting GHG emissions increases the chances of complementary cross-country standards; however, there remain serious political and economic barriers to this strategy. Setting Standards: Where to Target Action? If GHG emission reductions are to be achieved by imposing standards on emission sources, what sectors or sources represent the best target for reductions? In the U.S. case, emissions from electricity generation accounted for the largest portion (34 per cent) of the country’s greenhouse gas emissions in 2010, transportation activities accounted for the second-largest portion (27 per cent), and emissions from industry accounted for the third-largest portion (20 per cent). However, the U.S. EPA’s 2012 Inventory (based on 2010 data) also notes that, “in contrast to electricity generation and transportation, emissions from industry have generally declined over the past decade.”1 In Canada, the transportation sector has consistently been the largest source of GHG emissions over the period 1990–2010, with particular increases in the passengerkilometres driven by light trucks and heavy-duty diesel vehicles (large freight trucks).2 Electricity and heat generation was the second largest source, although these emissions have been declining since 2007. The

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sector with the largest emissions growth has been oil and gas; the fossil fuel industries registered a net increase of about 50 megatonnes of GHG emissions from 1990 to 2010 (47 per cent growth).3 In Mexico, transportation emissions eclipse all other sources, at 34 per cent of total emissions in 2006 (and these are projected to rise dramatically), while electricity and heat generation contribute 27 per cent.4 The North American emissions profile is thus quite clear: the lion’s share of total emissions come from the transportation and electricity / heat generation sectors. One would expect, then, that GHG emission reductions could be achieved continent-wide through complementary standards that bring about meaningful reductions in these two sectors. The obvious targets in transportation are fuel economy and tailpipe standards. Indeed, the Pew Center for Global Climate Change has estimated that the new U.S. federal fuel economy standards (FES), which are to be phased in over 2012–16, would alone reduce CO2 emissions by 950 million tonnes and save 1.8 billion barrels of oil over the lifetime of the vehicles sold.5 By 2030, it is expected that CO2 emissions will be reduced from the light-duty passenger fleet by 21 per cent over the business-as-usual scenario.6 Low-carbon fuel standards (LCFS) are another potential regulatory tool in the transportation sector. Given that transportation emissions are determined to a significant degree by the fuels used, a LCFS mandates a reduction in the life-cycle emissions of the fuels sold. For the electricity sector, emissions performance standards (EPS) can reduce CO2 emissions from electric power generators by inducing “fuel-switching” (change in the energy source used, i.e., from coal to natural gas). FES, LCFS, and EPS could theoretically all be employed prior to or in conjunction with any future cap-and-trade system, although interactions between such instruments are extremely complex to manage. Standards in other areas also have considerable potential to deliver emissions reductions, especially those mandating increases in energy efficiency. In attempting to achieve higher levels of energy efficiency, there are market barriers that prevent the up-take and diffusion of otherwise cost-effective technologies and practices; here, the imposition of standards can encourage activities that do not otherwise easily respond to the price signal sent by, for example, a cap-and-trade system.7 Energy efficiency resource standards (EERS), which set a long-term target to mandate energy savings by utilities (to be achieved through energy efficiency and conservation), along with product efficiency standards, can result in considerable energy savings and thus GHG mitigation.

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North American Climate Change Standards The December 2009 ruling by the U.S. EPA that GHGs endanger human health has provided the Obama administration with the means to regulate emissions sources under the 1990 Clean Air Act, even without legislative action by Congress. While this ruling has not gone uncontested,8 the agency is proceeding to regulate mobile and stationary sources. In Canada, the regulation of greenhouse gases is being undertaken under the Canadian Environmental Protection Act 1999 (CEPA), which provides the federal government with authority to mandate reductions in “toxic” emissions. In Mexico, the federal government has the authority to regulate greenhouse gas emissions and could do so via national agencies, including the main environmental agency (SEMARNAT) and the National Commission for the Efficient Use of Energy (CONUEE). The country’s new General Law on Climate Change also strengthens the hand of the federal government in establishing key policy and regulatory authorities for mitigation. Sub-national governments, too, can regulate in numerous areas relating to GHG emissions, whether under their own constitutional competencies (Canada, United States) or via federal delegation (United States, Mexico). The investigation in this chapter focuses on the setting of government standards – rules that set out a minimum acceptable benchmark and that are issued and enforced for compliance by a statutory agency (or agencies) – for GHG emissions in the passenger transportation, heat generation, and energy efficiency sectors. Vehicle Emissions The story of vehicle emission standards in North America is one of continuing similarity between Canada and the United States, beginning in the mid-1970s; there were few changes in a modest regime over the ensuing decades and few improvements made, until very recently. A 2004 comparison of passenger vehicle fuel economy and emissions standards around the world conducted by the Pew Center for Global Climate Change was not complementary: “The United States and Canada have the lowest standards in terms of fleet average fuel economy rating, and they have the highest average greenhouse gas emission rates.” For its part, Mexico does not (at the time of writing) have fuel economy or GHG tailpipe standards. It has only been over the past five years or so that plans have been afoot, in Canada and the United

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States, to raise standards to higher levels of environmental stringency, and in Mexico, to put standards in place that approximate the approach of their northern neighbours in significant respects. The United States, or rather California, led the development of vehicle emissions standards, especially for light-duty vehicles, within North America. In 1975, after California had already acted, the U.S. federal government instituted the corporate average fuel economy (CAFE) standard, which is the sales-weighted average fuel economy, expressed in miles per gallon (mpg), of a manufacturer’s fleet of passenger cars or light trucks (dealt with separately under regulations) for a given model year. Interestingly, vehicles more than 8,500 pounds gross weight (including some of the largest sports utility vehicles) are considered heavy-duty and were not covered by the regulations. Despite technological advances, the average fuel economy of new cars and light trucks in the United States actually declined from its peak in 1988 and remained below that level, as the result of increasing vehicle size and power, the rising market share of light trucks / SUVs, and the lack of any improvements to CAFE standards. In fact, the 1975 CAFE standards for light-duty vehicles went unchanged until the 2007 Energy Independence and Security Act (EISA). EISA included provisions to improve the fuel efficiency of cars and light trucks from twenty-five to thirty-five mpg by 2020, beginning with the 2011 model year. The Bush administration did not move forward with rulemaking, however, instead leaving this to the incoming administration of Barack Obama. Meanwhile, in 2002, California had enacted AB 1493, which directed the California Air Resources Board (CARB) to issue regulations reducing tailpipe GHG emissions (CO2, methane, NO, hydrofluorocarbons – measured as CO2 equivalents in grams per mile, or CO2e g/mi) by 30 per cent by 2016, with improvements beginning already in the 2009 model year. CARB proposed both near-term (2009–12) and mid-term (2013–16) standards to reduce CO2e g/mi. The standards are expressed as fleet average requirements for passenger cars and light-duty trucks – and, significantly, these two vehicle categories are not treated separately under the regulations, as distinct from CAFE. Early action credits are available and can be used against the near-term standards. Thereafter, thirteen states adopted the California regulations – including New York, New Jersey, Massachusetts, Connecticut, Rhode Island, Vermont, and Washington, as well as the Canadian provinces of British Columbia, Quebec, and Manitoba – and several others announced their intention to do so. The California tailpipe regulations were delayed by

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court action initiated by automotive manufacturers, although two successive decisions have upheld the right of the Golden State to enact its regulations.9 Then in 2009 the Obama administration announced that it would set national standards for passenger vehicles that, over the phase-in period 2012–16, would achieve the same fuel economy improvement as the California standard (35.5 mpg) and would also set GHG emission limits. On 1 April 2010 the U.S. Environmental Protection Agency (EPA) and the National Highway Traffic Safety Administration (NHTSA), having undertaken a historic joint rule-making process, issued harmonized fuel economy and greenhouse gas (GHG) emissions standards for cars and light trucks for model years 2012 through 201610 and instituted a GHG emission limit of 250 g/mi CO2e standard. Although the U.S. EPA had granted California a waiver allowing the state to regulate GHG emissions,11 under an intergovernmental agreement California and other states supporting its approach agreed to conform to the new federal standard between 2012 and 2016, after which they would be free to pursue their own approaches. In November 2011, the EPA and NHTSA proposed new standards that would ramp up fuel efficiency standards for passenger cars and light trucks over the period 2017–25 to reach the equivalent of 54.5 mpg as well as ambitious fleet-wide “footprint-based” CO2 standards.12 Further, the EPA and NHTSA issued fuel efficiency and GHG standards for medium- and heavy-duty vehicles (semi-trucks, pickup trucks and vans, and vocational vehicles) to be met by 2017.13 Although there are different types of fuel economy or GHG reduction standards around the world, involving different methodologies, Canada adopted the American approach early on. In fact, Canadian and American manufacturers have effectively followed the same emission standards.14 The federal government introduced its Company Average Fuel Consumption (CAFC) program for the new passenger vehicle fleet (equivalent to CAFE but measured in L/100km) in 1976. Legislation was introduced to make the program mandatory in 1982, but the automotive industry agreed to comply voluntarily with the standards, and the legislation did not go into effect. The CARC approach closely matched the CAFE program in using the U.S. “drive cycle”15 and also setting up a credit system. Interestingly, the Canadian vehicle fleet had long outperformed the U.S. fleet in average fuel economy, largely because of the difference in sales mix between the two countries; Canadians tended to buy fewer SUVs and pickups.16 This difference is less applicable now. The point to be made, however, is that Canada has had no regulated

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fuel economy standards; the regime was completely voluntary, yet operated on the same terms as the American. In April 2010, at the same time that the U.S. federal government announced its new standards, the Canadian government unveiled “harmonized” rules, also aimed at achieving a fleet average fuel economy of 35.5 mpg by 2016, and reducing GHG tailpipe emissions. In fact, in its notice of intent to develop regulations limiting carbon dioxide emissions from new cars and light-duty trucks, the government stated, “These regulatory standards will be equivalent to applicable U.S. national fuel economy standards.”17 At the time that the standards were initially being formulated, the Pembina Institute had suggested that the manner in which early-action credits were to be used and the application of a “multiplier” in the calculation of zero-emission vehicles into fleet-wide averages might be shaping up in ways different from the American regime, such that the Canadian regulations would be slightly less stringent.18 In its Regulatory Impact Analysis Statement, the government noted that, since the Canadian regulatory requirements must be established in a manner consistent with the authorities under CEPA 1999, this does require “a slightly different structure to some regulatory elements compared to the United States; however, the proposed Regulations have been designed to achieve an equivalent end result.”19 Interestingly, in the final regulations, U.S. EPA certificates of conformity with American federal standards may be used to show compliance with the Canadian requirements.20 Quebec, which had been in the process of adopting GHG tailpipe emission standards based on the California model when the federal government initiated rule-making, also introduced new regulations in January 2010 limiting GHG emission regulations for new cars and light-duty trucks sold in the province immediately. British Columbia and Manitoba had been considering similar regulations based on the California model, and British Columbia has proceeded to rulemaking – although the utility of provincial actions here are uncertain, given the new federal regulations. Moreover, the Canadian government is also putting in place standards for medium- and heavy-duty vehicles that mirror the American. In a regulatory consultation document, released in late 2011, it was noted that vehicle weight classes and definitions would be “identical to the U.S. national program,” regulations in the two countries would be “aligned,” and standards would be “measured using the final U.S. national program testing procedures.”21

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Mexico has had no standards for meeting fuel economy or GHG emission targets. However, in January 2010, Mexico’s Energy Ministry committed CONUEE to establishing minimum FES for new cars and heavy trucks. Early statements indicated that the minimums would be based on setting an average target for new car fleets, as in the American model.22 Initially, there were discussions about differentiating according to “light,” “medium,” and “heavy” categories of cars and trucks,23 which would have built some degree of difference between the Mexican and American models. Yet, Mexico’s national standards (NOMs), released in 2012, are aligned with the U.S. standards24 introduced in 2010. One unique challenge of the Mexican context is the large number of used (and high-emitting vehicles) that have been imported into the country, although the government has more recently placed restrictions on such imports; this particular policy challenge has no analogue in Canada or the United States. Low Carbon Fuel Standards If we have seen continuing national similarity between Canada and the United States in standards for vehicle fuel economy, and likely a convergence of Mexican standards with the American-Canadian standards in the most important respects, low carbon fuel standards (LCFS) exhibit a pattern of adoption that is more explicitly sub-regional but also considerably more limited in coverage. LCFS set a target for lifecycle or CO2 emissions intensity for the range of fuels. This policy instrument is particularly important given the growing reliance on fuels from unconventional sources, such as tar sands, which are more carbon-intensive.25 Generally, once the target has been mandated, producers can either meet the standard or purchase credits to make up the shortfall. One of the most difficult aspects of applying this instrument is developing the methodology to calculate life-cycle emissions for any given fuel – and this is also where the greatest potential for variation across jurisdictions in setting standards lies. The way in which particular fuels are treated under a proposed LCFS has been the focus of concerted political debate and opposition in every jurisdiction where they are introduced. At the national level, there are no LCFS in any of the three countries – although there have been numerous attempts to put this instrument in place in the United States. The Senate’s Climate Security Act of 2008 and the March (as opposed to May) 2009 version of the House’s

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American Clean Energy Security Act (ACES) proposed a LCFS covering all transportation fuels. The latter would have enabled the EPA to establish methodologies for determining life-cycle GHG emissions, and allowed regulated entities to generate and trade credits. Both also adopted 2005 as a baseline year, with a reduction of 10 per cent by 2028 (the Senate bill) or by 2030 (the House bill). As discussed in Studer’s chapter, none of these legislative proposals have been successful. Instead, initial LCFS action came from California, with the California Air Resources Board establishing a LCFS regulation under executive order in 2007 and final approval coming in 2010. In addition, the U.S. states of Washington, Oregon, Arizona, New Mexico, Minnesota, Wisconsin, and Illinois proposed or were actively considering LCFS initiatives in the legislature or executive branch over 2008–2012. In Canada, British Columbia adopted a LCFS under their Greenhouse Gas Reductions Act, which was to come into effect in 2010 but is under revision.26 Ontario, for its part, was actively considering a LCFS on the California model; it signed a memorandum of understanding with California in 2009 to “co-ordinate policy development on a LCFS.”27 As table 4.1 shows, the LCFS programs proposed or adopted in both countries at the sub-national level tended to follow the California model in setting a target (10 per cent below 2010 by 2020) and in the scope of application. There are some important design differences, however, particularly in methodological requirements for calculating intensity, such as in the treatment of conventional vs unconventional crude oil sources (i.e., are separate calculations undertaken or are all oil types thrown together?), biofuels (especially the degree to which land use impacts are taken into account) and diesel (i.e., whether diesel is seen as a low-carbon fuel).28 These differences are significant and reflect more parochial economic and political concerns within specific jurisdictions. Further, there is some possibility – though certainly less than a few years ago – that LCFS adoption may become explicitly sub-regionalized as discussions among the RGGI states on a regional low carbon fuel standard continue.29 While MGGRA had begun to consider a LCFS, this is no longer under consideration, given that the pact itself is effectively dead.30 The WCI also recommended in 2010 that its members adopt a LCFS, which would have widened adoption in the western United States and Canada,31 but it is does not appear that any action has been taken on this front.

Standards Diffusion 117 Table 4.1. LCFS Programs in North America Mode of GHG intensity analysis

Jurisdiction

Target

California regulations

10% below 2010 by 2020 GTAP* – compliance beginning CA-GREET** in 2011

Compliance options Entities allowed to generate and trade credits

Oregon (regulations not 10% below 2010 by 2020 GREET f nalized, constraints on – compliance beginning implementation imposed in 2011 by legislature)

Credits can be purchased to achieve compliance

Washington(regulations being formulated)

10% below 2007 by 2023 GREET used – compliance beginning in analysis for in 2014 rule-making

Under discussion

RGGI (statement of intent, 31 Dec. 2008), under development by NESCAUM

Under discussion

Under discussion

MGGRA (draft recommendations Jan. 2009 – no action taken)

10% below 2010 by 2020 GTAP or – compliance beginning CA-GREET in 2011

Entities allowed to generate and trade credits

Minnesota

10% below 2010 by 2020 Not specif ed

Entities allowed to generate and trade credits

British Columbia

10% below 2010 by 2020

Ontario(commitment in MOU)

10% below 2010 by 2020

Under discussion

Sources: Midwestern Greenhouse Gas Reduction Accord Advisory Group, Midwestern Low Carbon Fuel Initiative Draft Recommendations (October 2009); Pew Center for Global Climate Change, “Policy Options for Reducing GHG Emissions from Transportation Fuels,” Policy Brief August 2009; Minnesota Senate, S.F. No. 13, as introduced – 86th Legislative Session (2009–2010), posted 8 January 2009. *Global Trade Analysis Project **California-modif ed, Greenhouse Gases, Regulated Emissions and Energy Use in Transportation Model

The actual implementation of LCFS requirements has proven very difficult, given the concerted political opposition facing such initiatives. For example, California’s requirements continue to be mired in court challenges. In December 2011 a U.S. district court ruled that the state’s

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rules ran afoul of the Constitution’s commerce clause, but in April 2012 the California requirements were temporarily reinstated by a higher court.32 Then, a June 2013 court ruling allowed the LCFS to remain in effect but required modifications to some of its provisions. In another example, Oregon’s rule-making process has been constrained by provisions enacted by the state legislature that the standards may not increase the fuel prices at the pump and by a 2015 “sunset clause.”33 Neither British Columbia nor Ontario has proceeded with detailed implementation of LCFS standards; both governments are (at the time of writing) facing more hostile political climates and have adopted a more timid environmental policy approach of late. Electricity Emissions Given the large contribution of coal-fired power plants to overall GHG emissions in all three countries and, at the same time, an abundant supply of relatively cheap coal, any GHG reduction regulatory strategy ought to include some means of reducing emissions from this source. The primary method is to adopt a performance standard approach to reducing CO2 emissions, which typically involves specifying a maximum allowable rate of emissions per unit of product (e.g., pounds of CO2 per megawatt-hour of electricity, or lbs/MWh) generated or sold, or a required percentage reduction in potential emissions. Performance standards can be applied to new or existing power plants, and to individual plants versus a collection of plants. The objective here is to reduce power plant emissions by directly or indirectly requiring designated sources to employ technology or other measures to control CO2. In most proposals, particularly those applying to the permitting of new plants, the environmental performance standard would require the use of CO2 capture-and-storage (CCS) technology.34 Various criteria can be used in the application of the standard to particular plants: the “best available control technology” (BACT), such as is employed in the U.S. New Source Performance Standards for NOx, SO2, and PM under the Clean Air Act, or the “lowest achievable emission rate” (LAER). In a continuing theme for this chapter, California was the first jurisdiction in North America to introduce a CO2 performance standard for coal plant emissions, setting the maximum emission level at 1,100 lbs/ MWh in January 2007. This target represents what is achievable by an older combined-cycle natural gas turbine, requiring a reduction in CO2 emissions of per MWh of 30–40 per cent by a conventional coal plant – a target that would require the use of CCS technology.35 Four other

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states (Oregon, Illinois, Montana, and Washington) have brought in ERS, and one, New Mexico, is at the proposal stage.36 The standards in Washington and New Mexico matched the California target and focus similarly on new base-load generation, while those in Illinois and Montana specify instead a percentage (50 per cent) of CO2 capture (which would likely achieve a result similar to the California program). The Oregon standard applies to natural gas rather than coal-plants. Interestingly, at the national level, S.1227 (Clean Coal Act of 2007) proposed by Senator John Kerry would have set a much more ambitious ERS – 285 lbs CO2/MWh, applying immediately to new coal plants (requiring that 85–90 per cent CO2 be captured). S.309 (Global Warming Pollution Reduction Act), proposed by Sands-Boxer, had the same target but would have applied to both existing and new plants. The ACES would have taken a phased approach to requiring ever greater reductions from plants permitted after 1 January 2009. Now, as chapter 2 explains, the U.S. EPA is moving forward with a permitting regime for point source GHG emissions, beginning with coal-fired power plants. In March 2012, the EPA announced new performance standards limiting carbon dioxide emissions from power plants. The standard, which applies only to new power plants, limits CO2 emissions to 1,000 pounds per megawatt-hour (lbs CO2/MWh). Since, typically, a conventional coal plant generates about 1,800 lbs CO2/MWh (or 1,600–1,900 lbs CO2/MWh), this will effectively inhibit the construction of new coals plants that do not adopt CCS. Natural gas plants, on the other hand, emit around 800–850 lbs CO2/MWh, well within the standard. The finalization of the standards has been delayed, however, in the face of concerted opposition both from inside and outside Congress. On the Canadian side of the border, the British Columbia Energy Plan commits the government to mandating “zero net greenhouse gas emissions” from existing thermal generation power plants by 2016, and it also stipulates that coal thermal plants “must meet a zero emission standard, through a combination of ‘clean coal’ fired generation technology, carbon sequestration and offsets for any residual GHG emissions.”37 Both measures have uncertain timeframes for implementation. Ontario has take a different approach, committing to phasing out all coal-fired plants by 2014, and replacing the electricity gap with new renewable and nuclear. At the national level, the Canadian government set out a Regulatory Framework for Air Emissions in 2007, revised in 2008, under which mandatory and enforceable intensity reduction targets can be set for GHG emissions from all major industrial sources, including electricity

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generation.38 In June 2010, the environment minister announced that environmental performance standards would be imposed on all fiftyfive of Canada’s coal-fired power plants by 2015; the standard would be based on “parity with the emissions performance of high-efficiency natural-gas generation and will represent an improvement in emissions of about 60 per cent per gigawatt hour generated.”39 This standard would appear to be more stringent than that imposed in California but it is implemented over a longer timeframe. In the original government announcement, all coal plants would have to close at the end of their “useful lives” (forty-five years) or when contracts expire – no modifications to extend lifetimes would be allowed; this provision appears to have been relaxed more recently.40 In the draft regulations issued in August 2011, the performance standard is set at the emissions intensity level of high-efficiency natural gas combined cycle technology, fixed at 375 tonnes of CO2/GWh. The standard applies to new units and to coal plants that have reached the end of their “useful life date”; those plants in operation before 2015 that have not reached the end of their life are not covered by the new regulations.41 Energy Efficiency Energy efficiency is increasingly referred to as the “first fuel” in transitioning to a clean energy economy, particularly by American agencies and non-governmental advocates. As the International Energy Agency observes, “There has been a growing appreciation of the great opportunities to be realized in exploiting untapped end-use efficiency reserves in the near term,” particularly since the global economy will require a much longer timeframe to make the transition to lower-carbon energy sources (e.g., renewables).42 In the IEA’s 2008 World Energy Outlook, its “Alternative Policy Scenario,” which considers what would happen if a range of currently available carbon abatement policies were fully implemented, finds that an earlier and lower peak in energy-related CO2 emissions could be achieved as the result in large part of end-use energy efficiency measures (66 per cent of the reduction).43 Energy efficiency is, in essence, the kilowatt hours or gallons of gasoline that are not used as the result of improved technology and practices. Energy Efficiency Resource Standards (EERS), which set a target for long-term energy savings for utilities, are a key regulatory measure that can be employed. Under an EERS, utilities must procure a percentage of their future electricity and natural gas needs using energy efficiency

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measures, typically equal to a specific percentage of their load or projected load growth.44 EERS should not be confused with a complementary measure, the Renewable Portfolio Standard, which requires that utilities generate energy using a specified percentage of renewable energy, including the increased production of energy from renewable energy sources, such as wind, solar, biomass, and geothermal. By the end of 2010, twenty-six U.S. states had adopted EERS, accounting for 65 per cent of the country’s electricity demand.45 The programs do vary, however, in the percentage savings target (generally ranging from 0.3 to 2.5 per cent annual savings) and the year of implementation.46 It is noteworthy that the most aggressive EERS targets have been imposed by states in the Northeast, with a sprinkling of midwestern states. Overall, however, the pattern of EERS adoptions does not adhere to that described above in the vehicle emissions, low carbon fuels and power sector GHG standards; in fact, the early adopters were from all regions of the United States – California, but also Texas, Vermont, and Hawaii. Further, there does not appear to have been diffusion to Canada or Mexico. Only Ontario, under its 2009 Green Energy and Green Economy Act, has made energy conservation targets a mandatory condition of licence for electricity distributers, beginning in January 2011. In energy efficiency product standards, however, the pattern is indeed sub-regionalized and California-led. California introduced energy efficiency standards across the range of appliances and products in 1976, followed soon after by New York and Massachusetts; these states fashioned their programs to require a tightening of standards over time to require ever greater energy savings. The U.S. federal government adopted national standards for certain appliances and products under the 1987 National Appliance Energy Conservation Act. However, California and other western and northeastern state leaders (Oregon, Connecticut, Rhode Island, and Washington have joined New York and Massachusetts) have continued to go beyond the federal standards, placing requirements on a wider range of products (they are generally prevented from instituting higher standards, however).47 The U.S. Department of Energy is updating standards and implementing new ones for a wider range of products as well, following the state lead. While Canada has lagged in this area, nationally and provincially, new standards are being instituted across all product/appliance categories after a 2008 update to the national Energy Efficiency Act. Moreover, Mexico has targeted energy efficiency measures in its national climate change action program.

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Climate Policy Diffusion in North America The investigation above into the patterns of standards adoption in the passenger transportation, heat generation, and energy efficiency sectors paints a rather messy picture of diffusion. Clearly there are interactions across borders that conform to the general understanding of diffusion, whereby decisions taken by some governments influence the choices made by others.48 However, each case of standards adoption seems to tell us a different story about how diffusion happens within the North American regional system. This poses a rather significant challenge when thinking about how to achieve policy coherence in GHG mitigation standards. Certainly, the investigation in this chapter does support the contention that a diffusion of policies and standards is occurring across borders in North America. Busch and Jörgens, in their study of international environmental policy convergence, differentiate between the processes associated with “diffusion” and other processes, namely “harmonization” and “imposition.”49 Harmonization refers to a “multilateral and state-centred process where international negotiations among sovereign states and subsequent policy formulation lead to domestic implementation and compliance.”50 Applying the harmonization concept to the North American context actually highlights the lack of top-down decision-making in the regional system, as discussed in chapters 1 and 2; it is difficult to imagine a scenario under which regional standards would be applied to mobile and stationary sources within individual jurisdictions. Imposition, according to Busch and Jörgens, describes a more subtle coercive process, namely cases of standards adoption where external actors force countries to adopt policy innovations they would not otherwise have adopted, by exploiting economic or political power asymmetries. In North American climate policy, there do appear to be signs of imposition. At various points in recent years, particularly when Congress was considering climate change legislation, the Canadian government has feared that Canadian goods might be subject to punitive trade action should they be judged not “equivalent” in terms of American climate policy measures (discussed in Green’s chapter in this volume). Indeed, American federal politicians have threatened Canada with trade measures – and the LCFS is a good example. American political actors, given their greater economic might, coupled with the reliance of Canada (and Mexico) on the U.S.

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import market, have the means to impose their preferred policies. This dynamic is discussed in more detail below. We see far more evidence of diffusion than we do of imposition in North America, however. Diffusion is a voluntary process, whereby policy innovations are communicated across borders and adopted by different governments over time. The adoption of LCFS, EPS, or EERS by states and provinces has been voluntary, as has FES and tailpipe standards (until the U.S. EPA finalized its rule-making). Indeed, given their regulatory leverage and the absence of national mandates in most areas, sub-national standards have often been brought in against the express wishes of national policymakers and powerful economic interests. By the same token, the decision not to adopt a particular standard highlights the deliberate nature of the process; when introducing the new federal measures limiting emissions from coal-burning power plants in 2010, Canada’s environment minister, Jim Prentice noted, “While our firm intent is to co-ordinate key environmental decisions and actions with the United States, where Canadian circumstances and American circumstances are not the same, we will not hesitate to pursue a policy direction that reflects our differing circumstances. Electricity is one such case.”51 As Busch and Jörgens explain, diffusion becomes manifest “through the accumulation of individual cases of imitation, emulation or learning with respect to one and the same policy item” and “may thus result in a ‘regulatory revolution by stealth.’”52 Policymakers in different jurisdictions are persuaded to adopt policy innovations as a rational approach to problem-solving (i.e., how have other countries addressed this problem?), they may be persuaded by policymakers in other jurisdictions to adopt policies, or they may be motivated by legitimacyoriented concerns. Although we might not characterize the dynamics in our cases as “regulatory revolution by stealth,” the standards examined here provide support for imitation, emulation, and learning. In the obvious example, California is a model for both sub-national and federal governments; it has often acted as first adopter, and other jurisdictions have used significant aspects of its standards, as with FES and tailpipe standards, as well as LCFS. One might propose that states and provinces look to California’s climate policy standards while making their own, and the compressed timeframes in rate of adoptions after action is taken in California would indicate the possibility of, at the very least, information flows and, at most, active cooperation among these jurisdictions during policy formulation.

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It is also clear that jurisdictions who have proposed standards or have not yet acted are waiting for California’s standards – particularly LCFS – to be tested in the courts, before proceeding along the same lines. In an extreme example, British Columbia’s consultative document for the initial draft of its Greenhouse Gas Reduction (Vehicle Emissions Standards) Act, notes, “The Act will be brought into force by regulation – enacted when (and not before) the equivalent California regulation and standards are implemented.”53 California’s role in policy diffusion in North America is, however, more multifaceted than references to emulation, imitation, and learning would indicate. Underlying the diffusion processes described above is the way in which the economic incentives of potential “policy followers” are influenced by California’s choices. We need to remember that the “California effect,” first described by David Vogel decades ago in relation to California’s leadership on vehicle emissions,54 rested to a considerable degree on the state’s market size. In 2009, California’s GDP was the largest among states at $1,891 billion (followed by Texas with $1,145 billion), and the state accounted for 13.37 per cent of the country's GDP.55 Perhaps more striking, its economy is the eighth-largest in the world, bigger than that of Canada or Mexico. As George Hoberg points out, access to the California market “is contingent on products being compliant with California standards, so the state’s standard setting can have a significant impact on industries selling into its gigantic market.”56 In this vein, Beth Simmons and Zachary Elkins make a useful distinction between diffusion processes where adoptions provide “information about the costs and benefits of a particular policy innovation” and processes that “alter the benefits of adoption for others” (such as when a large market adopts a new standard).57 California seems able to both alter the incentive structure around its neighbours’ policy choices and also function as a role model for policy success. Further, the trends we see here are more complex than reference to the California effect would suggest. The pathways of diffusion are not uniform – and neither are they only horizontal, as Busch and Jörgens seem to suggest. There is a light imprint of “dual patterning” in how diffusion proceeds, whereby both vertical (between federal and sub-national jurisdictions) and horizontal (between sub-national jurisdictions) pathways are used. Further, in some of the cases surveyed here, namely FES (before the most recent round of U.S. federal involvement) and LCFS, diffusion appears to have proceeded on a sub-regionalized pattern, with some “grouping” of adoptions tending to occur in the Pacific Northwest and the Northeast. This certainly reflects the heterogeneous

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mix of interactions among governance arrangements and sub-systems in the North American regional system; one should not expect diffusion to be a homogeneous process, given the polycentricity of that system. However, if we are interested in the prospects for building policy coherence within the system, through cross-national, sector-specific standard-setting, then we need to understand those dynamics that appear to promote coherence. The key mechanisms for diffusion, according to Busch and Jörgens, are information flows that operate “without hierarchical or collective decision-making.” They focus in their analysis on the informal political mechanisms by which “structural processes are ‘translated’ into policy convergence.”58 Yet the architecture supporting cross-border environmental policy cooperation in North America can be more formalized than this, and the diffusion of climate standards in North American has been less “stealthy.” North American climate policy standard diffusion is supported to a considerable degree by trans-governmental networks, as discussed in chapter 1; these are mechanisms through which regulators can construct alliances and coalitions with their counterparts in similar bureaucracies across the border. They influence policy choices by sharing technical information and regulatory best practices. The Western Climate Initiative, the Regional Greenhouse Gas Initiative, and the Midwest Greenhouse Gas Reduction Accord, discussed in detail by Rabe in chapter 3, are all examples of trans-governmental networks, as are nation-to-nation mechanisms such as the Clean Energy Dialogue and the U.S.-Mexico Climate Partnership. Most importantly – and this is where the analysis in this chapter differs from that of Busch and Jörgens – although trans-governmental networks have limited or no independent authority to impose rules on members,59 they may nevertheless generate commitments, often implemented through nonbinding memoranda of understanding. We have seen this with all three of the sub-regional networks mentioned above, not only in the policies governing actual or potential carbon markets but also in their consideration of complementary policies, such as LCFS. There has also been some coordination in energy efficiency standards among the three countries, as Studer discussed in chapter 2. For example, national agencies have worked together in the Energy Efficiency Experts Group of the North American Energy Working Group (NAEWG) to promote the harmonization of energy efficiency standards and cooperation on energy efficiency labelling programs.60 More recently, bilateral initiatives have been undertaken under the “clean energy frameworks” on both borders, involving the development of

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joint standards, harmonization of energy performance standards, and sharing of “best practices” on labelling.61 The case of vehicle standards suggests a “layering” of trans-governmental networks operating at different levels. Here, the harmonization of Canadian and American approaches is perhaps not surprising, given the dialogue and consultations that have been taking place over the past several years. Under the 2005 Security and Prosperity Partnership of North America (SPP), information sharing between the United States, Canada, and also Mexico took place on vehicle fuel efficiency programs and policies at the agency level.62 Coordination on energy efficiency standards and approaches also occurred through the North American Energy Working Group. By early 2009, the Harper government in Canada was announcing its intent to pursue a North American climate change regime, and Environment Minister Prentice indicated that he was moving towards “continental standards on vehicle efficiency.”63 These trilateral and, in addition, bilateral U.S.-Mexico interactions have also had some role to play in recent moves to set FES south of the U.S. border. Conclusions In North America, there are various diffusion processes taking place, at different levels, using a variety of horizontal and vertical pathways. Each case of standard setting that we have examined here appears unique in the pattern of diffusion and resulting adoptions. While the transgovernmental framework does appear to facilitate standards adoption across jurisdictions in North America – through emulation, imitation, and policy learning – the resulting geographically fragmented approach is unlikely to achieve uniform standards adoption. This is clearly problematic when building a higher degree of coherence into the regional system. It is perhaps significant, however, that in the case where transgovernmental networks are most dense (vehicle emissions), adoption “coverage” (the portion of jurisdictions that have adopted a standard relative to the total number of jurisdictions) is most complete. California functions as a regional lynchpin in diffusion, acting as a role model for policy success but also able to alter the incentive structure around policy choices. The fact that climate policy standards in various jurisdictions are being modelled on those in California is certainly no cause for alarm; in most cases, these are quite stringent. However, there are definite risks associated with this pattern of policy

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diffusion – which in many cases amounts to “waiting for California to act” – given California’s greatly weakened economic and political situation. Certainly, where national governments choose to involve themselves, such as with vehicle emissions, complementary cross-country standards are more likely. The result of renewed regulatory activity in the United States, in limiting stationary sources of GHG, and the more hesitant steps by Canada in this direction, may be increased coherence. There are, however, serious political and economic barriers to continuing federal engagement, as Studer argues in chapter 2, and the considerable delays in EPA rule-making provide some indication of the strength of this opposition. NOTES 1 U.S. Environmental Protection Agency, “Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2010,” 2012, http://www.epa.gov/climatechange/ ghgemissions/usinventoryreport.html. 2 Environment Canada, “National Inventory Report 1990–2010,” Table S-2: Canada’s GHG Emissions 1990–2010 by IPCC Sector, 2012, http://www. ec.gc.ca/ges-ghg/default.asp?lang=En&n=AC8F85A5#es3. 3 In 2000, the tar sands oil industry released 23.3 MT of GHG emissions (3 per cent of Canada’s total) alone; by 2015, tar sands GHG emissions are expected to rise to between 57 and 97 MT. 4 International Energy Agency (IEA), “CO2 Emissions from Fuel Combustion 1971–2006” (Annual Publication: 2008 Edition). 5 Pew Center for Global Climate Change, “Vehicle Greenhouse Gas Emissions Standards,” 5 July 2012, http://www.c2es.org/us-states-regions/policymaps/vehicle-ghg-standards. 6 Ibid. 7 Western Climate Initiative, Final Draft Complementary Policies White Paper, 7 November 2009, http://www.llbc.leg.bc.ca/public/PubDocs/ bcdocs/461935/Complementary_Policies_White_Paper_110709.pdf. 8 As of April 2012, there are four major lawsuits challenging the EPA’s jurisdiction to regulate greenhouse gas regulations in the U.S. Court of Appeals in the DC District Court. There have also been two unsuccessful legislative attempts in U.S. Congress to stop EPA rule-making. 9 Central Valley Chrysler-Jeep Inc. v. James Goldstene, 08-17378, 9th U.S. Circuit Court of Appeals; Chamber of Commerce of the United States of America and National Automobile Dealers Association v. Environmental Protection Agency,

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Commonwealth of Massachusetts et al., 09-1237, U.S. Court of Appeals for the District of Columbia Circuit. U.S. EPA, “Transportation and Climate: Regulations and Standards.” See finalized April 2010 rules at http://www.epa.gov/otaq/climate/ regulations/420f10014.pdf. For a description of the process by which the U.S. EPA waives the prohibition against states enacting emissions standards for new motor vehicles, see U.S. Environmental Protection Agency, “California Greenhouse Gas Waiver Request,” http://www.epa.gov/otaq/ climate/ca-waiver.htm. U.S. EPA, EPA and NHTSA Propose to Extend the National Program to Reduce Greenhouse Gases and Improve Fuel Economy for Cars and Trucks, regulatory announcement, Office of Transportation and Air Quality EPA-420-F-11-038, November 2011, http://www.epa.gov/otaq/climate/ documents/420f11038.pdf. U.S. EPA, EPA and NHTSA Adopt First-Ever Program to Reduce Greenhouse Gas Emissions and Improve Fuel Efficiency of Medium- and Heavy-Duty Vehicles, regulatory announcement, Office of Transportation and Air Quality EPA-420-F-11-031, August 2011, http://www.epa.gov/otaq/ climate/documents/420f11031.pdf. Speaking points, Jim Prentice, minister of the environment, Council for Clean and Reliable Energy, Ottawa, 25 October 2009. The U.S. drive cycle is a method of testing efficiency across different internal combustion engines according to a velocity-time table. Pew Center for Global Climate Change, “Comparison of Passenger Vehicle Fuel Economy and Greenhouse Gas Emission Standards around the World,” December 2004. Canada Gazette, Department of the Environment, Canadian Environmental Protection Act, 1999, “Notice of Intent to Develop Regulations Limiting Carbon Dioxide Emission from New Cars and LightDuty Trucks,” vol. 143, no. 14, 4 April 2009, http://www.gazette.gc.ca/ rp-pr/p1/2009/2009-04-04/html/notice-avis-eng.html#d110. Mathew Bramley, “Pembina Institute Comments on Canada’s Proposed Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations,” 29 July 2010, Pembina Institute, publication 2055, http:// www.pembina.org/pub/2055. Canada Gazette, Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations, Statutory Authority, Canadian Environmental Protection Act, 1999, Department of the Environment, Regulatory Impact Analysis Statement, vol. 144, no. 16, 17 April 2010, http://gazette.gc.ca/ rp-pr/p1/2010/2010-04-17/html/reg1-eng.html#REF9.

Standards Diffusion 129 20 Canada Gazette, Canadian Environmental Protection Act, 1999, Passenger Automobile and Light Truck Greenhouse Gas Emission Regulations, vol. 144, no. 21, 13 October 2010, P.C. 2010-1162, 23 September 2010, http://www.gazette.gc.ca/rp-pr/p2/2010/2010-10-13/html/sor-dors201eng.html. 21 Environment Canada, “Consultation Document for Discussion of the Main Elements of the Proposed Regulations under the Canadian Environmental Protection Act, 1999 to Limit Greenhouse Gas Emissions from New On-Road Heavy-Duty Vehicles and Engines,” http://www.ec.gc.ca/lcpecepa/default.asp?lang=En&n=E826C69F-1. 22 Iván Islas Cortés, “Analysis of Fuel Economy Standard Options for New Passenger Vehicles in Mexico: Fuel Economy / Greenhouse Gas Emissions Standards for Passenger Vehicles” (paper read at Technical Meeting SEMARNAT/INE, Sacramento, CA, June 2009); and International Council on Clean Transportation, “GFEI and ICCT Sponsored Event Hears How Mexico Is Developing Vehicle Fuel Standards,” 15 March 2010, Global Fuel Economy Initiative, http://www.globalfueleconomy.org/updates/2010/Pages/ FEIandICCTsponsoredeventhearshowMexicoisdevelopingvehicle standards.aspx. 23 Laurence Lliff, “Mexico Energy Ministry to Establish Fuel Economy Standards,” Dow Jones Newswires, 5 January 2010. 24 International Council on Clean Transportation, Mexico Light-Duty Vehicle CO2 and Fuel Economy Standards, Policy Update July 2012, International Council on Clean Transportation, http://www.theicct.org/sites/default/ files/publications/ICCT_PolicyUpdate_MX-LDV_July2012final.pdf. 25 Pew Center for Global Climate Change, “Policy Options for Reducing GHG Emissions from Transportation Fuels,” August 2009, http:// www.c2es.org/brief/transportation-fuels-policy-options/Aug2009. 26 Renewable and Low Carbon Fuel Requirements Regulation, effective 1 January 2010 (includes amendments up to B.C. Reg. 77/2011, 29 April 2011). 27 Environmental Commissioner of Ontario, “Transportation (2011 GHG Report),” http://www.ecoissues.ca/index.php/ Transportation_(2011_GHG_Report). 28 Natural Resources Defense Council, “A Comparison of California and British Columbia’s Low Carbon Fuel Standards,” March 2010. 29 Northeastern States for Coordinated Air Use Management (NESCAUM), “Clean Fuels Standard,” 14 November 2011, http://www.nescaum.org/ topics/clean-fuels-standard/. 30 See Barry Rabe, chapter 3, this volume. 31 Western Climate Initiative, Final Draft Complementary Policies White Paper.

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32 The December 2011 case is Rocky Mountain Farmers Union v. Goldstene, 09-2234, U.S. District Court, Eastern District of California (Fresno). 33 Scott Learn, “Oregon’s Low-Carbon Fuel Standard Faces Legislative, Legal Hurdles,” Oregonian, 19 April 2012, http://www.oregonlive.com/ environment/index.ssf/2012/04/oregons_low-carbon_fuel_standa.html. 34 Pew Center for Global Climate Change, “A Performance Standards Approach for Reducing CO2 Emissions from Electric Power Plants,” Coal Initiative Reports: White Paper Series, June 2009, 6. 35 It is important to note that CCS is costly and not yet ready for large-scale application. 36 Pew Center for Global Climate Change, “Performance Standards Approach,” see table 3, 9. 37 British Columbia Energy, Mines and Petroleum Resources, The BC Energy Plan: A Vision for Clean Energy Leadership, 2009, http://www.energyplan. gov.bc.ca/PDF/BC_Energy_Plan.pdf. 38 Environment Canada, “Regulatory Framework for Air Emissions,” 2007, http://www.ec.gc.ca/doc/media/m_124/toc_eng.htm. 39 “Speaking Notes for the Honourable Jim Prentice, P.C., Q.C., M.P., Minister of the Environment: Announcement – Canada Shows Leadership on Climate Change and the Environment, at the National Press Theatre, Ottawa, Ontario, June 23, 2010,” http://www.ec.gc.ca/default. asp?lang=En&n=6F2DE1CA-1&news=BB5AC3DC-837A-406E-AD28B92ED80F5A81. 40 Jason Fekete, “Carbon Rules Coming for Coal-Fired Plants, Oilsands,” Calgary Herald, 20 May 2011. 41 Canada Gazette, Proposed Regulations: Reduction of Carbon Dioxide Emissions from Coal-Fired Generation of Electricity Regulations, vol. 145, no. 35, 27 August 2011, http://gazette.gc.ca/rp-pr/p1/2011/2011-08-27/pdf/g1-14535.pdf. 42 International Energy Agency and International Organization for Standardization, “International Standards to Develop and Promote Energy Efficiency and Renewable Energy Sources,” IEA Information Paper, June 2007, 1. 43 International Energy Agency, World Energy Outlook: 2008 Edition, see “Part C: The Role of Energy in Climate Policy.” 44 American Council for an Energy-Efficiency Economy, “The 2009 States Energy Efficiency Scorecard.” 45 American Council for an Energy-Efficient Economy, “Reaching the Tipping Point: Majority of States Have Now Adopted Energy Efficiency Resource Standards,” 21 December 2010, http://www.aceee.org/press/2010/12/ reaching-tipping-point-majority-states-have-now-adopted-. 46 American Council for an Energy-Efficient Economy, “State Energy Efficiency Resource Standard (EERS) Activity,” August 2010.

Standards Diffusion 131 47 American Council for an Energy-Efficient Economy, “The 2009 States Energy Efficiency Scorecard,” 45–6. 48 Beth A. Simmons and Zachary Elkins, “The Globalization of Liberalization: Policy Diffusion in the International Policy Economy,” American Political Science Review 98, no. 1 (2004): 171–2. 49 Per-Olaf Busch and Helge Jörgens, “The International Sources of Policy Convergence: Explaining the Spread of Environmental Policy Innovations,” Journal of European Public Policy 12, no. 5 (2005): 862. 50 Ibid., 863. 51 Ibid. 52 Ibid., 865. 53 British Columbia Ministry of the Environment, “Greenhouse Gas Reduction (Vehicle Emissions Standards) Act: Policy Intentions Paper for Consultation,” 2008, http://www.env.gov.bc.ca/epd/codes/vehicle_emis sions/pdf/ggrves-paper.pdf. 54 David Vogel, Trading Up: Consumer and Environmental Regulation in a Global Economy (Boston, MA: Harvard University Press, 1995). 55 EconPost, “Top 10 State GDPs in the United States,” 1 February 2011, http://econpost.com/unitedstateseconomy/largest-state-gdps-unitedstates. 56 George Hoberg and Gordon McCullough, “The ‘California Effect’ on Canadian Energy and Climate Policies,” GreenPolicyProf, 6 July 2009, http://greenpolicyprof.org/wordpress/?p=263. 57 Simmons and Elkins, “Globalization of Liberalization,” 172. 58 Busch and Jörgens, “International Sources of Policy Convergence,” 864–6. On the definition of convergence “mechanisms,” see also C.J. Bennett, “What Is Policy Convergence and What Causes It?,” British Journal of Political Science 21 (1991): 215–33. 59 Craik and DiMento, “Climate Law and Policy,” 487. 60 Stephen Wiel and Laura Va Wie McGrory, “Regional Cooperation in Energy Efficiency Standard-Setting and Labeling in North America,” North American Energy Working Group, Paper 125, 30 April 2003. 61 USAID, Clean Energy and Climate Change Opportunities Assessment Report, 2010. 62 Security and Prosperity Partnership of North America, “Key Accomplishments since August 2007,” 22 April 2008, New Orleans. 63 Nicolas Van Praet and Paul Vieira, “Canada Unveils ‘Aggressive’ Vehicle Emission Rules,” Canwest News Service, 1 April 2010.

5 Deploying the Smart Grid across Borders in North America ian h. rowlands

With the electricity sector being a major contributor to the continent’s greenhouse gas emissions, the means by which this infrastructure is managed is critical to the evolution of climate change governance. Electricity delivery systems are being altered in various ways, and they are also being populated with more information and communications technologies; these developments, which are being carried out with the aim of creating a “smart grid,” can have considerable benefits in climate change mitigation. This chapter investigates the evolving domestic and cross-jurisdictional governance structures associated with the smart grid in North America. While most are located on the continent, there are also important international organizations whose initiatives are likely to affect North American electricity governance. Further, some of the most important policy initiatives associated with the smart grid are being undertaken by the private sector. These various policy actors and their initiatives are considered collectively, and the resulting “map” shows the emerging governance infrastructure for smart grids in North America. This map highlights the most significant points of interaction and helps us to think about whether these diverse activities are mutually reinforcing. The case of the smart grid shows that collaborative networks and other governance mechanisms have, for the most part, not yet been established. This is largely because many of the communities that have an interest in smart grids are highly fragmented according to both material interest and policy area; as a consequence, they are not generally familiar with one another and they also lack experience in shared policy development. Tools and mechanisms that might facilitate and support cross-community and cross-sectoral dialogue are only now

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emerging, but at this point they are relatively informal. While it is virtually inevitable that a variety of international standards will ultimately emerge to capitalize on the benefits of broader smart grid deployment, the extent to which the associated processes will create the basis for reciprocity and policy coherence remains to be seen, particularly given the diversity of interests involved. It is also worth noting that, in a manner similar to other arenas of cooperation discussed in this volume, smart grid development is U.S.-driven, which has implications for the kinds of governance mechanisms that are likely to be put in place in North America. “The Smart Grid” and Climate Mitigation Strategies in North America The “smart grid” is defined in many different ways. While some use the term so broadly that it appears to be virtually synonymous with the present electricity system, others restrict the description of the “grid” (shorthand for the “[electric] grid” or the “network of the transmission lines, substations, and associated equipment of an electric power system”)1 by emphasizing one or both of two particular characteristics of this “new” kind of grid. One of these characteristics relates to the application of new kinds of technologies in the electricity system, more specifically information and communications technologies in those parts of the overall grid that are closest to the end user (the customer). The International Energy Agency offers a definition: “A smart grid is an electricity network that uses digital technology to monitor and manage the transport of electricity from all generation sources to meet the varying electricity demands of end users. Such grids will be able to co-ordinate the needs and capabilities of all generators, grid operators, end users and electricity market stakeholders in such a way that it can optimise asset utilisation and operation and, in the process, minimise both costs and environmental impacts while maintaining system reliability, resilience and stability.”2 The other characteristic focuses on bringing together the usually self-contained areas of generation, transmission, and distribution, as well as end use, and/or combining the aforementioned information and communications technologies with traditional electricity supply technologies. As defined by the European Technology Platform SmartGrids, a smart grid is an electricity network that “can intelligently integrate the behaviour and actions of all users connected to it – generators, consumers and those that do both – in order to efficiently deliver sustainable, economic and secure electricity supplies.”3

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The U.S. Department of Energy also makes a useful distinction between two terms: “smarter grid” and “smart grid.” The former refers to “the current state of the transformation, one in which technologies are being deployed today or in the near future.” The latter is “the ultimate vision – the full realization of everything it can be.”4 Many in society have come to expect electricity to be available on a day-to-day basis – indeed, a second-to-second basis. Consequently, it is widely expected that any innovations in the power grid, including those that are captured by the smart grid term, will be developed alongside the existing infrastructure rather than as a replacement for that same infrastructure. While the smart grid is the goal for many, the smarter grid – a process of transforming the existing grid – is often the near-term focus. For the purposes of this chapter, agreement upon a single definition of smart grid is not critical. Indeed, a key argument in this chapter is that the smart grid agenda is still being shaped by different interests, each of whom champions its own particular core concerns. How these battles unfold will be influential in determining the form that governance of the smart grid takes. At this point, however, it is important to recognize that the term is usually used to refer to an evolution of the electricity grid, with some degree of increased integration and the introduction of at least some new information and communications technologies. There can be little doubt that interest in smart grid activity across North America is growing. Consider but one example from each of the continent’s three countries. In Canada, the Province of Ontario is a global leader in the deployment of interval meters, with 99 per cent of eligible customers having had one installed by the end of 2011; moreover, more than three-quarters of those customers were also on time-ofuse billing.5 In the United States, smart grid funding was a significant part of the country’s stimulus funding; for instance, the Smart Grid Demonstration Program consisted of thirty-two projects and had a total budget of about US$1.6 billion (of which approximately $600 million was the federal share).6 Finally, in Mexico, the Federal Electricity Commission (CFE), Mexico's state power company, announced that it had successfully upgraded its customer information and billing systems so as to be able to employ two-way communications on aspects of its network.7 For all three countries of North America, decarbonization of their electricity systems will need to be an important part of overall climate change mitigation strategies. North America’s electricity systems are major contributors to overall greenhouse gas emissions, although for

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each individual country, the relative significance of this sector is largely a function of the dominant fuels used to generate electricity. So in Canada – with the majority of its power sourced from falling water8 – the contribution of electricity to overall greenhouse gas emissions was only 14 per cent in 2009.9 In Mexico, oil has traditionally been the predominant contributor to the country’s power supply, though natural gas has recently become a major source.10 In 2008, the category of “total conventional thermal” (which includes both of these fossil fuels) contributed 82 per cent of the country’s electricity,11 and this makes the sector an important part of the carbon dioxide emissions profile. In 2006, the last year for which official data are available, electricity generation was responsible for 21 per cent of Mexico’s greenhouse gas emissions.12 Finally, in the United States, where coal is dominant (a 42 per cent share in 2011),13 34 per cent of all greenhouse gas emissions in 2010 came from the electricity generating sector.14 While fuel-switching (to either lower-carbon fuels or no-carbon fuels) and energy efficiency (including conservation and demand management) could occur with the conventional grid, there are greater opportunities with the integration of different spatial elements and the introduction of new technologies in the smart grid. Consider the following three examples: • In a household, the owner could prepare the dishwasher to function some time during the night. This “smart appliance” would communicate with the system operator, determining when electricityrelated emissions are estimated to be at their lowest carbon point, and begin operation at that time. • In a province or state, a utility could work to reduce its carbonintensive peaks by identifying when a confluence of, for example, four factors occur: bright local sunshine, existing lighting load locally, high (and carbon-intensive) system-wide generation, and local customer willingness to shed load (perhaps as evidenced by participation in a demand-control program). When all four factors are present, the system operator may dim lighting by, for example, 20 per cent. • Across a larger area, computer models may work with real data on solar radiation and wind speed to predict renewable electricity generation. This information, in turn, would be fed into optimization routines that would determine whether batteries should charge (during times of bright sunlight and/or high wind) or discharge (during times of little sunlight and/or light wind).

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In each case, it is the consideration of different elements across the electricity system as well as the use of new information and communications technologies that are allowing a particular strategy to be deployed – a strategy that is not available in a traditional grid.15 The Electric Power Research Institute has quantified the gains that could be forthcoming from these kinds of actions, and they conclude that the combined deployment of seven applications enabled by a smart grid could reduce U.S. carbon dioxide emissions by an estimated 60 to 211 million metric tons in 2030.16 Moreover, it is important to recognize that the smart grid has the potential to move electricity – and thus climate change mitigation – into additional sectors. For example, there is growing talk of how increased deployment of electric vehicles could address countries’ climate goals.17 With transportation contributing, respectively, 28 per cent, 20 per cent, and 31 per cent to Canada’s, Mexico’s, and the United States’ greenhouse gas emissions profiles (excluding land-use), the importance of the smart grid to a climate change mitigation plan could become even larger.18 Finally, even without electrification of services traditionally supplied by non-electrical fuels (as with this example of transportation), curiosity about how other sources of energy may be brought into smart grid functionality19 could extend further the reach of the smart grid. And with energy-related activities (adding the categories of “energy” and “industrial processes” together) dominating the emission profiles of these three countries – 90 per cent, 69 per cent and 107 per cent of the country’s (net) greenhouse gas emissions, respectively, for Canada, Mexico, and the United States20 – the significance of smart grids has the potential to grow even more. A Survey of Relevant Players The smart grid policy field is populated by both continental and international actors. While the integration of smart grid applications and governance internationally is by no means necessary to achieve at least some climate benefits of increased smart grid deployment, successful advancement of particular kinds of integration across borders could facilitate the deployment of the smart grid in more effective ways. When the spatial range in some of the applications discussed above (and others that are imaginable) extends across international borders (remember that biophysical systems are not optimized on the basis of political boundaries), then collaborative work would appear to be

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critical. In addition, global coordination of research and development as well as of market structuring would similarly have the potential to move society to its end goals more quickly and more cost-effectively.21 These factors provide at least some of the motivation for consideration of smart grids in a cross-jurisdictional context. Moreover, given that the literature on climate change mitigation in North America has – for the most part – neglected to consider the potentially significant role that smart grids can play in climate change mitigation, an investigation of initiatives at various levels by public and private actors, as well as the degree to which these are mutually reinforcing, would seem to be particularly timely.22 Global/International Organizations Three international organizations are most influential in the development of smart grid discourse on principles, priorities, and standards. These organizations are also representative of three different types of international governance bodies that are active in this area – one is a global standards institution, one is a developed-country informationsharing and norm-building organization, and one is a new network, bringing together established developed country powers with emerging developing country economies. All are trans-governmental, but they exhibit varying levels of formalization, and they all effectively contribute to the global system of climate change governance. The worldwide transmission of goods, services, and ideas in the smart grid space means that efforts at the global level inevitably have an impact on developments within North America; similarly – and as is elaborated on below – North American activities affect these same global organizations. First, the International Electrotechnical Commission (IEC) is “the world’s leading organization that prepares and publishes international standards for all electrical, electronic and related technologies.”23 The issue of standards is critical. It is broadly acknowledged that some kind of standard-setting, on a global scale, will be necessary for successful development and deployment of smart grid systems. Given the nature of smart grids – that is, systems comprising elements that are developed by different players in different parts of the world – a minimal level of interoperability will be important to ensure that synergies can be exploited. The challenge is to determine the optimal time at which such standards should be introduced – too early, and innovation could

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be stifled and ultimately inferior approaches locked in; too late, and otherwise productive assets could be left stranded.24 There are not only questions about such timing, but also about the spatial scale of standard-setting, the physical reach of what should be subject to standards (individual smart grid elements, or systems consisting of multiple elements), and the institution (or institutions) that should be taking the lead in standard-setting. The IEC is a leader in standard-setting in this area, and its Standardization Management Board established a “Strategic Group” in 2008 to investigate the issue. With experts from fourteen countries consulting widely, the group published a roadmap in June 2010. In this document, an inventory of existing (and soon-to-exist) IEC standards relevant to the smart grid is presented; additionally, outstanding work to be done – both in parts of the system where there are no standards and parts of the system where the standards in heretofore disparate areas are brought together, but are incompatible – is identified; as such, the IEC is influential in setting the framework within which its eighty-two members operate.25 Noteworthy, as well, is that both Canada and the United States are among the fourteen members of the Strategic Group on Smart Grid,26 while all three North American countries are full members of the IEC.27 The work of the IEC is closely tracking the efforts of the United States’ National Institute of Standards and Technology (NIST). (See also the discussion below on the NIST.)28 Second, the International Energy Agency (IEA), an energy forum for advanced economies29 that has been in existence since the first oil crisis of 1973–4, has had interests in various constituent parts of the smart grid for a number of years. (Note that of North America’s three countries, Canada and the United States are members of the IEA.) Many of these interests have been explored through the IEA’s tasks in its Demand Side Management program, including “Communications Technologies for Demand-Side Management” and “Demand Response Resources.”30 Through means such as these, the IEA has tried to advance collaborative efforts among its member states, so that best practices could be transferred internationally.31 More recently, the IEA has focused on the smart grid. In response to a request by the Group of Eight (G8) to prepare energy technology roadmaps, the IEA coordinated a series of international meetings to develop a Smart Grid Roadmap. The IEA maintains that such a roadmap can advance three goals: “increase understanding among a range of stakeholders of the nature, function, costs and benefits of smart

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grids; identify the most important actions required to develop smart grid technologies and policies that help to attain global energy and climate goals; and develop pathways to follow and milestones to target based on regional conditions.”32 The initial results of these efforts were published in 2011.33 Third, the Major Economies Forum on Energy and Climate (MEF), which was launched in March 2009 as a “candid dialogue among major developed and developing economies, [to] help generate the political leadership necessary to achieve a successful outcome at the December [2009] UN climate change conference in Copenhagen, and [to] advance the exploration of concrete initiatives and joint ventures that increase the supply of clean energy while cutting greenhouse gas emissions,”34 also has an interest in smart grids.35 Central to the MEF’s activities was the development of ten technology action plans to drive “transformational low-carbon, climate-friendly technologies,”36 which were launched in July 2009 and released in December 2009. One focused on smart grids. Led by Italy and Korea, this plan identified the advantages of international cooperation in this issue area and proposed the establishment of a Smart Grid Working Group.37 This recommendation was subsequently acted upon at the Clean Energy Ministerial in Washington, DC, in July 2010.38 At this time, the establishment of the International Sm art Grid Action Network (ISGAN) was announced. The aim of ISGAN is to “accelerate the development and deployment of smart electricity grids around the world … ISGAN will focus high-level government attention on this promising suite of technologies … It will facilitate dynamic knowledge sharing, technical assistance, peer review and, where appropriate, project coordination among participants.”39 ISGAN has already begun to undertake activities in this area.40 Canada, Mexico, and the United States are among the governments participating in ISGAN.41 North American Organizations One continent-wide, trans-governmental organization that we might have expected to have been active on this issue – namely, the North American Commission for Environmental Cooperation (CEC) – is not. Despite its past interest in continent-wide electricity issues – for example, its Article 13 investigation into the “environmental challenges and opportunities of the evolving North American electricity market”42 was pioneering work in this area – the CEC’s focus on a low-carbon

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economy will instead be on “improving the comparability of [the three countries’] greenhouse gas emissions data gathering, methodologies, and inventories, and [on building] stronger networks of experts and systems to share climate change information.”43 Smart grid does not appear to be on the CEC’s agenda. Of course, there have been other venues in which the three governments could collectively consider the energy and climate change nexus. At the North American Leaders’ Summit in Mexico in August 2009, they released a Declaration on Climate Change and Clean Energy, as discussed in the introductory chapters of this volume. Included in the declaration was a commitment to “collaborate on climate friendly and low-carbon technologies, including building a smart grid in North America for more efficient and reliable electricity inter-connections, as well as regional cooperation on carbon capture and storage.”44 Coordinating research and collaborating on research, development, and deployment of smart grid interoperability standards were among the priorities. The North American Synchrophasor Initiative was also launched, to “create a robust, widely available and secure synchronized data measurement infrastructure for the interconnected North American electric power system.”45 The three leaders also committed to developing a Trilateral Working Plan and to submit a report of results at their 2010 North American Leaders Summit in Canada. At the time of writing, however, that meeting had not been convened. Instead, leadership among the three countries on this issue is being exercised primarily by two United States entities, both of them operating under the umbrella of the U.S. Department of Commerce (DOC). First, the U.S. DOC, through its Market Development Cooperator Program, is supporting the efforts of the National Electrical Manufacturers Association, a U.S. trade association, as it coordinates Canadian and Mexican smart grid standards and technologies with those in the United States. Along with another program, entitled Development of a Secure, Robust, and Reliable North American Smart Electrical Grid, it brings together teams from the three North American Free Trade Agreement (NAFTA) trading partners to ensure that smart grid development proceeds in a structured and compatible manner.46 The compatibility of standards is a primary goal. Second, the NIST is proving to be a critical player in this issue, not only nationally (in the United States) and continentally (within North America), but also globally.47 As highlighted above, the IEC has been

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liaising with the NIST to ensure that each organization’s work supports the greater goal of effective development of international standards. One could, of course, speculate that the two organizations are not only collaborators, but also potential competitors, with each wanting to advance its own agenda and dominate the global discussion in this area. It is certainly the case that, in the history of standard-setting, geography has been important – forestry certification schemes offer one potentially relevant example – so a transatlantic divide in this area is certainly conceivable, though this has not been evident to date. Regardless, the international influence of the NIST is critical. Bilateral Initiatives Among the three pairs of relationships, it is the Canada–United States axis that has seen the vast majority of the activity in the smart grid area. As discussed in the introductory section of this volume, Canada and the United States initiated a Clean Energy Dialogue (CED) in February 2009. President Obama and Prime Minister Harper charged the CED with finding opportunities for collaboration in three priority areas: developing and deploying clean energy technologies, building a more efficient electric grid based on clean and renewable generation, and expanding clean energy research and development.48 Each of these three areas has a bilateral working group established to advance its agenda. As their work was further developed through the rest of 2009, it became clear that both the second and third of these working groups had relevance for the smart grid agenda.49 For the working group looking at a more efficient electricity grid based on clean and renewable generation, one priority for collaboration was identified as enhancing “ongoing efforts to ensure joint participation in the development of government- and industry-sponsored reliability standards, cyber security, and interoperability guidelines.”50 And for the working group looking at clean energy research, development, and deployment, the first and third areas identified are, respectively, to “foster the many factors that lead to technological innovation, including: increased levels of collaborative research, development, and demonstration among laboratories, industry and academia; significant sharing of information and frequent exchanges of personnel; creation of virtual labs; establishment of formal linkages between institutions and projects; increased shared-use of unique facilities and scientific infrastructure”; and to “help create a

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single North American market for clean energy technologies, achieved where possible through compatible codes, standards and incentives.”51 These respective interests continued to develop throughout 2010 and 2011. The electricity grid working group identified, as one of its four initial areas of focus, Advancing Smart Grid and Clean Power Technologies: “Both governments are working together and sharing government-sponsored electricity research, development and deployment as well as government- and industry-sponsored reliability standards, cyber security and joint system guidelines.”52 They have also committed to hosting a regular Canada-U.S. Electricity Grid / Smart Grid Forum, at which they will assess progress towards a more efficient electricity grid based on clean and renewable generation; they will also be identifying new priorities.53 The first of these was held in Waterloo, Ontario, in January 2011.54 The clean energy research and development working group also identified, in April 2010,55 four projects and initiatives that they had launched, one of which was to facilitate “the integration of buildings into the smart grid through the identification of requirements and the development of standards and tools to evaluate and control the energy demand of buildings.”56 A brief update was presented to Prime Minister Harper and President Obama in early 2011.57 In June 2012, the second Action Plan for the Dialogue was released. One of the three priorities was the electricity grid, and “Advancing Smart Grid Technologies” was prioritized within that.58 Turning to the other two bilateral relationships on the continent (namely, the Mexico–United States axis and the Canada–Mexico axis), it is the former that has attracted more attention.59 In April 2009, the United States and Mexico established the U.S.-Mexico Bilateral Framework on Clean Energy and Climate Change.60 January 2010 saw the first meeting of the framework, and in May of the same year, the leaders of the two countries highlighted the importance of cooperation on smart grid issues.61 Similarly, at its second annual meeting in May 2011, “analysis of electricity system maturity and identification of strategies to implement Smart Grid technologies” was identified as a key area of cooperation.62 Sub-National Bilateralism As discussed elsewhere in this volume, a number of sub-national governments – states and provinces, and cities and other municipalities – have undertaken climate change initiatives, and some of these initiatives

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have involved transnational cooperation.63 Although these activities have been consequential for the broader climate change regime, they have not usually paid specific attention to smart grid issues. The Western Climate Initiative, discussed by Barry Rabe in chapter 3, is a case in point.64 Yet there has been trans-border activity between sub-national governmental (or quasi-governmental) bodies relevant to the smart grid agenda, and it has taken the shape of electricity system operators exploring the agenda. Electricity system operators are those organizations, usually operating at arm’s length from governments, though nevertheless still part of the legislatively approved electricity system, that have responsibility for, in particular, system reliability. Though the exact words vary across their respective mission statements, to sum it up colloquially, these are the organizations that are charged with “keeping the lights on.” With a number of interconnections between Canada and the United States (there are fewer between Mexico and the United States, and no direct ones between Canada and Mexico), this is the axis that receives the most attention in this section. Recognize, first of all, that reliability has been a mutual concern for Canada and the United States for more than four decades.65 The North American Electric Reliability Corporation (NERC) is charged with maintaining and improving the reliability of North America’s bulk power system, which it advances by promoting “effective reliability standards that are clear, consistent and technically sound,” as well as having “a strong standards enforcement program.”66 To achieve this goal, work is carried out by eight regional entities. Three of these cross the Canada-U.S. border. The Western Electricity Coordinating Council includes Alberta, British Columbia, and at least part of twelve U.S. states, while the Midwest Reliability Organization includes Manitoba, Saskatchewan, and at least part of seven U.S. states. In addition, the Northeast Power Coordinating Council includes five of the other six Canadian provinces (not Newfoundland and Labrador) and seven U.S. states. NERC formed a Smart Grid Task Force in 2009, and its purpose was to “provide a high-level review of the reliability impacts of integrating Smart Grid technology on the bulk power system.”67 Presenting their report in December 2010, the task force members found that the smart grid had the potential to improve bulk electric system reliability, but that careful consideration of issues like standards and security (both physical security and cyber security) was necessary.68 Another trans-border group of system operators is the ISO/RTO Council (IRC).69 It consists of ten system operators of which three are from Canada, six from the United States, and one (the Midwest ISO,

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discussed in more detail below) is made up of entities from both countries. The IRC is distinct from the broader NERC in that its members are system operators that have also introduced some degree of market characteristics into their electricity delivery systems. As such, each system operator’s overall goal is to “balance reliability considerations with market practices, resulting in efficient, robust markets that provide competitive and reliable service to electricity users.”70 They, too, have monitored developments in the smart grid discourse, though often from the perspective of how particular characteristics of integrating technologies may affect electricity markets; demand response, increased use of renewable resources in electricity generation (particularly wind), and the prospects for electric vehicles are three areas that have received attention thus far.71 The IRC often concludes any report it publishes by showing how active markets can incorporate such innovation effectively.72 Of course, part of their motivation is to ensure that these new developments (and demands) do not interfere with their ability to ensure system reliability and to allow markets to operate as efficiently as possible. Finally, as already alluded to, the Midwest ISO is worthy of particular investigation. Consisting of Manitoba and parts of thirteen U.S. states, it is the only system operator to have membership in both countries. This part of the continent has a wealth of renewable electricity resource potential, in particular wind. When coupled with the hydropower capability in the northern part of the region, there is the prospect of having a reliable and efficient electricity system based largely on renewables. As such, a significant interest of the organization within the smart grid area has been the integration of wind resources.73 Business Associations The private sector is also very active in the smart grid area. The electricity industry is huge, both in its annual turnover and its investment needs. Therefore, the attraction to businesses (both existing and potential) of this issue is not particularly surprising. In this section, the focus is upon those business associations with international membership that are influencing the smart grid debate. While additional attention could be paid to any of a range of transnational corporations on this issue (active in at least two of the continent’s three countries) – Google, Honeywell, and Intel are but three examples that immediately come to mind – the focus here is nevertheless upon associations of businesses.

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First, GridWise Alliance (GA), founded in 2003, has as its mission the transformation of the electric grid “to achieve a sustainable energy future.”74 To do this, it aggregates (ensures that it has a diversity of members from across the range of the [future] electricity system), it collaborates, it educates, and it seeks to influence policy.75 Its membership consists of more than one hundred organizations and includes traditional energy companies, utilities, technology companies, and universities. Though consisting of both private and public entities, businesses have been driving much of its work; moreover, it is certainly helping to set the agenda in the area through annual events like the GridWise Global Forum. Analogous national organizations are forming in other countries with the support of U.S.-based GridWise Alliance (Canada included76), and an international “association of associations” – the Global Smart Grid Federation – was formed in 2010.77 Second, the ZigBee Alliance78 is an association of businesses that aims to work together to “enable reliable, cost-effective, low-power, wirelessly networked, monitoring and control products based on an open global standard.”79 This group has been active in developing effective means of operationalizing the smart grid through accepted means of interoperability. Thus, devices (like a smart dishwasher) would be proclaimed to be “ZigBee-enabled.” It is in this way similar to a conventional (national or intergovernmental) standard-setting body, but it is distinct in that, given its orientation as a group of like-minded businesses coming together, there is no requirement to have balanced membership or to follow certain anti-trust regulations.80 As in other areas, therefore, the distinction between public and private entities in standard-setting is blurred.81 Interactions and the Potential for Integration It is important to examine how the organizations and associations influential in the development of smart grid policy at the continental level in North America relate to the emerging governance infrastructure. In particular, we discuss here the extent to which – and the ways in which – this infrastructure could encourage and facilitate an integration of the tools and instruments being used or proposed. Important to note here is the fact that there are many additional candidates for inclusion that do not appear in this discussion – indeed, it seems that any organization worth its salt in the electricity industry (business, regulator, government, civil society organization) has established some kind of smart

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grid working group. Those selected for inclusion appear to be particularly influential at this point. At the supra-continental level, a number of global organizations are contributing to the development of principles and more specific rules. Within North America, as discussed above, it is in the United States where most of the “rubber is hitting the road.” There, a variety of governmental and private sector organizations are at work. What this survey shows is that the evolving governance structures for smart grid involve many organizations that are motivated by what they want to see emerge from a new electricity system, but they have yet to align fully their respective visions and thus to coordinate their collective operations. In addition, it is important to recognize that emerging smart grid governance mechanisms sit within the broader climate change governance system and also overlap with policy sub-systems for a variety of environment and energy issues. Smart grid governance also coexists with other mechanisms that are involved in the introduction of information and communications technologies into a variety of policy domains. While smart grids are attracting significant attention, there is no consensus on what they are and what they should do. Notions of new technology and system-wide considerations are common to virtually every definition of the smart grid, but when the details are explored, differences arise. More specifically, there may be a variety of environmental goals (including local air pollution alleviation), economic goals (local job creation and formation of national and international markets through the development of new renewable energy and energy efficiency goods and services, as well as electricity system reliability more broadly) and social goals (local empowerment and participation in the systems providing energy services) that are central to a particular proponent’s motivation for smart grid development. Three distinct sets of communities, each with their own priorities, can be identified. One community consists of the politicians, many of whom see the smart grid as their catalyst for a variety of societal benefits, such as carbon reduction and job creation. Another community consists of the private sector (particularly the technology companies), who see new opportunities arising; these opportunities are presenting themselves in a $2 trillion/year industry82 that they have rarely been able to access. The last community consists of the utilities and the system operators that are primarily responsible for reliability. What is emerging – and what may be one defining characteristic of future efforts to shape and to utilize this infrastructure to achieve mutually acceptable (and thus

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effective) integration – is a set of tensions: governments want costeffective results on a variety of fronts, and businesses want access (and sales) as quickly as possible. The managers of the existing infrastructure (infrastructure in a physical sense) are thus caught in the middle: they need to balance these players’ potentially competing interests while also continuing to meet society’s expectations for the established electricity grid. Some utilities and system operators fear that if they simply respond “yes” to the other stakeholders – “yes” to politicians who bet that the smart grid will yield multiple results and “yes” to entrepreneurs who want access to multi-million-dollar electricity systems – they could end up making their own lives extremely difficult, potentially failing to meet their political masters’ expectations and having to manage inappropriate or even potentially damaging technology within their electricity grids. Of course, these managers are often unduly conservative.83 Similarly, the voices of government (identifying complementarities and sub-optimalities) and business (generating ideas and alternatives) are to be welcomed, at least cautiously. Therefore, even within the smart grid space, there is not yet a pattern of interactions that has led to an environment of trust and reciprocity. This is, of course, not particularly surprising, given the recent emergence of this issue area. Together, then, it would seem that efforts at cross-community education are warranted, and, as with so much discussion in this area, it may be that the transformation of the telecommunications sector offers valuable lessons.84 In any case, conscious efforts within the smart grid space to promote effective integration among the tools being proposed – the formulation of standards and principles, the sharing of best practices, the creation of technology roadmaps, strategies for capacity-building and technology transfer – need to be given higher priority. While climate change mitigation is often highlighted as one motivation for smart grid development, the discussion above reveals that it is not the only one – other environment and energy goals, like cleaner (local) air and the promotion of renewable energy, may also figure in here. The linkages, however, between smart grid development and these other efforts to, in particular, control greenhouse gas emissions and increase the use of renewable resources in electricity supply have not yet been made to any significant extent. Thus, once we consider the smart grid issue within the broader climate change governance system, we note that the level of complexity increases even more, for we have an even more diverse array of policy institutions and mechanisms in play.

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While there is some consideration of how efforts in one policy subsystem may affect those in another – for instance, the “climate change mitigation potential” of smart grids noted at the beginning of this chapter85 – these are generally the exceptions rather than the norm. Instead, to achieve a higher level of integration among the collaborative mechanisms being considered, more concerted efforts are needed to bring about policy coherence. This is all the more important as substantial amounts of public (and private) money are being deployed in the name of climate change mitigation and energy sustainability, but based on a limited perspective of the same. It does appear that a concern for economic efficiency may motivate greater cross-jurisdictional collaboration. To make matters more complex, other policy sectors have a stake in smart grid development. While the information and communications technology industry is bringing its unique capabilities to the electricity industry, it is doing the same in other policy areas – for example, health care and security. To illustrate with a simple example, one can note that while the smart grid is empowering homeowners in the management of their energy demand, analogous developments are occurring in home health care (for example, managing medication through electronic dispensing, monitoring vital signs remotely, etc.). The pressures to make these respective applications compatible in some ways will increase and will soon infringe upon the activity. Accordingly, dialogue among representatives of these developing “smart systems” is necessary. Indeed, the exploding interest in cybersecurity may be a framework under which such communication – and conceivably, some kind of integration – could occur. Conclusions This chapter has investigated the various governance structures associated with the development and management of the smart grid in North America, paying particular attention to the interests and activities of organizations and other players that are active in this space. There are three “extra–North American” organizations that both affect North American smart grid prospects (through their norm development and rule-setting) and are affected by the same. The IEC, the IEA, and the MEC have distinct sets of members, and unique perspectives (given their broader respective mandates) on the issue, but each has the potential to affect the way in which smart grid governance develops in North

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America. Among continental actors, most of the significant governmental-led activity has been bilaterally based, and all of these bilateral links have the United States either at the core or as an anchor partner. The Department of Commerce in the United States is doing much to set the agenda, continent-wide, through its coordination efforts with its northern and southern neighbours and through its standard-setting leadership (NIST). In addition, system operators are communicating across borders as they explore the impacts of smart grid developments upon their efforts to ensure reliability and – at least on the part of some of these entities – to use markets to promote efficiency. Finally, business associations, though nationally based, are beginning to make increased linkages between countries. The extent of interaction across these various bodies has been relatively modest, although it is increasingly being recognized that interactions need to intensify. The more widespread deployment of smart grid technologies will likely lead to the following: louder calls for standard-setting (to improve interoperability, and to lead to economies of scale); increased concerns by stakeholders (e.g., consumer questions about privacy and the use of their personal data as the smart grid touches more peoples’ lives); and recognition that the visions and priorities held by diverse players are distinct and, at times, incompatible. Together, then, these developments will place pressure upon players to make concerted efforts to pursue policy harmonization and foster reciprocity in the system. The ways in which other efforts at climate change governance (examined in other parts of this volume) spill over into the smart grid space (and vice versa) in the future will only augment that pressure. Thus, there is a need for greater integration – not only to alleviate problems that may arise from increased smart grid activity, but also to accelerate the pace of smart grid development so that broader benefits can be secured. How that integration may unfold, however, is not yet clear. While this chapter has revealed that the smart grid governance landscape is populated by diverse, and largely disconnected, players, it has also shown that the outlines of a path to successful integration may be tentatively appearing. The way forward for smart grid activities – and, perhaps, just as importantly, their fit with other parts of the climate change and sustainability agenda – is beginning to be discussed and determined by governmental representatives (with critical contributions from others) in global and continental forums. In addition, standard-setting bodies (again, located both globally and continentally) are

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determining how best to operationalize this way forward. It remains to be seen, however, whether these two sets of activities can ensure that the smart grid makes a positive contribution to the system of climate change governance in North America. NOTES 1 ISO New England, “Glossary & Acronyms,” 2012, http://www.iso-ne. com/support/training/glossary/index-p3.html. 2 International Energy Agency, Energy Technology Perspectives 2010: Scenarios & Strategies to 2050 (Paris: International Energy Agency, 2010), 151. 3 “Definition,” European Technology Platform SmartGrids, http://www .smartgrids.eu/node/81. 4 U.S. Department of Energy, What a Smart Grid Means to Our Nation’s Future (Washington, DC: Department of Energy, 2009), 3, http://energy.gov/ sites/prod/files/oeprod/DocumentsandMedia/Policymakers.pdf. 5 Ontario Energy Board, Monitoring Report: Smart Meter Deployment and TOU Pricing – December 2011, 13 March 2012, http://www.ontarioenergyboard. ca/OEB/_Documents/SMdeployment/Monthly_Monitoring_Report_ December2011.pdf. 6 U.S. Department of Energy, “Smart Grid Demonstration Program,” 2012, http://www.smartgrid.gov/recovery_act/overview/ smart_grid_demonstration_program. 7 “Mexico’s CFE Announces AMI Expansion,” Transmission & Distribution World, 5 January 2011, http://tdworld.com/smart_utility/ intelligent_decisions/cfe-aclara-ami-0111/. 8 In 2006, 59 per cent of all electricity was sourced from hydropower. Natural Resources Canada, “About Electricity,” 2009, http://www.nrcan. gc.ca/energy/sources/electricity/1387. 9 Environment Canada, National Inventory Report, 1990–2009: Greenhouse Gas Sources and Sinks in Canada, Executive Summary, 2011, 3, http://www.ec.gc. ca/Publications/A07097EF-8EE1-4FF0-9AFB-6C392078D1A9/National InventoryReportGreenhouseGasSourcesAndSinksInCanada19902009 ExecutiveSummary.pdf. 10 U.S. Energy Information Administration, “Mexico: Background,” 17 October 2012, http://www.eia.gov/countries/cab.cfm?fips=MX. 11 Calculated with data from U.S. Energy Information Administration, “International Energy Statistics,” 2010, http://www.eia.gov/cfapps/ ipdbproject/IEDIndex3.cfm. 12 Comité Intersecretarial Sobre Cambio Climático, México: Cuarta Comunicación Nacional Ante La Convención Macro De Las Naciones Unidas

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Sobre El Cambio Climático, 2009, 65, http://unfccc.int/resource/docs/natc/ mexnc4s.pdf. Calculated with data from U.S. Energy Information Administration, “Net Generation by Energy Source: Total (All Sectors),” 27 March 2011, http:// www.eia.gov/electricity/monthly/epm_table_grapher.cfm?t=epmt_1_1. United States Environmental Protection Agency, “Sources of Greenhouse Gas Emissions,” 2012, http://www.epa.gov/climatechange/ghgemissions/sources/electricity.html. It would be unfair to argue that the talk about a new “smart grid” means that the existing grid is a “dumb grid.” Indeed, the existing electricity grid has been named the greatest engineering achievement of the twentieth century by the (U.S.) National Academy of Engineering. Phillip F. Schewe, The Grid: A Journey through the Heart of Our Electrified World (Washington, DC: National Academies, 2007). Moreover, there has always been “smartness” in many parts of the grid; the part with least “smartness” has been that last couple of kilometres from the substation to the consumer. O. Siddiqui, The Green Grid: Energy Savings and Carbon Emissions Reductions Enabled by a Smart Grid (Palo Alto, CA: Electric Power Research Institute, 2008). See also R.G. Pratt, P.J. Balducci, C. Gerkensmeyer, S. Katipamula, M.C.W. Kinter-Meyer, T.F. Sanquist, K.P. Schneider, and T.J. Secrest, The Smart Grid: An Estimation of the Energy and CO2 Benefits, rev. 1 (Richland, WA: Pacific Northwest National Laboratory, 2010), http://cleanenergysolutions.org/content/ smart-grid-estimation-energy-and-carbon-dioxide-co2-benefits. Massachusetts Institute of Technology, Electrification of the Transportation System (Cambridge MA: MIT Energy Initiative Symposium, 8 April 2010), http://mitei.mit.edu/system/files/electrification-transportation-system. pdf. Data are for 2009 (Canada, United States) or 2006 (Mexico) and are taken from “Greenhouse Gas Inventory Data: Detailed Data by Party,” United Nations Framework Convention on Climate Change, http://unfccc.int/ di/DetailedByParty/Event.do?event=go. Jevan Fox, “Natural Gas: The Other Grid,” 20 July 2010, http://blog .cleantechies.com/2010/07/20/natural-gas-grid-other-grid/. Data are for 2009 (Canada, United States) or 2006 (Mexico) and are taken from “Greenhouse Gas Inventory Data: Detailed Data by Party.” The figures here are for “net greenhouse gas emissions,” which include sinks; the United States has land use as being a “net negative.” Major Economies Forum on Energy and Climate, Technology Action Plan: Smart Grids, December 2009, http://www.majoreconomiesforum.

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26 27 28

29 30 31 32

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org/images/stories/documents/MEF%20Smart%20Grids%20TAP%20 11Dec2009.pdf. When Zimmerman and Faris, for instance, examine mitigation across the continent, they consider “energy efficiency and conservation,” “renewable energy,” and “energy use in transportation” under separate headings. While nevertheless important, integration of the same – within a “smart grid” – might offer additional potential. Rae Zimmerman and Craig Faris, “Climate Change Mitigation and Adaptation in North American Cities,” Current Opinion in Environmental Sustainability 3, no. 3 (May 2011): 181–7. International Electrotechnical Commission, “About the IEC: Vision & Mission,” http://www.iec.ch/about/. Major Economies Forum of Energy and Climate, Technology Action Plan. There are sixty full members and twenty-two associate members. See International Electrotechnical Commission, “Who We Are,” http://www. iec.ch/dyn/www/f?p=103:5:0. International Electrotechnical Commission, “SG 3: Strategic Group on Smart Grid,” 2012, http://www.iec.ch/smartgrid/development/. International Electrotechnical Commission, “Who We Are.” Other global standard-setting bodies with an interest in smart grids include the International Organisation for Standardisation (ISO). Coming to this issue from its traditional base in information technology standards, collaborative work with the IEC is emerging. Other such organizations with smart grids on their agendas include the Institute of Electrical and Electronics Engineers (IEEE) and the International Telecommunication Union (ITU). At this point, the following passage appears appropriate to quote: “As wryly stated by some standards experts, ‘The best thing about standards is that there are so many to choose from.’” Frances Cleveland, Forrest Small, and Tom Brunetto, Smart Grid: Interoperability and Standards; An Introductory Review (Philadelphia: Utility Standards Board, September 2008), 8. See this source for more about the standard-setting bodies with an interest in this area. International Energy Agency, “About Us,” http://www.iea.org/aboutus/. International Energy Agency, “Welcome to the IEA Demand Side Management Programme,” http://www.ieadsm.org. International Energy Agency, “About Us,” http://www.ieadsm.org/ Content.aspx?ID=3. International Energy Agency, Technology Roadmap: Smart Grids (Paris: International Energy Agency, 2011), http://www.iea.org/publications/ freepublications/publication/smartgrids_roadmap.pdf. Ibid.

Deploying the Smart Grid 153 34 “Major Economies Forum,” Major Economies Forum on Energy and Climate, 2010, http://www.majoreconomiesforum.org/. 35 Amongst the MEF’s seventeen members are Canada, Mexico, and the United States. 36 “Statement of the Chair of the Leaders’ Representatives of the Major Economies Forum on Energy and Climate on Global Partnership Technology Action Plans and Clean Energy Analysis,” Major Economies Forum on Energy and Climate, 2009, http://www.majoreconomiesforum. org/articles/statement-of-the-chair-of-the-leaders-representatives-of-themajor-economies-forum.html. 37 International Electrotechnical Commission, “Who We Are.” 38 Clean Energy Ministerial, http://www.cleanenergyministerial.org/index. html. 39 Clean Energy Ministerial, Fact Sheet: International Smart Grid Action Network, 2010, http://www.energy.gov/news/documents/ISGAN-FactSheet.pdf. 40 Clean Energy Ministerial, Fact Sheet: International Smart Grid Action Network, April 2012, 25–6, http://www.cleanenergyministerial.org/ Portals/2/pdfs/factsheets/FS_ISGAN_April2012.pdf. 41 Ibid. 42 Commission for Environmental Cooperation of North America, Environmental Challenges and Opportunities of the Evolving North American Electricity Market (Montreal: Commission for Environmental Cooperation of North America, 2002), http://www.cec.org/Storage/31/2244_CEC_ Art13electricity_Eng.pdf. 43 Commission for Environmental Cooperation of North America, “CEC Ministerial Statement: 2010,” http://www.cec.org/Page.asp?PageID=122& ContentID=2968&SiteNodeID=219&BL_ExpandID=&BL_ExpandID. 44 White House, “North American Leaders’ Declaration on Climate Change and Clean Energy,” news release, 2009, http://www.whitehouse.gov/the_ press_office/North-American-Leaders-Declaration-on-Climate-Changeand-Clean-Energy/. 45 Ibid. 46 National Electrical Manufacturers Association, “NEMA Awarded Commerce Grant to Develop North American Smart Grid,” 2009, http:// www.nema.org/media/pr/20091027a.cfm. 47 The mission of NIST “is to promote U.S. innovation and industrial competitiveness by advancing measurement science, standards, and technology in ways that enhance economic security and improve [U.S.] quality of life.” “NIST General Information,” http://www.nist.gov/public_affairs/mission.cfm.

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48 Environment Canada and U.S. Department of Energy, “U.S.-Canada Clean Energy Dialogue: Action Plan,” 2009, http://www.climatechange.gc.ca/ Dialogue/default.asp?lang=En&n=3E0E8E12-1. 49 U.S. Department of Energy and Environment Canada, U.S.-Canada Clean Energy Dialogue: First Report to the Prime Minister of Canada and the President of the United States of America, 2009, http://www.climatechange.gc.ca/ Dialogue/default.asp?lang=En&n=EC91CBD2-1. 50 Ibid. 51 Ibid. 52 Davis LLP, “Canada-U.S. Clean Energy Dialogue,” 2010, http://www. davis.ca/en/entry/climate-change-law-practice-group/canada-us-cleanenergy-dialogue-governments-of-canada-and-the-united-states-takeanother-step-to-develop-clean-ener/. 53 Ibid. 54 Smart Grids in the North American Context: A Policy Leadership Conference, 10 April, 2011, http://www.ieso.ca/imoweb/pubs/smart_grid/Smart_ Grids_in_a_North_American_Context_English.pdf. 55 On 16 April 2010, Canada’s minister of natural resources, Christian Paradis, and his American counterpart, Steven Chu, U.S. secretary of energy, signed a Declaration of Intent (“DOI”) for Cooperation in Energy Science and Technology. This was after an Energy Summit of the Americas had taken place. 56 Davis LLP, “Climate Change Law Practice Group Blog.” Interestingly, however, at the May 2010 conference on the issue, the primary attention was upon international trade in electricity. 57 Office of the Prime Minister, “U.S.-Canada Clean Energy Dialogue,” 4 February 2011, http://news.gc.ca/web/article-eng.do?m=/ index&nid=587859. 58 Office of the Prime Minister, “U.S. – Canada Clean Energy Dialogue: Action Plan II,” http://www.climatechange.gc.ca/Dialogue/default. asp?lang=En&n=B0A0569E-1. 59 For a broader overview, see Duncan Wood, Environment, Development and Growth: U.S.-Mexico Cooperation in Renewable Energies (Washington, DC: Woodrow Wilson International Center for Scholars, Mexico Institute, December 2010). 60 White House, “U.S.-Mexico Announce Bilateral Framework on Clean Energy and Climate Change,” news release, 2009, http://www.white house.gov/the_press_office/US-Mexico-Announce-Bilateral-Frameworkon-Clean-Energy-and-Climate-Change/.

Deploying the Smart Grid 155 61 White House, “Joint Statement by President Obama and Mexican President Calderón,” 19 May 2010, http://www.america.gov/st/texttrans-english/ 2010/May/20100519163316xjsnommis0.0507471.html?CP.rss=true. 62 Embassy of the United States, “U.S.-Mexico Bilateral Framework on Clean Energy and Climate Change,” news release, 23 May 2011, http://mexico. usembassy.gov/press-releases/ep110523-climate.html. 63 Michele M. Betsill and Harriet Bulkeley, “Transnational Networks and Global Environmental Governance: The Cities for Climate Protection Program,” International Studies Quarterly 48 (2004): 471–93. 64 There is no mention, for instance, of smart grids in Design for the WCI Regional Program, Western Climate Initiative, July 2010, http:// www.westernclimateinitiative.org/component/remository/general/ program-design/Design-for-the-WCI-Regional-Program/. 65 Indeed, in their review of the potential for North American collaboration on the “clean energy and climate action” agenda, an expert dialogue noted that state and provincial initiatives have been key policy drivers, particularly in grid issues. International Institute for Sustainable Development, Clean Energy and Climate Action: A North American Collaboration, Expert Dialogue, Synthesis Report (Winnipeg: International Institute for Sustainable Development, May 2010), 2. 66 North American Electric Reliability Corporation, “About NERC: Company Overview,” http://www.nerc.com/page.php?cid=1|7. 67 North American Electric Reliability Corporation, Smart Grid Task Force Scope, n.d., http://www.nerc.com/docs/pc/sgtf/SGTF_Scope_07-2909final.pdf. 68 North American Electric Reliability Corporation, Reliability Considerations from the Integration of Smart Grid (Princeton, NJ: North American Electric Reliability Corporation, 2010). 69 The initials ISO stand for “independent system operator” and RTO, “regional transmission organization.” 70 “The ISO/RTO Council,” The ISO/RTO Council (RTC), http://www. isorto.org/site/c.jhKQIZPBImE/b.2603295/k.BEAD/Home.htm. 71 Ibid. 72 See, for example, Assessment of Plug-in Electric Vehicle Integration with ISO/ RTO Systems (Burlington, MA: KEMA and ISO/RTO Council, 2010). 73 “Wind Integration,” Midwest ISO, https://www.midwestiso.org/ WhatWeDo/StrategicInitiatives/Pages/WindIntegration.aspx. There have, however, been other issues investigated as well. See, for instance, Midwest ISO, “Midwest ISO Launches Smart Grid Project,” news release,

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30 March 2010, https://www.midwestiso.org/Library/Repository/ Communication%20Material/News%20Releases/Midwest%20 ISOSynchroContract_033010.pdf. GridWise Alliance, “About the Alliance,” http://www.gridwise.org/ gridwisealli_about.asp. GridWise Alliance, Advocating for a Smarter Grid, n.d., http://www.grid wise.org/documents/GridWiseAllianceMissionandGoals2010.pdf. SmartGrid Canada, “SmartGrid Canada,” http://sgcanada.org/. Global Smart Grid Federation, “Global Smart Grid Federation,” http:// www.globalsmartgridfederation.org/. While the focus in this paragraph is upon the ZigBee Alliance, it is important to recognize that other entities also exist, such as the Z-Wave Alliance. “Zigbee Home Automation: The New Global Standard for Home Automation,” Zigbee Alliance, 5 November 2007, http://docs.zigbee.org/ zigbee-docs/dcn/07-5376.pdf. EnerNex Corporation, “Smart Grid Standards Assessment and Recommendations for Adoption and Development,” October 2008, 4, http://cio. nist.gov/esd/emaildir/lists/t_and_d_interop/pdf00000.pdf. For a comparison, see Jennifer Clapp, “The Privatization of Global Environmental Governance: ISO 14000 and the Developing World,” Global Governance 4 (1998): 295–316. “Back of the envelope calculations” of annual electricity production of 20 trillion kWh, and average kWh “value” at US$0.10. Achenbach argues, “Utility executives are a conservative bunch. Their job is to keep the lights on. Radical change makes them nervous; things they can’t control, such as government policies, make them nervous.” Joel Achenbach, “The 21st Century Grid,” National Geographic, July 2010, 137. See, for instance, Rolf W. Künneke, John Groenewegen, and Jean-François Auger, eds., The Governance of Network Industries: Institutions, Technology and Policy in Reregulated Infrastructures (Cheltenham, UK: Edward Elgar Publishing, 2009); and Luis F. Luna-Reyes, Theresa A. Pardo, J. Ramon Gil-Garcia, Celene Navarrete, Jing Zhang, and Sehl Mellouli, “Digital Government in North America: A Comparative Analysis of Policy and Program Priorities in Canada, Mexico, and the United States,” in Comparative E-Government, ed. Christopher G. Reddick, 139–60 (New York: Springer, 2010). See International Electrotechnical Commission, “SG 3: Strategic Group on Smart Grid.”

6 New Approaches to Climate Mitigation: Collaborative Strategies for Developing Renewable Energy in North America josé etcheverry

This chapter focuses on a different aspect of the regional climate policy system, namely those tools and instruments that encourage renewable energy development. An ambitious renewable energy strategy offers considerable benefits for all three countries of North America, in the form of significant CO2 emission reductions, new economic activity, and greater energy security. For Mexico, in particular, renewables can foster energy security and technical capacity-building, especially at the local level. In fact, renewable energy development has also been identified as a central pillar of its ambitious national climate strategy, given the recent commitment to increase renewables as a share of the country’s energy profile. Yet the examination in this chapter reveals that there are considerable barriers to the pursuit of renewable energies within Mexico, in outmoded constitutional arrangements, limited governmental infrastructure and support, and inadequate development of market incentives and local technical expertise. These barriers have led to a lack of policy coherence within the Mexican and North American governmental framework. In a cross-jurisdictional sense, cooperation on renewable energy development is an important test of the ability of the United States, Canada, and Mexico to collaborate across the “developmental divide” – something so critical to broader climate policy success. While there are some linkage mechanisms and policy tools in place to facilitate basic cooperation and capacity-building, particularly between the United States and Mexico, these are fragmented and not, for the most part, mutually reinforcing. The discussion here reviews both international and North American experiences and sets out some practical options

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for both increasing integration across the renewable energy supports in place and building new ones. Refocusing on Renewables Critical to understanding the North American climate policy picture is, of course, recognizing the role that energy generation and use, more specifically the burning of fossil fuels, plays in its greenhouse gas (GHG) emissions profile. Current fossil fuel development patterns in North America indicate that sustained and massive investment levels are committed to the sector, and combined with increasing oil prices, this is enabling the exploitation of increasingly diffuse fossil fuel reserves. That reality is illustrated, in Canada, by the tar sands operations in the province of Alberta, which have become the fastest growing source of GHG emissions in the country, and, in the United States, by the devastating oil spills experienced by gulf coast states in 2010 due to failures in offshore oil operations. Further, the rapidly increasing use of “fracking” to obtain natural gas has not only increased fossil fuel supply in the United States, but has also lessened concerns about, and commercial interest in, developing renewable energy solutions. In Mexico, 61 per cent of all national GHG emissions originate from fossil fuel burning, particularly the electricity generation and transportation sectors.1 As discussed in the introductory chapters to the volume, the country has for decades been highly dependent on oil revenue and even today is focused on how to continue offshore oil and shale gas development in the face of the accelerated depletion of its once abundant conventional fossil fuel reserves. Perhaps not surprisingly, then, GHG emissions are significantly up from the 1990 Kyoto Protocol baseline in Mexico (39.8 per cent), but also in Canada (18.1 per cent) and the United States (7.9 per cent).2 Addressing all of the climate-relevant pollutants will require new policy initiatives and arrangements that go well beyond focusing solely on current CO2 mitigation approaches – which are themselves wholly inadequate. Such observations indicate that a new approach to climate change policy is needed. More specifically, the environmental and socio-economic implications of the energy mix currently supplying primary demand in North America should clearly suggest that focusing on renewable energy options, which minimize or prevent the development and use of fossil fuels, is a strategy worth pursuing. Certainly, renewables have immense potential. As figure 6.1 indicates,

New Approaches to Climate Mitigation 159 Figure 6.1. North American primary energy demand versus renewable energy potential

Solar CSP Solar PV

Wind onshore

Geothermal Ocean Wind offshore Hydro power Adapted from W. Krewitt, K. Nienhaus, C. Kleßmann, C. Capone, E. Stricker, W. Graus, M. Hoogwijk, N. Supersberger, U. von Winterfeld, and S. Samadi, “Role and Potential of Renewable Energy and Energy Eff ciency for Global Energy Supply” (Dessau-Roßlau, Germany: Federal German Environment Agency [Umweltbundesamt], 2009), http:// www.umweltbundesamt.de/uba-info-medien/mysql_medien.php?anfrage=Kennummer& Suchwort=3768; S. Teske, “USA Energy Scenario,” Energy [R]Evolution: A Sustainable Energy Outlook (Netherlands: European Renewable Energy Council and Greenpeace, 2010), http://www.energyblueprint.info; Teske, “Second Edition Mexico Energy Scenario,” Energy [R]Evolution: A Sustainable Energy Outlook (Netherlands: European Renewable Energy Council and Greenpeace, 2010), http://www.energyblueprint.info.

the technical potential of renewable energy, which can be achieved in North America if aggressive policies are implemented in the power sector alone, is much greater than all the combined primary energy sources currently used in North America. Greater investment in renewable energy and conservation leads to decreasing technological and project installation costs as well as much lower social and environmental burdens. It may also provide additional co-benefits that could receive sustained political attention and widespread public support, the most desirable – given the current economic context – being employment creation. Research by Wei, Patadia, and Kammen analysed data from fifteen U.S. jobcreation studies covering renewable energy, energy efficiency, carbon

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capture and storage (CCS), and nuclear power, and all these studies agree that the non-fossil fuel technologies (renewable energy, energy efficiency, low carbon) create more jobs per unit of energy than coal and natural gas.3 Germany provides strong empirical evidence of the GHG mitigation and employment creation potential of implementing renewable energy in the world,4 although the experiences of other leading renewable energy nations such as Denmark and Spain are also instructive. Governments in North America, however, have been slow to realize and pursue these benefits. The Obama administration did make investment in the renewable energy sector a key plank of its economic recovery efforts,5 but only as recently as 2008. In Canada, it would be difficult to argue that the federal government has ever provided significant support for renewables development, although some provinces (like Ontario) have been more active. Indeed, ambitious and comprehensive national climate strategies have not been formulated in either the United States or Canada and are not likely to emerge anytime soon, as discussed in chapters 1 and 2. Mexico, however, has put in place a national climate change mitigation strategy informed by the laudable goal of achieving a 50 per cent reduction of its national CO2 emissions by 2050.6 The strategy – given force in the General Law on Climate Change (Ley General de Cambio Climático) passed in early 2012 – builds upon several key policy pillars for achieving emission reductions, including the commitment that 35 per cent of all energy must come from renewable sources by 2026. These goals provide critical impetus for the country to move more determinedly in the direction of renewable energy development. However, achieving them will be a difficult task, given that the final energy plan of the Calderón administration, also released in early 2012, predicts that fossil fuels (particularly petroleum and shale gas) are expected to remain as the pivotal focus of Mexican energy policy.7 Understanding the Barriers to Renewable Energy Development Although the technical potential of the renewable energy power sector in North America is great, and the environmental and socioeconomic benefits are many, most governments are still not pursuing a comprehensive renewables strategy – certainly nothing on the scale of many European countries. Mexico, in particular, faces significant hurdles to achieving its considerable potential in renewables development and application. Overcoming these hurdles in order to meet its

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new legislative commitments will require domestic political and policy change, but also much greater collaboration between Mexico and its North American neighbours, given the energy interconnections and interdependence on the continent, as discussed in other chapters by Studer and Rowlands. This section provides an example of the type of barrier analysis that is required to inform the development of renewable energies in Mexico, in the context of actual and potential continental cooperation. Of course, the most oft-cited barriers blocking the implementation of renewable energy solutions in any country include high up-front capital and maintenance costs.8 However, deeper analysis of the Mexican situation reveals a variety of additional macro- and micro-level impediments that make it very difficult for policymakers in the country to move beyond the established energy supply options (e.g., fossil fuels and nuclear power) and instead consider implementing renewable energy projects. In Mexico, renewable sources supply only about 11 per cent of the total energy used (see figure 6.2). It is the oil sector that has been a key source of income for the Mexican government since the industry was expropriated and nationalized in 1938. During that same year, President Lázaro Cárdenas signed a congressional decree that created a new national petroleum company (Petróleos Mexicanos, known today as Pemex). Earlier, on 14 August 1937, the Mexican federal government had also created a new national electricity company known as Comisión Federal de Electricidad (CFE). Since their creation, Pemex and CFE have deeply influenced and shaped energy development in Mexico and have also exerted great influence on Mexico’s energy culture.9 Huacuz, a prominent Mexican renewable energy expert, notes that the big-oil paradigm is deeply ingrained in the minds of many, including energy officials, politicians, and industry leaders, and a conscious effort is needed to alter that mind set in order to capitalize on the multiple benefits that renewable energy can offer to Mexico.10 Huacuz has identified the existence of weak legal and institutional frameworks as key along with a lack of policy tools to support the development and growth of domestic renewable energy markets.11 The legal framework in Mexico complicates the adoption of incentives to provide premiums to renewable energy developers; for example, renewable energy development in Mexico remains dominated by a topdown approach, whereby CFE decides how much renewable energy it wants to procure through power purchase agreements (that are limited to CFE’s specifications of size and location), as well as by discrete

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Figure 6.2. Primary energy sources in Mexico in 2004 Renewable energy

Nuclear

Fossil fuels

Source: Adapted from F. Torres and E. Gomez, Renewable Energies for Sustainable Development in Mexico (Mexico City: SENER and GTZ Mexico, 2006).

self-generation initiatives undertaken by a few states (e.g., wind power in Chiapas) and by large users of power. In Mexico, it has not been possible for entrepreneurs, renewable energy project developers, or community groups to freely acquire power purchase agreements, as is done in other countries that have, for example, feed-in tariff systems. The absence of accessible, stable, and long-term incentives for renewable energy generation constrains investment decisions and the development of manufacturing facilities; renewable energy developers can count on only a few ad hoc projects instead of having the certainty of a stable renewable energy market that will grow in a sustained and organized manner. Thus, there have been quite limited public and market-based support mechanisms for renewable energy in Mexico. A few states and large power users have begun to implement renewable energy projects for self-generation to capitalize on the legal reforms and policy improvements that have been implemented during the Calderón administration.12 Such initiatives are a step in the right direction but are not the same as having a well-structured and supportive market for renewable energy development. Given that short-term economic cost has been a key parameter guiding decisions about energy choices in Mexico, most of the advantages of using renewable energy have in practice been routinely ignored. As Torres and Gomez note, Mexico’s constitutional and

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regulatory arrangements mandate that the national utilities must purchase electricity at the lowest possible cost and limit independent generation to a few prescribed circumstances.13 Considerable policy change will have to occur, then, in order to reach the renewables target in the new climate law. Another category of barriers might be termed “technical,” and these are centred on the fact that Mexican renewable resources have not yet been thoroughly quantified, especially from the perspective of synergistic resource integration, smart grids, and complementary uses beyond power generation at the regional and micro levels (e.g., electric transportation, heating and cooling, storage of energy, water purification / desalination) and for all renewable energy options. There are also limited human resources for project implementation, a problem that will become more pronounced if the new federal government, elected in 2012, decides to pursue rapid and widespread renewable energy development. Furthermore, research by Islas highlights the considerable barriers at the sub-national level – including high investment and production costs, limited quantification of renewable energy resources, and a lack of technical expertise, along with limited access to electricity grids and a lack of regulatory and operating standards.14 The lack of local experience with renewable energy options such as wind and solar systems, electronic controls, and system administration is particularly debilitating. The fact that local people skilled in the design and maintenance of renewable energy systems, and related administrative and supporting infrastructure, are quite scarce, presents key challenges for the implementation of renewable energy initiatives, particularly in rural Mexico, where communities exist off the grid and such applications are desperately needed. As Martinot et al. note, many of the failures of renewable energy projects implemented around the developing world over the last few decades can be attributed to the lack of institutions and infrastructure necessary to support innovative local programs.15 Developing a Supportive Renewable Energy Policy Infrastructure in Mexico Addressing the barriers identified above will require the implementation of a variety of tools and mechanisms that are increasingly recognized by energy experts as effective in the facilitation of renewable energy development. Refocusing policy priorities in Mexico to promote initiatives that enhance sustainable energy decision-making,

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particularly at the state and local levels, has the potential to facilitate the development of new partnerships, improve local access to electricity, create new employment sources, and enhance local environmental conditions. The experiences of countries as diverse as India, Brazil, Germany, and Denmark indicate that if the right policies are chosen, and supportive frameworks are implemented, these important co-benefits can be achieved in Mexico. Thus far, however, the collection of policies and goals that have been put in place to encourage renewable energy development is limited, fragmented, and contradictory, and there is not enough emphasis on clear market organization, sustained sectoral development, and efficiency incentives. There is a renewable energy policy legacy in Mexico, although it is relatively recent. Over a decade ago, the inter-ministerial group created in 1997 to oversee Mexico’s official climate change strategy identified renewable energy as a key component of the effort to reduce GHG emissions.16 More practically, in July 2007, new interconnection regulations for small solar systems and an agreement to purchase electricity from small producers were approved by the Mexican regulatory agency, the Comisión Reguladora de Energia. Then, in 2008, a new law to promote implementation of renewable energy sources was adopted by the Mexican Congress (Ley para el Aprovechamiento de Energías Renovables y el Financiamiento de la Transición Energética).17 And, in 2009, Mexico’s Secretaria de Energia (SENER) published its new program for developing renewable energy sources (Programa Especial para el Aprovechamiento de Energías Renovables).18 The main targets of the SENER program included increasing the total renewable energy installed capacity in Mexico to 7.6 per cent (from 3.3 per cent in 2009); increasing total renewable electricity generation by at least 4.5 per cent and up to 6.6 per cent; and starting a five-year program to provide renewable energy for electricity generation to 2,500 rural communities.19 Also, under the terms of the new General Law on Climate Change and the third (and final) energy plan of the Calderón administration (intended for 2012–2026), renewable energy has been positioned as a key mitigation and energy security strategy. However, that position of prominence has been put forward within a fossil fuel framework that includes a very strong push for the development of shale gas and offshore oil exploration, and one that also promotes the consideration of nuclear power. This divided focus translates into a lack of clear market support mechanisms that might help achieve more widespread renewable

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energy development. Also, it is not clear, after the 2012 presidential election, whether these targets will be supported by concrete policies by the new administration. Thorough analysis of the Calderón government’s renewable energy legacy indicates that there are critical policy pieces missing in Mexico. The leading renewable energy jurisdictions (such as Germany and Denmark) have been policy entrepreneurs precisely because they have implemented ambitious targets combined with pragmatic and adaptable policies that provide long-term, guaranteed access to the grid and renewable energy premiums. These policies, usually manifested as feed-in tariffs (FITs), are designed so that individuals, businesses, co-operatives, and other groups can be guaranteed access to both the electricity grid and the long-term premiums for the electricity their systems generate. This policy helps project developers secure financing for their renewable energy projects.20 Unlike other renewable energy policies (such as renewable portfolio standards, which rely on government directives to guarantee that a specific proportion of the electricity market is devoted to renewable energy generation), FITs are usually not allocated by tenders to fulfil a pre-established level of renewable energy.21 Instead, FITs are designed to ensure sufficient profitability to spark entrepreneurial activity and market development, as well as cost-effective allocation of government resources (i.e., to avoid overpaying for different renewable energy sources). Premiums need to be periodically reviewed and adjusted to ensure strong market development in all sectors targeted (e.g., wind, solar, biomass) and to match market changes (e.g., lower technology costs, accumulation of know-how, and price decreases due to increased scales of production). Mexican renewable energy experts such as Islas note the importance of implementing in Mexico a more market-oriented system based on tools like FITs.22 However, Mexican legislation does not facilitate the implementation of permanent FITs or renewable energy premiums or any of the other widespread and stable financial mechanisms that have proven successful in other countries in opening the electricity sector to a variety of participants and in promoting renewable energy development.23 FIT systems can be designed to foster local innovation and broad participation in renewable energy development and – most importantly – to ensure that local communities benefit directly from project development. Mexican policymakers have not yet matched aspirational goals with practical strategies that provide incentives for widespread renewable energy development and attract manufacturers of renewable energy

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systems to locate in their country. Such strategies are essential to achieve the important renewable energy and mitigation goals that President Calderón had hoped to achieve during his presidency and beyond.24 In addition, widespread renewable energy implementation will require meaningful and targeted collaboration between key federal energy agencies (e.g., Secretaría de Energía, CFE, the Mexican federal agency in charge of energy efficiency or CONUEE, the Electric Research Institute or IIE), federal energy regulators, state representatives, non-governmental organizations, energy specialists from academia, and renewable energy developers. Such horizontal linkages are necessary to build policy coherence into the renewable energy framework. Although the requirement of annual long-term National Energy Plans can be a step in the right direction (e.g., to achieve policy coordination among stakeholders and federal agencies), it has to be understood as a collaborative process that requires sustained effort and investment; these two aspects will need to be strengthened during the new federal administration. The absence of a Mexican federal agency with a strong and clear mandate for comprehensive renewable energy development makes it very difficult to develop and foster supportive policies, and project initiatives at the state and municipal levels. The implementation of a new renewable energy agency, one that applies the knowledge accumulated by CONUEE,25 would hold significant potential to help dismantle several of the barriers that hamper renewable energy implementation in Mexico.26 Another option might be to expand the current mandate of CONUEE so that it can become a stronger advocate for renewable energy; this is something that might be implemented as part of the organizational changes envisioned under the new General Law on Climate Change.27 Either approach should help facilitate preferential financing for renewable energy projects, develop training networks, assist in the development of new state and municipal energy agencies, and lead on the design and implementation of innovative policies and initiatives to ensure a supportive renewable energy framework encompassing both the national and sub-national levels. Indeed, there is also a lack of supportive sub-national agencies focused exclusively on energy issues; only a few states have established their own energy agencies. The creation of coherent institutional and policy arrangements is essential, then, to the establishment of initiatives that can develop local capacity. These new arrangements could be facilitated through active collaboration with Mexico’s well-established renewable energy centres, research institutions, and national non-governmental organizations

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(see table 6.1). New networking arrangements are not only essential for developing training initiatives and local capacity development but also for identifying opportunities that have strong paradigm-shifting potential, and thereafter mobilizing the necessary resources to fully exploit such opportunities. A precedent for this strategy already exists in the form of a project sponsored in Mexico by the Global Environment Facility and by the bilateral (Mexico-U.S.) Mexico Renewable Energy Program that has focused on expanding the use of renewable energy for commercial uses in rural areas.28 Another interesting precedent, albeit focused on energy efficiency, is provided by Mexico’s Trust Fund for Electricity Savings (FIDE). FIDE was created in 1990 and is supported by a small internal tax on CFE’s suppliers as well as through loans from international development banks.30 FIDE aimed to identify and promote actions that foster electricity conservation throughout Mexico by providing financing for energy audits and for the purchase of energy efficient equipment. By

Table 6.1. Mexican renewable energy centres and networks29 Name

Type of institution

Instituto de Investigaciones Eléctricas

Location

Cuernavaca, state Federal research institute, that includes Mexico’s largest renewable energy department, of Morelos which conducts R&D, project implementation, education, and policy formulation, and provides training and collaborative opportunities for national and international students and specialists

Centro de Investigación en Energía, Universidad Autónoma de México

Energy centre of Mexico’s largest university, Temixco, state of specialized in renewable energy R&D, Morelos undergraduate and graduate training, and international research collaborations

Programa de Energía Energy program specialized in renewable Mexico City de la Universidad energy applications and providing specialized Autónoma de la renewable energy training Ciudad de México Asociación Nacional de Energía Solar

Non-governmental organization of national reach specializing in training, outreach, information dissemination, and policy development

Mexico City

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targeting areas that offer immediate benefits and ease of implementation (such as incandescent illumination and refrigeration), FIDE has assisted in the development of new markets and energy efficient equipment, and it has helped to establish a highly skilled consultant pool of specialists.31 FIDE’s initiatives resulted in the installation of thermal insulation in over 10,000 homes, the replacement of more than 125,000 inefficient air conditioners and 132,000 refrigerators, 201,300 energy audits, and the substitution of 15.5 million incandescent lights by compact fluorescent lamps.32 Table 6.1 shows that Mexico already has centres for renewable energy research and development, located in several states, that are active and capable of providing the training and expertise to help develop renewable energy initiatives throughout rural and urban Mexico. These centres could be instrumental in dismantling the considerable barriers to renewable energy implementation in Mexico, fostering capacitybuilding and linking efforts domestically and internationally. They do not yet successfully perform these functions, however. Avenues for Collaboration on Renewable Energy International precedents can inform the development of new collaborative renewable energy policy initiatives in North America, particularly in Europe. However, given the clear differences between the European Union’s “top-down” mandates and North America’s preference for more informal, “bottom-up” approaches, these need to be evaluated carefully. For example, the EU’s 2020 Renewable Energy Directive, adopted in 2009, commits all EU member nations to collectively increasing the total share of energy use provided by renewable energy sources to 20 per cent by 2020.33 In addition to providing the financial certainty of clear targets and timelines for the growth of the renewable energy sector in Europe, the 2020 Renewable Energy Directive requires all EU member nations to adopt individualized national targets to increase their use of renewable energy from a 2005 baseline and to develop national renewable energy action plans to achieve those targets.34 An initiative such as this would be quite difficult in North America. On the other hand, some of the mechanisms that have operated alongside the directive could offer valuable lessons for North America. For example, emphasis has been placed in the EU on the promotion of collaborative bilateral and/or multilateral frameworks to achieve

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national and Europe-wide renewable energy targets. In addition, prior to the directive, Europe hosted a wide variety of regional and multilateral collaborative efforts to facilitate the adoption and development of renewable energy sources. Support has also been provided, on the educational front, by a group of universities now offering a European Master’s in Renewable Energy program.35 Moreover, on the research front, the European Renewable Energy Research Centres Agency (EUREC) includes forty-three research centres that work actively on the economic, scientific, technical, and social aspects of renewable energy research.36 And on the policy front, the International Feed-in Cooperation has been working since 2004 on the promotion of best practices in the design and implementation of FIT programs.37 The International Renewable Energy Agency (IRENA) offers another instructive example of cross-jurisdiction collaboration. Established in 2009 and with 158 supporting nations as of 2012 (including Mexico and the United States, but not Canada),38 IRENA was created to maximize the use of renewable energy worldwide. It has an explicit focus on developing local capacity through training and education. Although IRENA is not yet fully engaged in program delivery, its creation and diverse membership provide a crucial international precedent regarding the high priority that most countries are placing on renewable energy development. Furthermore, IRENA’s birth provides a new foundational framework that can be rapidly expanded to become a crucial tool for the implementation of collaborative capacity development worldwide. That expansion will require that the current work plan of IRENA is rapidly augmented to achieve a multiplicity of new training and practical educational opportunities on the technology and policy fronts. For that expansion to occur effectively, IRENA needs to ensure synchronicity between its goals and the activities of key international agencies (e.g., Global Environment Facility and all its implementing agencies), and ongoing negotiations such as those of the United Nations Framework Convention on Climate Change (UNFCCC) regarding the UNFCCC’s new Technology Mechanism.39 A higher level of policy coherence is thus needed at the international level too. Within North America, political leadership on renewable energy issues has been sporadic; while President Obama seemed to be leading domestic and cross-jurisdictional efforts to pursue sustainable energy, Mexico now appears to be taking more explicit initiatives.40 As noted above, some enabling steps have been taken in Mexico to facilitate renewable energy development, but several stumbling blocks remain

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that make achieving the administration’s political commitments rather uncertain. Among these hurdles, technical and educational barriers are particularly well suited to being solved through North American and international collaboration. There have been some trilateral discussions. For example, a group of experts and practitioners from Canada, Mexico, and the United States assembled in Zacatecas in June 200741 and advised the CEC Secretariat to push for the creation of a new North American fund to support strong trilateral educational and technical collaboration on renewable energy. More recently, in April 2012, the Joint Public Advisory Committee of the CEC held a public meeting in Toronto to consider policy pathways for making the transition to cleaner and renewable energy in North America.42 Clearly, however, additional collaborative arrangements in North America are essential for transforming renewable energy facilities, such as those summarized in table 6.1, into larger regional training centres that can liaise actively with all government levels, universities, and international organizations. What is needed is a greater focus on transferring the lessons learned in Canada, the United States, and elsewhere for application to the Mexican context. Increased attention to new collaborative initiatives involving North American jurisdictions, such as Ontario, which has developed significant experience in FIT design and implementation, could serve as a key source of inspiration and support for Mexican efforts.43 Canada, Mexico, and the United States all have, or are developing, renewable energy centres and institutions capable of training the specialists needed to design, implement, and maintain projects.44 Integrating the existing centres and educational institutions into a properly funded trilateral initiative would help to assemble a well-prepared base of specialists to focus on overcoming the problems associated with developing renewable energy within the three countries. Furthermore, such collaborative strategies are imperative for developing important technical solutions (such as smart grids, energy storage, and accurate resource forecasting), which are essential to increasing the penetration of renewable energy sources. Yet it is bilateral renewable energy cooperation that has been more prevalent. Wood provides a thorough overview of the history of cooperation on renewable energy since the 1970s between Mexico and the United States.45 From a climate mitigation policy perspective, a salient precedent for renewable energy cooperation in North America is the

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United States Initiative on Joint Implementation (USIJI), which was started in 1993 by the Clinton administration under its Climate Change Action Plan.46 One of the key goals of USIJI was to gain experience in carbon trading projects that would link carbon-emitting companies in the United States interested in financing mitigation projects in countries such as Mexico. Overall, the practical experience of USIJI provided significant impetus for the development and adoption of the three Flexibility Mechanisms of the Kyoto Protocol – in particular, Article 6, which articulates the framework for joint implementation initiatives to achieve GHG reductions.47 More specifically, in cooperative renewable energy efforts in North America, as part of the USIJI projects implemented in Mexico, the Arizona Public Service Company and Mexico’s CFE collaborated on capacity development and the installation of a renewable energy hybrid power system to satisfy the electricity needs of the inhabitants of San Juanico, Mexico. San Juanico is a coastal community in the state of Baja California Sur that consisted, at the time, of about 120 homes and 400 people. The hybrid system was installed in 1999 and combined photovoltaic systems, wind turbines, diesel generators, and lead acid batteries (for storage to provide twenty-four-hour power). As part of this USIJI project, CFE personnel worked closely with staff from the Arizona Public Service Company and from the U.S. National Renewable Energy Laboratories in a variety of training and capacity development efforts. An additional valuable precedent for North American collaboration on climate mitigation and renewable energy is provided by the U.S.Mexico Renewable Energy Program, which was implemented between 1994 and 2004.48 As part of this program, several U.S.-based organizations, under the auspices of USAID, collaborated in the development of renewable energy projects with Mexican government agencies, universities, and renewable energy suppliers from the United States and Mexico. The program resulted in a variety of agricultural renewable energy projects, “train the trainers” initiatives, and the installation of numerous renewable energy systems in fourteen of the thirty-one Mexican states.49 As these two examples illustrate, the United States and Mexico already have considerable experience collaborating in the development of renewable energy initiatives through trans-governmental networks. That collaborative tradition has recently been renewed through the new U.S.-Mexico Cross-Border Electricity Task Force, announced in

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May 201050 as part of the 2009 Bilateral Framework for Clean Energy and Climate Change.51 The task force has concentrated, albeit with limited success, on the promotion of renewable energy markets within the two countries, focusing on standards, electricity transmission, grid connections, and other policy measures to create market incentives for cross-border investment and trade in renewable energy technologies.52 The Canadian government has not participated in the initiatives discussed above, and it is investing in renewable energy at much lower levels than either the United States or Mexico. However, one very pragmatic and innovative collaboration emerging out of Canada provides valuable insights for future collaborative initiatives. Since 1999, Natural Resources Canada has been involved, with a number of strategic partners (see table 6.2) in the development and improvement of RETSCREEN, a sophisticated renewable energy tool that includes an innovative educational and training platform available free of charge in thirty-five languages (including Spanish). RETSCREEN enables users anywhere in the world to evaluate the energy production, savings, costs, emission reductions, financial viability, and risk for various types of renewable energy and energy efficient technologies. Over 330,000 people in 222 different countries currently use RETSCREEN, it acquires 1,000 new users per week, and it is employed by 270 colleges and universities.53 RETSCREEN’s sustained focus on bringing together top research talent and expertise for widespread development of local capacity in areas of strategic importance, through innovative and sophisticated learning tools, can inform future renewable energy collaborative arrangements in North America. To be successful, however, such arrangements Table 6.2. RETSCREEN Partners • Natural Resources Canada • U.S. National Aeronautics & Space Administration's Langley Research Center • Renewable Energy & Energy Eff ciency Partnership • United Nations Environment Programme’s Energy Unit of the Division of Technology, Industry and Economics • Global Environment Facility (co-f nanced, UNEP lead Solar and Wind Energy Resource Assessment Programme) • World Bank's Prototype Carbon Fund • The Energy + Environment Foundation • Leonardo ENERGY Initiative • International Renewable Energy Agency Source: Natural Resources Canada, “RETScreen International,” http://www.retscreen.net.

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require an in-depth understanding of the barriers to renewable energy development in the countries involved and innovative approaches to develop local expertise. Conclusions Valuable examples are beginning to emerge on how to collaborate to achieve national and regional renewable energy development. Also, the emergence of IRENA indicates that the global policy landscape is starting to evolve as countries around the world recognize the strategic importance of developing renewable energy resources to their full potential. Although the collaborative renewable energy experience in North America is limited to a few bilateral and other cross-jurisdictional initiatives, they nevertheless provide practical insights into how to ramp up initiatives to address the barriers for renewable energy development in Mexico but also more broadly in North America. Collaboration is essential for addressing barriers in a coherent and organized manner, developing local capacity, and also ensuring that new technical and policy initiatives are informed by the know-how accumulated in leading jurisdictions. Although some policy analysts deride collaboration as a lower ranking climate mitigation strategy,54 cross-jurisdictional collaboration is particularly essential in North America to ensure that new renewable energy projects are of the highest quality and thereby foster broad public support for such projects. Sustained public support and political will are intrinsically related and are both crucial elements in ensuring that technical and financial challenges are consistently addressed. North Americans stand to reap significant benefits if new collaborative efforts to use renewable energy development as a strategy for climate protection, employment generation, and energy security are developed and adopted. The analysis provided in this chapter on some of the most salient barriers to renewable energy development in Mexico also highlights the ways in which the current approach to climate change mitigation would benefit from new collaborative efforts between Mexico and its two NAFTA partners. Such efforts are essential to ensure that networks become better coordinated to advance local technical capacity and that appropriate market incentives are built into renewable energy development measures. At the national level, the Mexican federal government is in a unique position to organize and foster new initiatives to dismantle the barriers to renewable energy integration regionally and new installations within

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its borders, given recent commitments in the General Law on Climate Change. A crucial remedial step is to implement new programs to ensure federal and interstate collaboration in training and local capacity development. Providing funding to link renewable energy educational facilities, such as those summarized in table 6.1, to deliver “train the trainer” programs holds great potential to transfer accumulated knowledge within Mexico and regionally. Initial efforts to create these important networks have already been implemented, as evidenced by a variety of knowledge dissemination initiatives organized within Mexico.55 In addition, the Mexican federal government should consider implementing a new agency in charge of renewable energy development, or at the very least, increase the power and mandate of its federal energy efficiency agency CONUEE or the proposed National Institute of Ecology and Climate Change (Instituto Nacional de Ecología y Cambio Climático – INECC) that is to be created by the new General Law on Climate Change. The experience of other North American jurisdictions, which have implemented new agencies to focus on renewable energy development, could be very valuable for Mexico.56 Mexico would greatly benefit by collaborating with Canada and the United States in linking its renewable energy centres both nationally and regionally into North American networks, and by creating new capacity development initiatives to provide Mexican states and municipalities with practical training and policy development opportunities. In addition, the Mexican federal government can use its procurement powers to purchase renewable energy to satisfy the significant energy needs of its own facilities and operations,57 a step that is likely to materialize with implementation of the new climate law. Certainly there is a precedent for such actions, as the federal government mandated in 1999 that its largest buildings implement conservation measures.58 Mexican state governments also need to establish new departments that focus exclusively on solving local energy problems and that are able to network better with national agencies and new international organizations.59 While there are a considerable number of policies in place and being initiated to foster renewable energy development within Mexico and across borders in North America, this aspect of the regional climate policy system is fragmented and incoherent. For Mexico, the hill to be climbed in achieving its new renewables commitments is steep, although there are options in horizontal linkages across government

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agencies and with research organizations that could help to bring substantial policy coherence into the system. Further, the new measures adopted under the General Law on Climate provide important foundations that need to be further developed by the new government of Mexico, elected in 2012. The new administration has a unique opportunity to strengthen energy security, job creation, innovation, and environmental protection by developing renewable energy sources and applications to their full potential. The 2012 U.S. presidential election could also result in a government that prioritizes close collaboration with its neighbours in renewable energy development, as such efforts are a key factor for climate change mitigation, energy independence, and international energy security. NOTES 1 Page 43 of Mexico’s 2007 National Climate Change Strategy specifies that from the total fossil fuel-related GHG (FF) emissions in Mexico, electricity generation represents 39 per cent of all those emissions, transportation 30 per cent, fossil fuel use in the manufacturing and construction sectors 13 per cent, and oil and coal sectors 10 per cent. The residential/commercial and agricultural sectors combined represent 8 per cent of all fossil fuel emissions. For further details, see Secretaría de Energía (SENER), “Estrategia Nacional de Cambio Climático,” http://www.cambioclimatico. gob.mx/index.php/es/publicaciones.html. 2 Canadian and U.S. GHG percentage increases refer to 1990 versus 2009, and for Mexico 1990 versus 2006 (all percentages represent total aggregate greenhouse gas emissions, excluding Land Use, Land-Use Change, and Forestry (LULUCF), and constitute the latest official national reports to the United Nations Framework on Climate Change. For further details about the United States and Canada, see UNFCC, “Greenhouse Gas Inventory Data,” http://unfccc.int/di/DetailedByParty.do. For Mexico, see http:// www.cc2010.mx/es/mexico-y-el-cambio-climatico/inventario-nacionalde-emisiones-de-gases-de-efecto-invernadero-1990–2006/index.html. 3 M. Wei, S. Patadia, and D.M. Kammen, “Putting Renewables and Energy Efficiency to Work: How Many Jobs Can the Clean Energy Industry Generate in the U.S?,” Energy Policy 38 (2010): 919–31. 4 German government figures indicate that, as of 2009, the German renewable energy sector is responsible for an annual GHG reduction of 109 million tonnes, annual economic activity worth €33.4 billion, and 300,500 jobs

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8

9

10 11

12

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(which represented in 2009 an 8.1 per cent growth in job creation in this sector from 2008 levels). For additional details, see BMU, “Development of Renewable Energy Sources in Germany 2009,” 18 March 2010, table 1, 3, http://www.germany.info/contentblob/2674862/Daten/748533/BMU_ Development_of_Renewable_Energy_Sources_in_Germany_2009_DD.pdf. For example, the American Recovery and Reinvestment Act included more than $80 billion in the generation of renewable energy sources. For details, see the White House, “Energy, Climate Change, and Our Environment,” http://www.whitehouse.gov/energy. This figure represents an aspirational target from 2000 levels. For additional details, see Programa Especial de Cambio Climático 2009–2012, viii, http:// www.semarnat.gob.mx/programas/Documents/PECC_DOF.pdf. See Secretaría de Energía (SENER), Estrategia Nacional de Energía, 2012–2026, 2012, http://www.sener.gob.mx/res/PE_y_DT/pub/2012/ ENE_2012_2026.pdf. For example, see K. Meah, S. Ula, and S. Barrett, “Solar Photovoltaic Water Pumping: Opportunities and Challenges,” Renewable and Sustainable Energy Reviews 12, no. 4 (2008): 1162–75. J.M. Huacuz, “The Road to Green Power in Mexico: Reflections on the Prospects for the Large-scale and Sustainable Implementation of Renewable Energy,” Energy Policy 33, no. 16 (2005): 2087–99. Ibid., 2098. J.M. Huacuz, “Renewable Energy in Mexico: Current Status and Future Prospects,” in Towards a Cleaner Planet: Energy for the Future, ed. J. Klapp, J. Cervantes-Cota, and J. Chavez, 247–65 (Berlin: Springer-Verlag, 2007). For example, the state of Chiapas recently approved a 30 MW wind project that will be built under a self-generation arrangement (in Mexico this approach is known as auto-abastecimiento) arrangement. For details about the Chiapas wind project, see the site of the Mexican Wind Energy Association at http://amdee.org/announcements/woodhouse-lorenteludlow-s-c-desarrolla-exitosamente-el-primer-parque-eolico-bajo-elesquema-de-proy. Torres and Gomez, “Renewable Energies.” J. Islas, “Energía solar en México: barreras y propuesta para fomentar su uso a gran escala” (paper presented at the Commission of Environmental Cooperation Workshop on Renewable Energy, 4 June 2007, Zacatecas, Mexico). The workshop was organized by the North American Commission for Environmental Cooperation (CEC) and brought together renewable energy specialists and practitioners from Canada, Mexico, and

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15

16 17 18

19 20 21

22 23 24

25

26

27

the United States to Zacatecas, Mexico, to discuss the barriers to renewable energy development in Mexico. For more information, see the site of the CEC at http://www.cec.org. E. Martinot, A. Chaurey, D. Lew, J. Moreira, and N. Wamunkonya, “Renewable Energy Markets in Developing Countries,” Annual Review of Energy and the Environment 27 (2002): 309–48. Comisión Intersecretarial de Cambio Climático, Estrategia Nacional de Cambio Climático, 2007, 4. The entire text of the LAERFTE law is available at the site of the Cámara de Diputados, http://www.diputados.gob.mx/LeyesBiblio/ref/laerfte.htm. Secretaría de Energía (SENER), Subsecretaría de Planeación Energética Y Desarrollo Tecnológico: Programa Especial para el Aprovechamiento de Energías Renovables, n.d., http://www.sener.gob.mx/res/0/Programa%20Energias %20Renovables.pdf. Ibid., 93. The term feed-in denotes that the electricity generated by renewable energy systems is “fed in” to the power grid. In Spain and Germany RE market development is not capped, although national targets are used to provide guidelines of expected RE development. Islas, “Energía solar en México.” J.M. Huacuz, “The Road to Green Power in Mexico,” Energy Policy 33 (2005): 2087–99. These goals have been recently articulated through the LAERFTE law and new programs such as SENER’s new program for developing renewable energy sources, Programa Especial para el Aprovechamiento de Energías Renovables. SENER, Subsecretaría de Planeación Energética Y Desarrollo Tecnológico. In June 2008 the Comisión Nacional para el Uso Eficiente de la Energía (CONUEE) replaced the agency known as CONAE. For details, see the agency’s site at http://www.conuee.gob.mx/wb/CONAE/Que_es_conae. Another good example here is that the province of Ontario implemented a new agency called the Ontario Power Authority (OPA), which oversees renewable energy development and conservation. For details, see Ontario Power Authority, http://www.powerauthority.on.ca. The Instituto Nacional de Ecología y Cambio Climático (INECC – National Institute of Ecology and Climate Change), which is supposed to be created as part of the law, is intended to have an energy mandate, which could include the implementation and administration of renewable energy policies such as feed-in tariffs.

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28 See Global Environment Facility, “Mexico: Renewable Energy for Agriculture,” n.d., http://gefonline.org/projectDetailsSQL. cfm?projID=643. 29 This table includes only the largest and most established centres and national networks in Mexico and does not include smaller R&D and renewable-energy training initiatives in Mexican universities such as Universidad de Sonora, Instituto Tecnológico de Estudios Superiores de Occidente (Jalisco), Centro Nacional de Investigación y Desarrollo Tecnológico (Morelos), Laboratorio de Energía Renovable, Universidad Autónoma de Yucatán (Yucatán), Grupo de Energía de la Universidad de Sonora (Sonora), or emerging organizations such as the Mexican Wind Energy Association. 30 O. de Buen, “Energy Efficiency and Conservation in Mexico,” in Towards a Cleaner Planet: Energy for the Future, ed. J. Klapp, J. Cervantes-Cota, and J. Chavez, 65–74 (Berlin: Springer-Verlag, 2007). 31 Ibid. 32 M. Bauer, “Energy Efficiency in Mexico: A Bird’s Eye Wiew,” in Klapp, Cervantes-Cota, and Chavez, Towards a Cleaner Planet, 58. 33 For the full text of this directive, see EUR Lex, “Access to European Union Law,” http://eur-lex.europa.eu/en/index.htm. 34 For details about the EU targets, see European Commission, “Renewable Energy: Targets by 2020,” n.d., http://ec.europa.eu/energy/renewables/ targets_en.htm. 35 This program aims to provide specialized postgraduate training through a network of seven universities in Europe. For details on the master’s program, see EUREC Agency, Renewable Energy House, “European Master in Renewable Energy,” http://www.master.eurec.be/en/. 36 See European Renewable Energy Research Centres Agency, http://www .master.eurec.be/en/. 37 The International Feed-in Tariff Cooperation (IFITC) is a collaborative effort of the German, Slovenian, and Spanish governments. The IFITC organizes research and conducts professional workshops to advance know-how on feed-in tariffs so other countries considering this crucial renewable energy policy can benefit from accumulated experience. For further details, see IFITC, http://www.feed-in-cooperation.org. 38 For an entire list of members and their ratification status, consult the International Renewable Energy Agency (IREA), http://www.irena.org. 39 For details about the Technology Mechanism, see UNFCCC, “The United Nations Cancun Climate Change Conference – November 2010,” paragraphs 112–29 of “Outcome of the Work of the Ad Hoc Working Group on Longterm Cooperative Action under the Convention,” http://unfccc.int/6266.

New Approaches to Climate Mitigation 179 40 See note 1, and Mexico’s 2007 official climate change strategy, 4–5, http:// www.un.org/ga/president/61/follow-up/climatechange/Nal_Strategy_ MEX_eng.pdf. 41 For more information about the Zacatecas renewable energy workshop, see Commission for Environmental Cooperation of North America, http://www.cec.org. 42 Joint Public Advisory Committee of the North American Commission for Environmental Cooperation, “JPAC Public Forum – North America’s Energy Future: Powering a Low-Carbon Economy for 2030 and Beyond,” Regular Session 12-01, 18 April 2012. Agenda available at http://www.cec.org/Page.asp?PageID=751&SiteNodeID=1128 &AA_SiteLanguageID=1. 43 Ontario’s experience with FITs now dates back to 2005 with the design and implementation of the Ontario Standard Offer Contract program, which in 2009 evolved into the current Feed-in Tariff programs administered by the OPA. See Ontario Power Authority, http://www. powerauthority.on.ca. 44 For example, Canada has already implemented the Wind Energy Institute of Canada (http://www.weican.ca), and St Lawrence College offers a strong program on renewable energy that is linked with leading German wind-training programs ((http://greenenergyeducation. ca); Mexico has its own wind energy centre in the state of Oaxaca and already hosts prestigious research and training institutions such as the Gerencia de Energías No Convencionales of the Instituto de Investigaciones Eléctricas (http://www.iie.org.mx) and El Centro de Investigación en Energía (CIE) de la Universidad Nacional Autónoma de México (http://www.cie.unam.mx). The United States also has outstanding programs such as the National Renewable Energy Laboratory (http://www.nrel.gov), the Renewable and Appropriate Energy Laboratory of the University of California, Berkeley (http://rael.berkeley.edu), and Solar Energy International (http://www.solarenergy.org), to name a diverse few. 45 D. Wood, Environment, Development and Growth: U.S.-Mexico Cooperation in Renewable Energies (Mexico City: Woodrow Wilson International Centre for Scholars, 2010), http://www.wilsoncenter.org/publication/ environment-development-and-growth. 46 The original USIJI site is still available at http://www.usiji.com/about/ about.html. 47 See UNFCCC, “The Mechanisms under the Kyoto Protocol: Emissions Trading, the Clean Development Mechanism and Joint Implementation,” http://unfccc.int/kyoto_protocol/mechanisms/items/1673.php.

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48 See World Resources Institute, “Mexico Renewable Energy Program,” http://projects.wri.org/sd-pams-database/mexico/ mexico-renewable-energy-program. 49 See Sandia National Laboratories, “US-Mexico Renewable Energy Programs Help Farmers, Ranchers South of the Border,” news release, 18 December 2000, http://www.sandia.gov/media/NewsRel/NR2000/ Mexrenew.htm. 50 See Environmental New Service, “U.S., Mexican Leaders Say No to Gulf Oil, Yes to Renewables,” 21 May 2010, http://www.ens-newswire.com/ ens/may2010/2010-05-21-01.html. 51 See Council on Foreign Relations, “Joint Statement from President Barack Obama and President Felipe Calderón, May 2010,” 19 May 2010, http://www. cfr.org/publication/22518/joint_statement_from_president_barack_ obama_and_president_felipe_caldern_may_2010.html. 52 N.L. Stokey, V.L. Smith, T. Schelling, F.E. Kydland, and J.N. Bhagwati, “Expert Panel Ranking,” in Smart Solutions to Climate Change: Comparing Costs and Benefits, ed. B. Lomborg, 381–94 (Cambridge, UK: Cambridge University Press, 2010). 53 See Natural Resources Canada, “RETScreen International,” http://www. retscreen.net. 54 Stokey et al., “Expert Panel Ranking.” 55 For example, the first international solar week for the promotion of photovoltaic energy was held in 2007 by the Electricity Research Institute of Mexico and the Zacatecas state government. The governor of Zacatecas inaugurated the weeklong events, which included training opportunities for entrepreneurs, academics, students; and in parallel, high-profile international meetings hosted by the International Energy Agency and the North American Commission for Environmental Cooperation. The Electricity Research Institute has organized similar yearly events, since 2000, in collaboration with the state of Oaxaca, with the specific goal to develop local and national capacity in wind projects. As a result of these high-profile events, the state of Oaxaca has built its internal capacity to become a leader in wind development in Mexico. These important first steps need to be replicated in all thirty-one states of the Mexican federation. 56 For example, in 2004 the province of Ontario implemented a new agency, the Ontario Power Authority, which has gained practical experience on design and administration of renewable energy programs. For details see http://www.powerauthority.on.ca. 57 Bauer notes that the federal government accounts for 33 per cent of the energy used in Mexico, as its operations include not only the entire public service, executive, and judiciary branches but also the public energy sector

New Approaches to Climate Mitigation 181 (including the public utilities CFE and Luz y Fuerza, and the petroleum company, Pemex). Bauer, “Energy Efficiency in Mexico.” 58 By 2002 this program included 896 federal buildings, representing 3.8 million square metres of office space, and resulted in electricity savings of 110 GWh from 1999 to 2002. De Buen, “Energy Efficiency and Conservation in Mexico.” 59 For examples, see notes 48 and 49.

7 Climate Financing in a North American Context1 clare demerse and sandra guzmán

The current state of play for climate financing across the three North American countries indicates that specifically regional initiatives in this area are limited. Instead, climate financing is typically discussed on a global scale under the auspices of the United Nations Framework Convention on Climate Change (UNFCCC), with less explicit consideration of the means by which cooperation could occur regionally. As a consequence, this chapter is somewhat more speculative than others in this section. At the same time, however, this chapter highlights a number of critical linkages between climate finance and the implementation of other aspects of climate policy in North America. First, financing mechanisms being formalized at the international level are critical in fostering broader levels of trust and reciprocity at the global and continental levels, in a way that may strengthen the regional governance system. Further, there are prospective avenues for collaboration on financing in North America that are linked to policy tools and institutions already in place, as well as other pieces of the climate policy puzzle that may be put in place continentally. For example, there is potential for interactions within the regional climate system between future financing efforts and mechanisms that facilitate carbon markets, emission mitigation efforts in various sectors, and accountability measures – all of which have the capacity to be mutually reinforcing. In this chapter, the term climate financing (or financing) is used as it is in the UNFCCC negotiations: that is, financial support for actions in developing countries that reduce emissions (mitigation), including actions to reduce deforestation, helping populations adapt to the impacts of climate change, and transferring technologies and building capacity. Financing can also be provided to support GHG reporting.

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Moreover, the term climate financing does not refer exclusively to public funding. The 2009 Copenhagen Accord set the goal for developed countries of “jointly mobilizing” US$100 billion a year by 2020 in climate finance, and outlined a number of potential sources of revenues to reach the goal, which include “public and private, bilateral and multilateral, including alternative sources of finance.”2 However, in the context of the “fast start” financing – a “collective commitment,” again reached in Copenhagen, to provide funds “approaching” US$30 billion from 2010 to 20123 – the funds under discussion are public dollars from developed countries’ budgets. Further, it is important to note that, under the UNFCCC negotiations, carbon markets and offset mechanisms are negotiated and discussed separately from financing. Although carbon trading and offsets can certainly provide “financing” (in the generic sense of the word) for climate action, we treat these as separate sub-systems. However, as will become clear later in the chapter, financing programs and carbon trading are linked in important ways. Understanding the Global Framework for Climate Financing As discussed in chapter 1, developed countries first accepted an obligation to provide financial support for climate action in poorer countries nearly two decades ago.4 The 1992 UN Climate Convention creates an obligation of the world’s richest “Annex II” countries to provide financial support to developing countries for GHG reporting, mitigation, technology transfer, adaptation, research, and other activities. Indeed, the convention notes that developing countries’ ability to fulfil their commitments “will depend on the effective implementation by developed country Parties of their commitments under the Convention related to financial resources.”5 By providing support for the extra costs of choosing cleaner technologies over cheaper and dirtier ones, climate financing helps developing countries reduce their emissions more quickly than they could do so unilaterally. Financing is also urgently needed to help some of the world’s poorest countries adapt to the consequences of a warmer and more volatile climate. The convention also created an obligation for all parties to report on their emissions and on their plans to comply with the convention; developing countries “may, on a voluntary basis, propose projects for financing, including specific technologies, materials, equipment, techniques or practices that would be needed to implement such projects, along with, if possible,

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an estimate of all incremental costs, of the reductions of emissions and increments of removals of greenhouse gases, as well as an estimate of the consequent benefits.”6 Other formulations of the financing commitment were contained in the 1997 Kyoto Protocol and the 2007 Bali Action Plan, the declaration that guided the two years of negotiations leading to Copenhagen in 2009. Climate financing is already being provided through bilateral or multi-country Official Development Assistance (ODA) initiatives, through designated climate funds such as those at the UN’s Global Environmental Facility, and by multilateral development banks.7 Despite these efforts, there is a consensus that the funding provided to date is not nearly adequate to deal comprehensively with the projected costs of climate change in developing countries. Some international efforts, including those at the Global Environmental Facility, have faced continuing critiques by recipient countries for providing inadequate resources, or for the complexity and thus the slowness of their disbursement mechanisms. Despite the failure to reach agreement on a new and binding treaty in Copenhagen, the political declaration produced there in 2009 contained some new international commitments on climate financing, including: • Short-term financing, often called “fast-start” financing: The Copenhagen Accord includes a “collective commitment” by developed countries “to provide new and additional resources … approaching US$30 billion for the period 2010–2012 with balanced allocation between adaptation and mitigation.”8 • Commitment to longer-term financing: “Developed countries commit to a goal of mobilizing jointly US$100 billion dollars a year by 2020 to address the needs of developing countries. This funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance.” • Establish a new fund: “We decide that the Copenhagen Green Climate Fund shall be established as an operating entity of the financial mechanism of the Convention to support projects, programme [sic], policies and other activities in developing countries related to mitigation including REDD-plus, adaptation, capacity-building, technology development and transfer.”9 Beyond its role in supporting tangible initiatives to reduce emissions or adapt to climate change, financing plays a critical political

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role in international climate policy dynamics. It represents a commitment from developed countries that poorer countries will not be left alone to cope with the consequences of a problem they did little to create.10 It is a core part of the answer to the question of how developing countries can afford to slow the growth in their GHG emissions while growing their economies. On the international stage, it is widely seen as a requirement for trust building and unlocking progress towards a new global deal. Until developed countries show that they can deliver a financing package seen as fair, there appears to be little chance of success at the negotiating table. (A lead negotiator from Barbados put this much more succinctly: “No money, no deal.”11) Climate finance has been on the agenda at several heads of state and government meetings in recent years, most notably the G8 meeting in L’Aquila, Italy, and the Commonwealth Heads of Government meeting, both in 2009. At the outset of negotiations in Copenhagen in December 2009, progress on financing was widely seen as a make-or-break agenda item. The following year, negotiations in Cancún made tangible progress on financing, taking a critical step forward by adopting a decision to establish a Green Climate Fund that is accountable to parties to the UNFCCC, along with a commitment that this fund will receive a significant share of the new multilateral funding that developed countries will provide to help developing countries adapt to climate change. The Cancún talks also reached agreement on some of the key governance elements of the Green Climate Fund, including an equal split in board members between developed and developing countries, the choice of the World Bank as interim trustee for the fund, and the establishment of an independent secretariat to support the fund. To move the fund forward, countries agreed to establish a Transitional Committee to flesh out further design details. The Cancún financing decision also required more transparency in reporting on fast-start financing12 and established a standing committee to, inter alia, improve coordination and coherence of financing and discuss ways to mobilize the necessary resources. Although the process was far from straightforward, the Transitional Committee completed enough of its work by the Durban UNFCCC talks (held in December 2011) to allow for the next step, the approval of the “governance instrument” for the Green Climate Fund.13 Launching the fund can be considered a key outcome of the Durban talks.14 This decision moves the fund to the stage of choosing a host country, and asking the fund’s board to “operationalize the Fund in an expedited manner,” with key arrangements to be concluded by the 18th Conference

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of Parties in 2013. Unfortunately, Durban failed to make equal progress on the question of mobilizing dollars to “fill” the new Fund, prompting civil society concerns that the fund could sit empty. The first test of the financing provisions agreed to in Copenhagen in 2009, and repeated with more force in Cancún in 2010, is developed countries’ performance in delivering fast-start financing. Most analysts find that the pledges to date come close to the $30 billion goal: for example, the World Resources Institute15 and Project Catalyst16 have both published assessments that tracked over US$25 billion in faststart financing pledges. However, analysts seeking to follow the pledge money struggle with a critical weakness in the Copenhagen Accord’s language: while it requires countries to present pledges that are “new and additional,” it does not specify which baselines countries must use. Left to their own devices, countries have taken wildly different positions on the key question of “additional to what?,” and some have failed to specify a baseline altogether.17 Analysis from the International Institute for Environment and Development outlined eight possible definitions of additionality for climate financing, which the authors rank on a scale that runs from “contributor friendly” (“no agreed baseline,” which is the status quo) to “recipient friendly” (“above 0.7% GNI,” the internationally agreed contribution to official development assistance).18 In addition to the ambiguity on baselines, countries have not yet established a common definition of the types of financing that qualify as “fast start.” While some countries have opted to provide their financing as grants, others have also proposed loans, loan guarantees, or export development financing. Project Catalyst estimates that a third of the financing pledged is in the form of loans, and used the OECD’s “grant element” methodology19 to discount that portion of the loan financing, thus reducing the total pledged from US$28 billion to US$25 billion.20 Fast-start financing is thus an important experiment in trust-building and reciprocity that is being conducted simultaneously with high-stakes international negotiations on the next climate deal. Countries that propose outdated definitions of what’s new, or pull climate pledges from shrinking aid budgets, are unlikely to increase the goodwill around the negotiation table. Despite these very real concerns, it is fair to say that climate financing became a relatively bright spot in the negotiations in both Copenhagen and Cancún. While there is far more to be done, financing negotiators have made more progress than their counterparts working on mitigation.

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Climate Financing in a North American Context In the 2009 North American Leaders’ Declaration on Climate Change and Clean Energy, Presidents Calderón and Obama and Prime Minister Harper stated, “We underscore the importance of developing and strengthening financial instruments to support mitigation and adaptation actions and welcome in this regard the proposal by Mexico of a Green Fund. We will conduct further work on the proposal and will consider other views presented for scaling-up financing from both public and private sources.”21 More recently, the three countries released a joint statement at the April 2012 Leaders’ Summit: “We are pleased with the outcome of the climate conference in Durban, with respect to both operationalizing the Cancún agreements and laying the groundwork for a new legal agreement applicable to all Parties from 2020, support the activation of the Green Climate Fund, and underline the importance of climate finance and investment in the context of meaningful mitigation.”22 These high-level statements indicate a fair degree of agreement among the three countries on the processes and aims of international financing arrangements, as well as support for Mexico’s role in pushing for a Green Climate Fund. While almost any potential future financing scenario would see both the United States and Canada disburse the majority of their climate financing dollars in countries other than Mexico, it is nevertheless important to consider the potential benefits and risks of climate financing on a North American scale, particularly given the clear interactions between financing tools and instruments and the implementation of other aspects of climate policy. This section thus looks at some of the barriers and potential advantages to a regional perspective on climate financing. From the viewpoint of the American and Canadian industrial sectors, a potential concern about climate financing that supports emission reductions in Mexico would be the perceived risk of conferring an advantage on a competitor. Because the North American partners have highly linked economies, concerns about competitiveness are a constant thread running through discussions of carbon pricing and broader climate policy; climate finance is no exception. If climate financing were invested in supporting state-of-the-art clean technology in Mexico, American and Canadian producers in the same sector might feel that their own interests were being put at risk. Yet discussions with government officials from all three North American partners found little support for this argument.23 While all acknowledged that

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competitiveness could be raised as a concern about financing for mitigation in general, officials noted that directing financing to North America – as opposed to elsewhere in the world – would only strengthen the region. Viewed in this way, the interconnectedness of the NAFTA economies becomes an asset rather than a barrier; public investments in clean energy in Mexico might be perceived as having a rebound effect, spurring work and jobs for clean energy companies in Canada and the United States at a greater rate than investments made farther afield would. The interconnectedness of North America’s partners could also be viewed as strengthening the case for financing adaptation measures in Mexico. Given geographic proximity, “climate refugees” from Mexico would be more likely to arrive at U.S. borders than the victims of climate-induced disasters from Africa or Asia. Thus, an investment in preventive adaptation may not only protect communities (and potentially save lives) in Mexico, but also reduce police and law enforcement expenses at the U.S. border. This kind of cost-benefit calculation does raise an equity concern in that, despite its status as a developing country, Mexico is more prosperous than many other potential recipients of adaptation finance. However, both the United States and Canada have stated that the poorest and most vulnerable communities will be a priority in their adaptation funding, and all three North American partners have recognized that the global nature of greenhouse gas pollution means that climate change requires a global, not simply a regional, solution. Mexico’s industrialized economy, and the investments that the federal government has made in understanding and quantifying Mexico’s emission reduction opportunities, have laid some of the groundwork needed to allow Mexico to receive clean energy financing of many types. Although Mexico has outlined an ambitious domestic agenda for climate action in its new General Law on Climate Change – mandating a 50 per cent reduction in carbon emissions by 2050 and setting a 35 per cent target for electricity generation from renewables by 2024 – the federal government has consistently stated that it lacks the full resources needed to implement this agenda. To fill its financing gaps, Mexico must convince contributor countries (and multilateral development banks) to choose its mitigation and adaptation efforts for support from the financing committed to date. At the international level, Mexico can help make this choice easier by finding ways to increase the overall pool of available funding. The decision taken in Cancún to establish

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the global Green Climate Fund – under a Mexican presidency of the Conference of Parties that won widespread praise for its management of the meetings – is certainly a step in the direction of securing more resources overall to finance climate action in developing countries. Already some support for mitigation in Mexico has come from the UN’s Clean Development Mechanism’s (CDM) offset credits. These are emission reductions generated against a baseline that developed countries, or companies facing regulated limits on their emissions, can purchase from projects in developing countries to count towards meeting their own targets.24 Mexico’s track record in generating CDM credits is relatively strong,25 and domestic experts have identified far greater untapped potential. Mexico is also receiving resources for climate action from the World Bank and the French development agency, Agence Française de Développement. Outside of climate change, Mexico’s longstanding track record of success in attracting financing from the InterAmerican Development Bank26 testifies to its potential attractiveness as a destination for international support. Demonstrations of success from climate financing – whether through reducing emissions, increasing communities’ resilience in the face of potential climate shocks, or (less tangibly) by building trust at the negotiating table – should help to strengthen the political case for increasing public investment from the United States and Canada. Of course, as with other forms of international assistance, a barrier to strong action on climate financing in donor countries is that the allocation of funds to international climate financing competes with domestic uses of public resources. For Canada and the United States, the international pressure to increase climate financing comes at a time when both governments face budgetary constraints, as discussed in chapters 1 and 2. Agreement on a fair, ambitious, and binding global climate agreement would presumably help to overcome the competition that climate financing faces from other potential uses of public dollars generally, and international assistance specifically, in Canada and the United States. An agreement widely perceived as a success would create pressure for implementation, and international pressure could move climate financing up the domestic priority list. This may have been particularly true in the case of the Cancún talks, which placed emphasis on climate financing throughout the negotiations. The close ties that Mexico’s government has to its North American regional partners may have meant that the United States and Canada felt more pressure to

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contribute constructively in Cancún than they might have elsewhere in the world.27 Thus, while the North American dimension of climate financing should, and almost certainly will, remain a subset of a global effort, it is one that could bolster trust between the three partners28 and also spur cost-effective emission reductions in Mexico, thereby providing an important success story about the effectiveness of climate financing. The economic and climate policy interconnections among the three partners (detailed throughout this volume) make that cooperation more likely, as the North American partners are already more familiar with each other’s approach to climate change and clean energy than they would be with those of other countries. Principles for Effective Climate Financing In the course of international discussions, some basic principles are frequently recognized as underpinning effective climate financing.29 These include: • additionality and newness, which are aimed at ensuring that sources of climate financing represent new funding, rather than re-profiling of funding that would otherwise have gone to other development priorities; • predictability, so that recipients can count on ongoing and increasing allocations of resources, which allows them to plan over the long term; • adequacy of resources, given the enormous scale of the challenge; • balance between the twin priorities of adaptation and mitigation; • sustainability of the projects and policies funded, not simply from a GHG perspective but from a broader social, environmental, and economic definition; and • equitable and democratic governance of financial resources, to ensure fair access for recipient communities, especially those communities and populations that have been identified as being most vulnerable to the consequences of climate change. The sections below provide brief descriptions of recent climate financing in the United States, Canada, and Mexico, and include assessment particularly of the donor countries’ compliance with the principles listed above.

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Climate Financing in the United States Under President Obama’s administration, the United States’ views on climate financing have been influential in shaping the current international conversation on the issue. The simplest demonstration of this is a review of the major speech that the U.S. secretary of state, Hillary Clinton, delivered in Copenhagen, which was seen at the time as a turning point in the negotiations on climate financing. In the speech, Clinton stated, “In the context of a strong accord in which all major economies stand behind meaningful mitigation actions and provide full transparency as to their implementation, the United States is prepared to work with other countries toward a goal of jointly mobilizing $100 billion a year by 2020 to address the climate change needs of developing countries. We expect this funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance. This will include a significant focus on forestry and adaptation, particularly, again I repeat, for the poorest and most vulnerable among us.”30 Clinton was not the first leader to endorse the US$100 billion figure, but because the United States had been very quiet on the question of longer-term financing until then, her statement was seen as critical to pushing the negotiations forward. A comparison of the final language of the Copenhagen Accord with her declaration reveals that most of the accord’s phrases on longer-term financing were lifted directly from her speech. Despite this political endorsement, American negotiators have found themselves on the receiving end of strong criticism for some of their negotiating positions. Over the longer term, U.S. negotiators assert that the vast majority of climate financing will come from the private sector, a position at odds with that of many developing countries, which see a greater role for ongoing, significant, and predictable public funding. U.S. legislators are said to be unwilling to consider some international means of generating innovative financing, such as financial transaction taxes or carbon levies on international aviation and shipping.31 On the other hand, President Obama’s team is credited as being the force behind a surprise G20 declaration in Pittsburgh that committed leaders to “rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption”32 – a commitment that, if G20 countries follow through on it, would create a potential revenue source for new climate financing.

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In an April 2010 position statement, U.S. UNFCCC negotiators incurred criticism for stating their strong preference for having the World Bank become the trustee for the new global climate fund, and for recommending that the World Bank itself should organize the process to establish the fund.33 As noted above, the December 2010 Cancún negotiations did select the World Bank as the Green Climate Fund’s trustee, but on an interim and limited basis. The United States has also faced criticism from civil society groups for a position that sought to limit its fast-start financing contributions to those countries that had signed on to the Copenhagen Accord.34 The U.S. fast-start financing contributions in 2010 and 2011 were funded through highly contested budgetary appropriations.35 The Congress in power after the 2010 midterm elections was certainly less amenable to action on climate change than the previous one; a Republican budget proposal seeking to zero out some U.S. contributions to international climate financing is but one example of this ambivalence.36 Given the strong and outspoken opposition to both climate action and international assistance within the legislative branch, congressional politicking with regard to climate financing appropriations seems very likely set to continue.37 Thanks to exactly these kinds of partisan tensions, the U.S. financing commitments fare poorly against the criterion of predictability. The 2010 U.S. commitment also comes up short against a GDP- or emissionbased assessment of its adequacy relative to total fast-start financing, as its 2010 financing contribution is US$1.3 billion, or 13 per cent of the US$10 billion fast-start financing total for 2010.38 The 2011 contribution was proportionally somewhat more, totalling US$3.1 billion.39 The U.S. government asserts that it performs well on the criterion of additionality and newness; for example, climate financing funds disbursed in 2010 through USAID and the departments of Treasury and State jumped from $315 million to $1 billion.40 However, this leaves unanswered the question of whether the new funds are truly new, relative to a rising baseline of international assistance, or whether they are simply a re-profiling of funds that would otherwise have gone to other forms of development assistance. In 2010, 34 per cent of total U.S. financing was dedicated to adaptation, a significant contribution that nonetheless likely fails to meet the test of a “balanced” treatment of adaptation and mitigation. For 2011, this imbalance seems to have continued.41 It is too early for a serious assessment of the overall sustainability of initiatives supported by U.S. climate financing in 2010 and 2011. The strong

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support of the United States for the World Bank and its climate funds has raised questions about the equitable and democratic governance of its favoured funding mechanisms, as developing countries wield less influence at the World Bank than they do at, for example, the Kyoto Protocol’s Adaptation Fund. Climate Financing in Canada While Canada’s domestic track record on climate change is very far from inspiring,42 its history with international climate financing offers more promise. In 2001, Canada became the first country to announce a contribution to the UN’s Least Developed Countries Fund, which supports adaptation and adaptation planning.43 A CDN$100 million climate change development fund established at the Canadian International Development Agency (CIDA) in 2000 received glowing reviews from evaluators.44 Under the Harper government, Canada committed CDN$100 million to the World Bank’s Climate Investment Funds in 2008.45 Like the United States, however, Canada frequently states in international negotiating sessions that it expects the private sector to provide the vast majority of climate financing over time. Both before and after Copenhagen, Canada repeatedly committed to providing its fair share of climate financing, but it was among the last countries to make a fast-start announcement. Environment Minister Jim Prentice did so just days before Canada hosted the 2010 G8 and G20 summits, presenting a fast-start contribution of CDN$400 million for 2010 that he called “consistent with our traditional share of developed country donor pledges in the context of multilateral international assistance efforts – approximately 4%.”46 Environmental NGOs agreed with that assessment.47 In October 2010, the federal government revealed its spending plans for the 2010 fast-start allocation.48 Over 70 per cent of the 2010 total was allocated as loans to the World Bank’s private sector lending arm, the International Finance Corporation (IFC). Just 11 per cent of the total was dedicated to adaptation, and there were questions about whether climate financing in Canada comes at the expense of other international assistance funding.49 The Government of Canada asserted that its 2010 fast-start financing contribution was new and additional to existing climate change financing before the Copenhagen negotiations, publishing a table showing a jump from less than CDN$75 million in the 2009–10 fiscal year to nearly CDN$450 (a combination of the CDN$400 million

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fast-start financing and some previously announced climate financing) in 2010–11.50 However, officials explained that the grant elements of Canada’s contribution were taken from a 2010 increase to Canada’s aid budget. This increase represented the fulfilment of a commitment first made in 2002,51 and thus could fall well short of being “new,” depending on the baseline chosen. The 2010 increase was also the final year of planned increases to Canada’s aid budget,52 which will make the question of trade-offs between climate financing and other kinds of development support even more acute in future years. Based on historical contribution rates, 4 per cent of the global total could indeed represent a fair share from Canada.53 However, Canada is accounting for the full face value of its loans, and not their discounted “grant equivalent,” in asserting that its 2010 contribution added up to CDN$400 million. Given that over 70 per cent of the 2010 total was in the form of loans, discounting them as per Project Catalyst’s OECDbased methodology would likely have reduced Canada’s contribution significantly. Canada’s track record on the criterion of predictability is mixed; the late announcements persisted after 2010. While the government has confirmed a total three-year fast-start financing commitment of CDN$1.2 billion, equivalent to CDN$400 million per year, Canada had not released disbursement details for the fiscal year 2011–12 tranche by the Durban talks in December 2011. Instead, Environment Minister Peter Kent released a statement there affirming Canada’s total funding of CDN$1.2 billion and the three broad areas Canada’s contribution would support: “adaptation by the poorest and most vulnerable countries, clean energy, and forests and agriculture.”54 This announcement, and the government’s subsequent 2012 budget, failed to detail Canada’s full allocations within those categories. However, the early months of 2012 saw a handful of announcements on fast-start climate financing from Canada. Two of Canada’s other fast-start announcements in 2012 are notable in a continental context. The smaller of the two provides a total of CDN$10 million aimed at reducing short-lived climate pollutants via a new international partnership. The Climate and Clean Air Coalition to Reduce Short-Lived Climate Pollutants initiative includes the United States and Mexico, along with Bangladesh, Ghana, Sweden, and the United Nations Environment Programme, among its partners.55 Canada’s investment includes CDN$3 million to help reduce fugitive methane emissions in the oil and gas sector, CDN$2.35 million to help

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curtail methane from landfills, and CDN$1.7 million for clean cook stove initiatives. Mexico is a recipient country for all three of these disbursements, along with other developing country partners in the initiative. In April 2012, Canada announced a second Canada-branded fund, this one in partnership with the Inter-American Development Bank (IDB). The Canadian Climate Fund for the Private Sector in the Americas provides CDN$250 million over two years to the IDB for private sector investments in “cleaner technologies,” aiming to bridge the cost gap between cheaper fossil fuel options and lower-GHG choices like renewable energy and energy efficiency. The fund also proposes to support private sector emission reduction in agriculture and forestry, as well as adaptation efforts.56 Canada’s weakest area in its 2010 financing (the only year where full allocation details have been released57) is likely the balance between adaptation and mitigation: dedicating just 11 per cent to adaptation would likely come up short against anyone’s definition of “balanced.” However, Canada cannot be accused of tying its adaptation support to countries’ willingness to sign on to the Copenhagen Accord; one recipient of its bilateral adaptation assistance in 2010, Haiti, is not listed among the Copenhagen Accord’s supporters.58 It is too early to assess the sustainability of the projects Canada has opted to finance, a task that is complicated by Canada’s failure to provide adequately detailed information about the kinds of technologies it will be supporting through the IFC under the heading of “clean energy” or about the specific projects funded.59 Some civil society groups have raised questions about the governance practices and geographical focus (which tends to be in higher-income developing countries) of the IFC and its financial intermediaries.60 These trends, and the associated civil society concerns, are likely to persist with the announcement of the IDB private-sector fund. Climate Financing in Mexico In Mexico, climate change is a key issue on the country’s agenda, as embodied within the main planning instrument, the National Development Plan (PND).61 This is not only because Mexico is highly vulnerable to climate change – with 15 per cent of its territory, 68.2 per cent of its population, and 71 per cent of its gross domestic product (GDP)62 exposed to adverse impacts of climate change – but also because

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it is a developing country that has maintained a high carbon content in its economic growth; in 2008 Mexico ranked fourteenth among countries for GHG emissions, contributing 1.5 per cent of the global total.63 As a first step in addressing the climate policy challenge, Mexico created an Inter-secretarial Commission on Climate Change64 composed of four working groups: international negotiations, preparation of plans and strategies, the Designated National Authority for development of Clean Development Mechanism (CDM) projects, and adaptation. In addition, Mexico has published national GHG inventories and has sought to update them every three to five years; it also has produced four National Communications under the convention, thus becoming the only developing country to have done so. In 2007, the federal government published a National Strategy on Climate Change, which resulted in the creation of a Special Climate Change Program (PECC, 2008–12), presented in Copenhagen during the UN negotiations there. Partly as a result, Mexico is considered one of the most active players in the international negotiations as a member of the Environmental Integrity Group (EIG).65 Now Mexico has enshrined its ambitious goals in the 2012 General Law on Climate Change. These policy commitments help to explain Mexico’s continuing and strong interest in promoting the global Green Fund for climate financing. In the government’s initial conception, contributions to the fund would have been based on criteria such as population, GDP, and total emissions. In addition, Mexico proposed that all countries – except the least developed – would transfer funds into this global mechanism, although developed countries would provide most of the resources. The proposal was welcomed by various parties as positive, especially European countries and some others like the United States, Canada, and Australia, which emphasized the importance of international cooperation in addressing the problem. However, a large number of countries, such as those from the G77 and China, raised concerns that Mexico’s proposal contravened the principles and mandate of the convention, which foresees developed countries being responsible for supplying and transferring climate financing to developing countries. Nevertheless, Mexico continued to promote its fund proposal until the Cancún talks, which (as noted above) concluded with an agreement to establish a Green Climate Fund with contributions supplied by developed countries. The Cancún Agreements foresee, then, developing countries using some of their own resources to implement “nationally appropriate mitigation actions,” in many cases complementing that funding with

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international climate financing. In fact, Mexico has been working for some time on a proposal to create a national mechanism to capture and channel financial resources for mitigation and adaption.66 This proposal was reviewed and even supported by various sectors, from civil society to some elements of the private sector. The new climate law now mandates the establishment of a National Green Climate Fund modelled on this original proposal. It is important to note that, even once a fund like the global Green Climate Fund is created, Mexico and other developing countries have other political and policy battles to fight. The problem is not always a lack of resources; sometimes, the fault lies instead with the management of existing resources. For example, Mexico has long resisted phasing out the country’s significant fossil fuel subsidies; this is not surprising, given its reliance on oil exports to supply its budget and support public activities throughout the country.67 The new General Law on Climate Change does provide for a phase-out of such subsidies, although a significant dose of political will would be needed to follow through on this commitment. In Mexico, cooperation with the United States and Canada on carbon pricing mechanisms such as cap-and-trade is also seen as one of the most important ways to reduce competitiveness risks. Prior to passage of the new climate law, the Government of Mexico maintained (much like Canada’s federal government) that it would not be able to promote cap-and-trade unless the United States moved forward on carbon trading. In the absence of federal leadership, some actors within Mexican took the opportunity to work together across borders on carbon pricing. For example, the state of Chiapas has been working with California to promote pilot projects on reducing emissions from deforestation and forest degradation (REDD),68 while Baja California is active in the southern U.S. market for renewable energy.69 The new law also enables (but does not mandate) the creation of a domestic GHG trading program, so further experimentation with this instrument is likely in Mexico. Mexico has already attracted World Bank funding to support such experimentation. The progress made at the Sixteenth Conference of Parties (COP16) meeting in Cancún appeared to be the beginning of a new period of environmental work for Mexico. The international spotlight remained on Mexico for the duration of 2010 as it held the title of president of the Conference of Parties leading up to the December 2011 negotiations in Durban, South Africa. Then, in early 2012, Mexico became the second

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country in the world to enact binding GHG reduction targets in comprehensive climate change legislation. In this context, it makes sense for Mexico to be working more closely with the United States and Canada in promoting North American regional cooperation on climate change more generally, and a financing system more specifically. Prospects for Greater Regional Cooperation on Climate Financing in North America While the prospects for a significant degree of regional cooperation among the three North American partners on climate financing currently appear slim, there are new fast-start financing initiatives underway and some opportunities that the three partners could build on, should they choose to do so. In addition, there are important interactions between climate financing and other climate policy tools, which will have to be addressed at the level of implementation, potentially on a continental basis. If we look to ODA disbursements as a guideline for U.S. and Canadian willingness to make climate financing contributions to Mexico, the track record has been one of relatively minor investment. In fiscal year 2010, USAID had allocated just US$28 million for Mexican aid, with law-and-order initiatives a priority.70 Canada’s international development agency, CIDA, reported CDN$7.56 million for Mexico in 2008–9, with no long-term projects planned.71 In both cases, this represents a tiny fraction of aid budgets that run into the billions of dollars (or, in USAID’s case, into the tens of billions). Canada coded none of its ODA contributions to Mexico specifically as being for climate change in the 2006 to 2009 period,72 while the United States coded over a dozen projects as being climate-change related over the same years, for a total of US$2 million.73 While it is often reported as ODA, climate financing for mitigation is best considered as a kind of assistance different from traditional aid. Indeed, many recipient countries view climate financing more broadly as compensation for a problem created mainly by developed countries, not as an act of charity. The developing countries with the highest levels of emissions, and the fastest GHG growth rates, tend to be relatively high-income countries that are expanding their industrial sectors rapidly. Much of the mitigation effort will involve nurturing clean energy sectors and initiatives through policy changes, capacitybuilding, and financial support; the private sector will often have an important contribution to make here. Thus, while Mexico is not a top

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aid priority for either North American partner, its level of economic development – coupled with the analysis and preparation of emission reduction opportunities that it has already undertaken, as well as the new policy infrastructure to be put in place under the General Law on Climate Change – could make Mexico a good candidate for new mitigation financing from the United States and Canada.74 Indeed, the Mexico program at USAID launched a new multi-year Global Climate Change Program in 2011, under which funding made available through fast-start financing commitments by the United States under the Copenhagen Accord would be supporting new activities in Mexico focused primarily on REDD and clean energy. USAID reports that Mexico received US$6 million of its fast-start financing in 2010, with an increase to US$10 million expected for 2012.75 It also appears likely that future North American cooperation will occur outside the strict definition of climate financing used here. Indeed, a carbon pricing relationship of some kind seems a likely prospect for future collaboration. Although it is not climate financing as defined in this paper, some of this regional carbon market cooperation is already starting to take place in the development of sub-national carbon markets in North America. For example, six Mexican border states had been participating as observers in the Western Climate Initiative before its “implosion.”76 A pathway towards greater carbon market cooperation might see Mexico act initially as a supplier of offset credits to U.S. and Canadian companies facing regulatory constraints on their emissions; in time, Mexican industry sectors may well face similar constraints and thus participate both as buyers and sellers of offset credits. In this scenario, private sector investment for clean energy would likely increase among the three NAFTA partners, both as foreign direct investment and through the funding that companies would pay for offset credits (and perhaps allowances, in time) in Mexico under a cap-and-trade system. Over and above spurring clean energy investment directly, establishing carbon pricing in North America (whether through a carbon tax or a cap-and-trade system) would quickly raise billions of dollars in new government revenues.77 Certainly, the experience with RGGI, as Rabe suggests in chapter 3, has shown the revenue potential of auctioning. The American Clean Energy and Security Act,78 which would have established a variant of an emissions trading program, proposed to earmark a portion of this revenue for international climate finance, and a future initiative in Canada or the United States could do the same. If Mexico were a partner in such a system, it might appear natural to set aside some of the revenues raised for specific Mexican initiatives.

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For example, the ACES legislation proposed to prioritize international investment in reducing deforestation, which is a priority for Mexico. In addition to any kind of potential future cooperation on emissionreduction initiatives, Mexico, the United States, and Canada could also provide regional support for each other’s positions on climate financing at international negotiations. As noted above, the 2009 North American Leaders’ Declaration on Climate Change and Clean Energy provides an example, as Canada and the United States stated their regional support for Mexico’s Green Fund proposal in that declaration.79 The same document contains a reference to joint work to slow the growth in aviation emissions, and this provides another potential entrée into climate financing: one way to reduce aviation emissions would be to impose a levy or cap on those emissions, which would in turn help to generate significant new funds that could be dedicated to climate financing. Along with a similar mechanism on international shipping emissions, this approach is seen as a promising potential means to generate innovative new resources for longer-term climate financing. Canada, the United States, and Mexico have also worked together, as noted above, on initiatives to reduce “black carbon.”80 This kind of collaboration depends, of course, on seeing international climate policy leadership from one or more of the North American partners. Canada’s growing emissions and the low priority that the current government places on climate change initiatives probably make Canada the least likely candidate to provide such leadership. Canada has further reduced its international climate influence by harmonizing or aligning many of its international negotiation positions with those of the United States. As one of the world’s two largest emitters, the United States is a crucial player in any international climate negotiations. But the very vocal opposition of some members in the current U.S. Congress to ambitious climate action (and the U.S. Senate’s failure to pass an economy-wide cap-and-trade bill) diminish that influence to some extent. Instead, it is Mexico that is currently seen as a climate leader, given the measures it has taken in its own ambitious domestic policy regime. Mexico is often viewed as a country that is punching above its weight in international climate change negotiations. The question of transparency and accountability on climate financing would also make an excellent starting point for potential North American collaboration on international climate finance policy. As noted earlier in this chapter, fast-start climate financing may fall short of its potential to rebuild trust if it is not accounted for transparently. And

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the importance of measuring, reporting, and verifying (MRV) climate financing will only grow over time, particularly if countries decide to implement the Copenhagen Accord’s suggestion that private financing can count towards meeting longer-term financing goals. Better reporting could significantly increase the effectiveness of fast-start financing, by showing recipient countries that it is being delivered (if that is the case) and by providing an incentive for countries to strengthen pledges that fall short of new and additional. Mexico is already quite well positioned to call for the increased transparency of climate finance structures. Not only did the Cancún Agreements make progress on MRV, but Mexico is still the only “non– Annex 1” (developing) country to have produced a fourth National Communication,81 a report of national plans and policies to implement the UN climate convention. In September 2010, Mexico was one of ten governments that worked with the government of the Netherlands to launch Fast Start Finance,82 a website “developed in response to a global call – from developed and developing countries, non-governmental organizations and others – for publicly available, clear information on fast start climate finance flows.”83 This background could give Mexico the credibility to develop and champion a common reporting format and common definitions of new, additional, and balanced for climate financing. But there is also no reason why this could not be a North American effort – as Young and Abbott argue later in this volume. The United States has placed substantial emphasis on MRV in the global negotiations, so increased transparency on climate financing should be a good fit with its agenda. The Government of Canada’s decision to harmonize climate policy with the United States should mean that it shares this U.S. interest.84 And the three North American leaders committed in August 2009 to “develop comparable approaches to measuring, reporting and verifying emission reductions”; their Guadalajara declaration also stated, “We underscore the importance of developing and strengthening financial instruments to support mitigation and adaptation actions.”85 Cooperating to propose a robust and transparent approach to accounting for fast-start and longer-term financing seems a natural extension of those commitments. A small but useful initiative of this kind could form the basis for wider cooperation on climate financing in North America. Another promising prospect would be joint work on defining and phasing out inefficient fossil fuel subsidies, as all three countries committed to do at

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the 2009 G20 summit in Pittsburgh. Mexico gave force to this commitment in its new national legislation. Trilateral institutions (notably the Commission on Environmental Cooperation) could play a useful role in that effort, and funds generated through the initiative could be directed to both international and domestic efforts to tackle climate change. Looking beyond joint initiatives, financing also provides North America’s two smaller countries (characterized as “policy takers” relative to the United States by Studer in chapter 2) with a canvas to demonstrate leadership. Mexico’s Green Fund proposal and its national climate strategy illustrate this phenomenon. For Canada, a history of multilateralism – and the experience gained through earlier climate financing efforts at CIDA – have laid the groundwork for leadership. Wisely used, financing could give Canada an opportunity to step out from under the U.S. shadow and build expertise in a targeted area, thanks to a significant, long-term investment and the resulting policy expertise. But taking a proactive approach to financing would require political will and vision, two qualities that have been lacking in Canada’s climate policy. While specific trilateral initiatives of the kind described above could be very worthwhile, they are of course only one piece of the climate agenda. Even the most ambitious contributions to financing action in other countries can only complement – not substitute for – the mitigation action that the North American partners need to take at home. Further, financing is a global question and one that should ultimately have a global solution – although that would in no way preclude regional cooperation. NOTES 1 Clare Demerse would like to thank the Walter and Duncan Gordon Foundation for their support of this research. 2 Copenhagen Accord, paragraph 8, http://unfccc.int/resource/docs/2009/ cop15/eng/11a01.pdf. 3 Ibid., paragraph 8. 4 See N. Craik and D. VanNijnatten, chapter 1 of this volume. 5 United Nations Framework Convention on Climate Change, Article 4 (7), http://unfccc.int/resource/docs/convkp/conveng.pdf. 6 UNFCCC, Article 12 (1) and (4), http://unfccc.int/essential_background/ convention/background/items/1379.php. 7 For an up-to-date listing of global climate funds, see Climate Funds Update, http://www.climatefundsupdate.org/listing.

Climate Financing in a North American Context 203 8 At the UN climate talks, mitigation (actions to reduce GHG emissions) includes the reduction of emissions from deforestation and forest degradation, which is known by the acronym REDD. 9 UFCCC/CP/2009/11/Add.1, 2.CP.15, paragraphs 8 and 10, http://unfccc. int/resource/docs/2009/cop15/eng/11a01.pdf. 10 Between 1850 and 2000, industrialized countries accounted for 78 per cent of global cumulative carbon dioxide emissions from burning fossil fuels. See Climate Analysis Indicators Tool (CAIT), version 5.0 (Washington, DC: World Resources Institute, 2008). 11 Jeremy van Loon and Kim Chipman, “Developing Countries Say ‘No Money, No Deal’ in Climate Talks,” Bloomberg, 13 December 2009, http:// www.bloomberg.com/apps/news?pid=newsarchive&sid=aqC.iVBrBGT8. 12 See, for example, Section III A, Paragraphs 40(c), 41, 42(b), 46(a)(i), and Section IV A paragraph 96 of Draft Decision -/CP.16: Outcome of the Work of the Ad Hoc Working Group on Long-term Cooperative Action under the Convention, http://unfccc.int/files/meetings/cop_16/application/pdf/cop16_lca.pdf. 13 UNFCCC/CP/2011/L.9, Green Climate Fund: Report of the Transitional Committee, http://unfccc.int/resource/docs/2011/cop17/eng/l09.pdf. 14 Jennifer Morgan and Edward Cameron, “Reflections on COP 17 in Durban,” 16 December 2011, World Resources Institute, http://insights. wri.org/news/2011/12/reflections-cop-17-durban. 15 Clifford Polycarp, Catherine Easton, Jennifer Hatch, and Taryn Fransen, “Summary of Developed Country ‘Fast-Start’ Climate Finance Pledges,” November 2012, WRI, http://www.wri.org/publication/summary-ofdeveloped-country-fast-start-climate-finance-pledges. As of November 2010, the pledge total was US$29 billion. 16 Project Catalyst’s June 2010 report found US$28 billion pledged (US$25 billion once the grant equivalent of loans was factored in). See Project Catalyst, Making Fast-Start Financing Work (Brussels: Project Catalyst, 2010), 3, http://www.project-catalyst.info/images/publications/2010-06-07_project_catalyst_-_fast_start_finance_-_full_report_-_7_ june_version.pdf. 17 See Polycarp et al., “Summary of Developed Country ‘Fast-Start’ Climate Finance.” 18 Stadelmann et al., Baseline for Trust: Defining “New and Additional” Climate Funding (London: IIED, 2010), 3, http://pubs.iied.org/pubs/ pdfs/17080IIED.pdf. 19 See the definition of grant element at the OECD’s Development Assistance Committee glossary, http://www.oecd.org/development/stats/dacglossaryofkeytermsandconcepts.htm#Grant_Element. 20 Project Catalyst, Making Fast-Start Financing Work, 16.

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21 Canada, “North American Leaders’ Declaration on Climate Change and Clean Energy, 10 August 2009, Guadalajara, Mexico,” Canada News Centre, http://news.gc.ca/web/article-eng.do?m=/index&nid=472899. 22 White House, Office of the Press Secretary, “Joint Statement by North American Leaders,” news release, 2 April 2012, http://www.whitehouse. gov/the-press-office/2012/04/02/joint-statement-north-american-leaders. 23 Personal communications during research interviews, April 2010. 24 As noted above, CDM credits and other carbon market mechanisms are treated separately from the international discussion of climate financing. In part this is because these types of credits are used to replace domestic emission reductions in developed countries; thus, counting them again as a contribution towards meeting a financing goal would be double-counting. 25 As of May 2013, Mexico ranked fifth in the world in registering CDM projects (behind China, India, Brazil, and Vietnam), according to data available at http://cdm.unfccc.int/Statistics/Public/files/201305/proj_reg_byHost. pdf. 26 In a country profile of Mexico, the Inter-American Development Bank (IDB) notes, “Over the past 50 years, the IDB has approved operations for Mexico for more than $25 billion, which makes it the largest recipient of IDB loans and disbursements in Latin America and the Caribbean.” See IDB, “IDB in Mexico at a Glace,” http://www.iadb.org/en/countries/ mexico/idb-in-mexico-at-a-glance,1097.html. 27 One indirect piece of evidence here is that Canada was careful to announce its 2010 fast-start contribution well before Cancun, but failed to do the same in Durban. 28 At the UNFCCC talks, Canada and the United States are members of a negotiating bloc called the “Umbrella Group,” some of whose members are frequently singled out for criticism by civil society observers. Mexico is part of the “Environmental Integrity Group,” a grouping often seen as being more progressive than the Umbrellas. 29 These principles were compiled by the authors, both of whom are active in climate policy discussions on behalf of the non-governmental communities in Canada and Mexico. 30 Hillary Rodham Clinton, “Remarks at the United Nations Framework Convention on Climate Change,” 17 December 2009, U.S. Department of State, http://www.state.gov/secretary/rm/2009a/12/133734.htm. 31 Personal communication from government officials, December 2009. 32 “G20 Leaders Statement, The Pittsburgh Summit,” 24–5 September 2009, http://www.g20.utoronto.ca/2009/2009communique0925. html#energy.

Climate Financing in a North American Context 205 33 FCCC/AWGLCA/2010/MISC.2 (Bonn: UNFCCC, 30 April 2010), 83, http://unfccc.int/resource/docs/2010/awglca10/eng/misc02.pdf. 34 See, for example, the article “Fast Start Finance” in the ECO newsletter produced by Climate Action Network International, 10 April 2010, http:// www.climatenetwork.org/content/bonn-1-newsletter-2, which states, “And now ECO hears at least one country – the US – has indicated that it will potentially cut off its fast-start flow to some developing countries who have not associated with the Copenhagen Accord. Officials from other countries have also hinted in public about such a pressurizing strategy.” 35 For Fiscal Year 2011, U.S. fast-start financing totalled $3.1 billion, of which $1.8 billion came from Congressionally appropriated assistance, and $1.3 billion came from development finance and export credit agencies. U.S. Department of State, “Summary of U.S. Fast Start Climate Finance in Fiscal Years 2010–2012,” http://www.state.gov/e/oes/climate/faststart/c48618. htm. 36 See Section 2119 of H.R. 1 (112th Congress, 1st Session, M:\FY 2011\ APPROPCRFINAL.XML), http://www.rules.house.gov/Media/file/ PDF_112_1/legislativetext/2011crapprops/AppropCRFinal_xml.pdf. 37 Email communication, Jake Schmidt, Natural Resources Defense Council, February 2011. 38 U.S. State Department, U.S. International Climate Change Finance, fact sheet, April 2010, http://www.state.gov/documents/organization/140689.pdf. This fact sheet also provides details about the U.S. areas of focus for climate financing, which include adaptation (US$448 million), clean energy (US$595 million), and sustainable landscapes (US$261 million) in 2010. 39 U.S. Department of State, “Summary of U.S. Fast Start Climate Financing in Fiscal Years 2010–2012.” 40 U.S. State Department, U.S. International Climate Change Finance. 41 The State Department notes in its “Summary of U.S. Fast Start Climate Financing in Fiscal Years 2010–2012,” “Of the $1.8 billion in FY 2011 Congressionally appropriated assistance, $563 million is for adaptation, and $1.28 billion is for mitigation, which includes $329 million for sustainable landscapes or REDD+ related activities and $947 million for clean energy. All resources provided by the development finance and export credit agencies support mitigation activities.” 42 For example, by 2008, the country’s national GHG emissions had grown by 24 per cent since 1990, with emissions from the oil sands in Alberta experiencing a 121 increase over the same period. Pembina Institute analysis adapted from Environment Canada, National Inventory Report: Greenhouse Gas Sources and Sinks in Canada 1990–2008 (Ottawa: Environment Canada, 2010), part 1: 86, 89–90; part 3: 4.

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43 UNFCCC, “Addendum, Funding under the Convention,” Report of the Conference of the Parties on Its Seventh Session, Held at Marrakesh from 29 October to 10 November 2001, 43, FCCC/CP/2001/13/Add.1. 2001. Decision 7/CP.7, http://unfccc.int/resource/docs/cop7/13a01.pdf. 44 Canadian International Development Agency, Canada Climate Change Development Fund: Mid-Term Evaluation Final Report (Gatineau, QC: CIDA, 2004), http://www.acdi-cida.gc.ca/INET/IMAGES.NSF/vLUImages/ Performancereview6/$file/CCCDF-English.pdf. 45 Climate Investment Funds, Trustee Report CTF-SCF/TFC.2/8 (Washington, DC: Climate Investment Funds, 2009), 3. 46 Environment Canada, “Speaking Notes for the Honourable Jim Prentice, P.C., Q.C., M.P., Minister of the Environment,” 23 June 2010, http://www. ec.gc.ca/default.asp?lang=En&n=6F2DE1CA-1&news=BB5AC3DC-837A406E-AD28-B92ED80F5A81. 47 See, for example, the Pembina Institute, “Pembina Reacts to Canada’s Financial Support for Climate Action in Developing Countries,” 23 June 2010, http://www.pembina.org/media-release/2039. 48 Environment Canada, “Government of Canada Announces Details of Major Investment to International Climate Change,” news release, 1 October 2010, http://www.ec.gc.ca/default.asp?lang=En&n=714D9AAE1&news=454E8F15-55C2-4A70-9FC0-249B35E5DD80. For a more detailed update on the 2010 disbursement, see Canada’s Action on Climate Change, “Fast-Start Financing,” http://www.climatechange.gc.ca/default. asp?lang=En&n=5F50D3E9-1. 49 For more details, see the Pembina Institute’s blog post, Clare Demerse, “Canada’s ‘Fair Share’ Is Not as Advertised,” 5 October 2010, http://www. pembina.org/blog/413. 50 Government of Canada, Canada: 2010 Fast-Start Climate Change Financing, fact sheet (Ottawa: Government of Canada, 2010), 2. 51 Government of Canada, Budget 2010: Leading the Way on Jobs and Growth (Ottawa: Government of Canada, 2010), 160, http://www.budget. gc.ca/2010/pdf/budget-planbudgetaire-eng.pdf. 52 Ibid., 160. 53 See Clare Demerse, Our Fair Share: Canada’s Role in Supporting Global Climate Solutions (Drayton Valley, AB: Pembina Institute, 2009), Appendix A, http://pubs.pembina.org/reports/our-fair-share-report.pdf. See also Mark Fried and Clare Demerse, How to Finance Support for Climate Adaptation in Vulnerable Countries, briefing note (Ottawa: Oxfam Canada and the Pembina Institute, 2009), Appendix IV, http://pubs.pembina.org/ reports/auctioning-allowances-for-adaptation-nov-2009-final.pdf.

Climate Financing in a North American Context 207 54 Environment Canada,, “Minister Kent Announces International Climate Funding,” news release, 5 December 2011, http://www.ec.gc.ca/default. asp?lang=En&n=714D9AAE-1&news=B37E3BE6-5D04-4566-B674677A20213456. 55 Environment Canada, “Canada’s Environment Minister and International Partners Launch New Global Climate and Clean Air Initiative,” news release, 16 February 2012, Washington DC, http://www.ec.gc. ca/default.asp?lang=En&n=714D9AAE-1&news=B99D4C7B-7EB6484F-AC4D-BCB59E83C37C. See also the related backgrounder for information on funding allocations, Environment Canada, “Canada’s Environment Minister and International Partners Launch the Framework for the Climate and Clean Air Coalition to Reduce Short-Lived Climate Pollutants,” http://www.ec.gc.ca/default.asp?lang=En&n=2D1D6FA71&news=16B3AAC5-0EB7-49C7-9D04-3AF5585D6893. 56 IDB, “Canada, IDB to Co-Finance Climate-Friendly Investments in Latin America and the Carribean,” 30 April 2012, http://www.iadb.org/en/ news/news-releases/2012-04-30/canadian-climate-change-fund-forlatin-america,9962.html; Prime Minister of Canada, “Canadian Support for Economic Growth and Development in the Americas,” 14 April 2012, http://www.pm.gc.ca/eng/media.asp?id=4739. 57 See Government of Canada, Canada’s Action on Climate Change, “Fast-Start Financing,” http://www.climatechange.gc.ca/default. asp?lang=En&n=5F50D3E9-1. 58 A list of countries in agreement with the Copenhagen Accord is available at UNFCCC, “Copenhagen Accord,” http://unfccc.int/meetings/copenhagen_dec_2009/items/5262.php. 59 To read some of Canada’s reporting to date, see Government of Canada, Canada’s Action on Climate Change, “Fast-Start Financing”; or the Canadian submission to the UNFCCC at http://unfccc.int/files/adaptation/application/pdf/inf_fsf.pdf, starting at 13. 60 Halifax Initiative, “Canadian Coalition for Climate Change & Development Submission: ODA Accountability Consultation, 2011,” February 2011, http://halifaxinitiative.org/content/canadiancoalition-climate-change-development-submission-oda-accountablityconsult-2011. 61 Presidencia de la República México, “Plan Nacional de Desarrollo 2007–2012,” http://pnd.calderon.presidencia.gob.mx/index. php?page=documentos.pdf. 62 Galindo, Luis Miguel, The Economics of Climate Change in Mexico: Synopsis (Mexico City: SEMARNAT, 2009), http://biblioteca.semarnat.

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gob.mx/janium/Documentos/Cecadesu/Libros/Economics%20of%20 climate%20change.pdf. More information is available at Instituto Nacional de Ecología, “México ante el cambio climático,” 27 August 2007, http://www2.ine.gob.mx/publicaciones/gacetas/154/cclimatico.html. The commission is composed of seven ministries: Environment and Natural Resources, Foreign Affairs, Communications and Transport, Economy, Energy, Social Development and Livestock, Agriculture and Fisheries. The commission has observer status with other ministries such as the Ministry of Finance and Public Credit and the Ministry of Tourism. Mexico became part of the EIG after leaving the developing country bloc of the G77 and China. Mexico did so after the signing of NAFTA with North America in 1994 and its entry into the OECD, alongside countries with the largest economies in the world. Despite entering a new negotiating bloc with industrialized countries, the reality is that Mexico has remained last place in the OECD when it comes to development, despite its great potential for development and progress in some areas. Tecnológico de Monterrey, Iniciativa Ley General de Cambio Climático. According to the Oil and Gas Journal (OGJ), in 2010, Mexico had 10.5 billion barrels of oil reserves on 1 January 2009. Mexico was the sixth-largest oil producer in the world in 2006, with an output of 371 million barrels per day, of which 3.25 million barrels per day were crude oil. In a March 2010 statement, PEMEX said that continuing with the current production rate, proven oil reserves would reach only ten more years of output. See http:// www.ri.pemex.con/files/content/ACFRSAiOaaat.pdf. “Estados de Chiapas, California y Acre firman acuerdo en favor del ambiente,” La Jornada, 17 November 2010, http://www.jornada.unam. mx/2010/11/17/index.php?section=politica&article=020n3pol. Israel Rodriguez, “Interconectará la CFE a Baja California con compañías eléctricas de EU en 2014,” La Jornada, 4 February 2011, http://www.jornada. unam.mx/2011/02/04/index.php?section=economia&article=031n1eco. USAID, “Country Overview,” http://transition.usaid.gov/mx. Canadian International Development Agency, “Mexico,” http://www. acdi-cida.gc.ca/mexico. However, a review of the US$12 million Canada coded to other “Rio markers,” or environmental ODA, in Mexico from 2006 to 2009 reveals some projects that do appear to be climate-relevant, including investments in wind power and bus rapid transit studies. Calculated using the “climate change” Rio marker under the OECD’s “Creditor Reporting System,” http://stats.oecd.org/Index. aspx?DataSetCode=CRSNEW.

Climate Financing in a North American Context 209 74 This argument is summarized from a Canadian perspective in Clare Demerse, “Fighting Climate Change in Mexico,” Pembina Institute, 25 October 2010, http://www.pembina.org/pub/2102. 75 USAID, “Accomplishments of USAID/Mexico’s Past Environment Programs,” http://www.usaid.gov/mx/environmenteng.html Accessed: 04/28/12 76 The six states are Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas. 77 If governments adopt a carbon tax, this happens directly through the collection of tax revenues. In a cap-and-trade system, governments typically generate revenues by auctioning allowances to emitters. 78 The ACES was passed by the House in 2009 but was never acted on in the Senate. 79 Office of the Prime Minister, “North American Leaders’ Declaration on Climate Change and Clean Energy,” 10 August 2009, http://news.gc.ca/ web/article-eng.do?m=/index&nid=472899. 80 See Environment Canada, “Backgrounder: Canada’s Environment Minister and International Partners Launch the Framework for the Climate and Clean Air Coalition to Reduce Short-Lived Climate Pollutants,” http:// www.ec.gc.ca/default.asp?lang=En&n=2D1D6FA7-1&news=16B3AAC50EB7-49C7-9D04-3AF5585D6893. 81 See UNFCCC, “Non-Annex I National Communications,” http://unfccc. int/national_reports/non-annex_i_natcom/items/2979.php. 82 http://www.faststartfinance.org/home. 83 The other supporter governments are Costa Rica, Columbia, Denmark, Germany, Indonesia, the Marshall Islands, Norway, the United Kingdom, and Vietnam. See Fast Start Finance, “Why This Initiative,” 2011, http:// www.faststartfinance.org/content/why-initiative. At a press briefing on 3 September 2010, the U.S. special envoy for climate change confirmed that the United States would submit its fast-start information to the website. See “Remarks at the Geneva Dialogue on Climate Finance,” http://www .state.gov/e/oes/rls/remarks/2010/146821.htm. 84 For suggestions on potential improvements to the Government of Canada’s fast start financing reporting, see Clare Demerse, “Submission to the Department of Finance on Transparency in 2010 Climate Change Financing,” Pembina Institute, 18 February 2011, http://www.pembina. org/pub/2173. 85 Office of the Prime Minister, “North American Leaders’ Declaration on Climate Change and Clean Energy,” 10 August 2009, Guadalajara, http:// news.gc.ca/web/article-eng.do?m=/index&nid=472899.

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PART THREE Policy Infrastructure

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8 Regional Climate Policy Facilitation: The Role of the North American Commission on Environmental Cooperation neil craik

This chapter considers the role that the North American Commission for Environmental Cooperation (CEC) may play in an emerging system of regional climate governance. The CEC, which was created by the three parties to the North American Free Trade Agreement (NAFTA) through the North American Agreement for Environmental Cooperation (NAAEC), is the only international environmental government organization for North America and has a broad mandate to foster and promote environmental cooperation among Canada, Mexico, and the United States. Nevertheless, until recently, the CEC has only sparingly addressed climate change within its activities, a reflection of the reticence of the United States and, to a lesser degree, Canada towards developing a national (federal) climate change policy. However, as all three North American governments move, albeit haltingly, towards the development of greenhouse gas mitigation strategies and recognize the need for greater policy coordination among all levels of North American government, an enlarged role for the CEC within North American climate policy cooperation is contemplated. Specifically, in 2009 the CEC Council identified “change and low carbon economy” as one of the CEC’s three priorities for its 2010–15 strategic plan. The identification of climate change as a priority for the CEC marks a shift towards greater engagement with regional climate policy and raises important questions regarding the kinds of activities that the CEC can most effectively take on and whether engagement in climate policy activities will require institutional change within the CEC. These questions are principally ones of institutional fitness; that is, an assessment of the congruence between policy objectives and activities, in this case addressing climate change, and the characteristics of the

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institutional arrangement employed to manage the issue.1 In assessing fit, Arild Underdal cautions that care must be taken not to oversimplify the relationship between ecological challenges and institutional responses.2 North American climate change provides an apt illustration of this point. The need for global collective action, the long time frame needed to address greenhouse gas emissions reduction, and the free-rider concerns that inhere in any coordinated solution, suggests a response model that centralizes authority.3 However, the multi-level and diffuse responses to climate change in North America indicate that many areas of climate governance, such as the promotion of energy efficiency and renewable energy and emissions trading, are amenable to decentralized and dynamic response structures. It follows that a central aspect of institutional design is disaggregating complex socio-ecological problems and matching specific governance activities within the larger problem structure to appropriate institutional arrangements. Because these constituent institutional arrangements are not autonomous from one another, their effectiveness will be affected by the interactions and linkages between these arrangements – a dynamic that Oran Young seeks to capture in his concept of “interplay,” which describes the horizontal and vertical interactions between institutions that arise from the complex interdependencies found in socio-ecological systems.4 As a consequence, assessing an institutional arrangement’s potential efficacy requires consideration of the specific nature of the problem, as well as the background governance conditions in which the arrangements operate. As applied to the CEC, the central task in assessing the suitability of the CEC to successfully contribute to regional climate governance requires a consideration of the current structure, mandate, and practices of the CEC in relation to the multi-level and dynamic structure of North American climate governance. The chapter begins by describing how the CEC’s structure and mandate make it best suited to act as a trans-governmental knowledge broker, both gathering and disseminating information relevant to regulatory activities, but without engaging in a more directive role. Consistent with its trans-governmental, networked, and participatory structure, the most appropriate role played by the CEC in relation to climate policy is that of a facilitator, in the sense that the CEC enables the parties to develop and determine their own cooperative solutions, as opposed to generating specific policy solutions for the parties’ consideration and adoption. This role as an arbiter of environmental information has in fact been the CEC’s preferred governance approach, but

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little attention has been paid to the kind of information the CEC produces, the purposes to which it is directed and the conditions under which information-based approaches have influenced policy processes. Drawing on past CEC activities, this chapter describes the information-based activities in which the CEC engages and examines the role that information-based governance approaches may play in North American climate policy. It is argued, with reference to the literature on the relationship between information-based processes and policy influence, that the ability of the CEC to respond to the complex governance conditions surrounding climate policy requires attention to the kind of information gathered and disseminated: broadly speaking, its salience and the degree to which the information generated is viewed as being credible and legitimate.5 The CEC’s Hybrid Structure The CEC is best understood in the context of its creation. The CEC was created as the centrepiece of the North American Agreement on Environmental Cooperation (NAAEC), the so-called NAFTA environmental side agreement, which was part of a broader package of enhancements to NAFTA to satisfy critics of the trade deal that NAFTA would not adversely affect domestic environmental and labour standards or result in migration of economic activity to Mexico, in response to less stringent enforcement of environmental and labour requirements.6 In an effort to address these concerns without renegotiating or undermining NAFTA, the NAAEC sets out broad environment objectives promoting sustainable development and environmental cooperation. More specifically, the agreement obligates each party to “ensure that its laws and regulations provide for high levels of environmental protection” and further requires that each party effectively enforce those laws and regulations.7 What the NAAEC does not do is define with any particularity what actually amounts to “high levels of environmental protection,” but rather allows each party to make that determination in relation to its own domestic environment. The agreement does, however, provide a number of implementation mechanisms that allow for compliance concerns to be raised. These specific implementation mechanisms and the implementation and elaboration of the agreement generally are overseen by the CEC. The CEC itself is made up of a Council, consisting of Cabinet-level representatives, a permanent Secretariat, and several advisory bodies.

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The principal advisory body is the Joint Public Advisory Committee, which provides advice directly to the Council and is made up of fifteen appointees (five from each party).8 The NAAEC provides that two other optional, national-level advisory bodies may be created by each of the parties: a National Advisory Committee, made up of members of the public, and a Governmental Advisory Committee comprising representatives of the federal and state or provincial governments.9 With respect to the latter, only the United States maintains an active Governmental Advisory Committee. Canada sought to engage provinces in CEC activities through an intergovernmental agreement, but only three provinces have signed it.10 In a number of ways the CEC defies traditional categorization. On the one hand, the CEC has several hallmarks of an international organization. It is established by treaty, its membership is composed exclusively of states, it has distinct legal personality, and it has a permanent Secretariat.11 On the other hand, the CEC has several key characteristics associated with trans-governmental networks. First, the CEC has limited autonomy from the constituent parties. For example, the Council has no external rule-making authority. Instead, the Council’s prescriptive mandate is limited to developing recommendations.12 Even in the exercise of this advisory role, the Council has not developed specific regulatory instruments for adoption by the parties, nor has it operated as a forum for the negotiation of more precise cooperative instruments, in the manner of treaty bodies found in other multilateral environmental agreements.13 The decision-making structure of the Council is required to be consensual in its program development. It is primarily in relation to the CEC’s enforcement activities that majority rule-making applies, which is necessary in order to prevent a recalcitrant party from undermining concerns regarding non-enforcement of domestic environmental rules.14 In practice, the Council exercises its authority in enforcement by unanimity.15 The Secretariat has some independent authority to generate its own reports under Article 13 of the NAAEC. The preparation of an Article 13 report, which may be prepared “on any matter within the scope of the annual program,” may be objected to by the Council (but does not require approval) but otherwise gives the Secretariat broad discretion to initiate policy processes.16 The Secretariat also has primary responsibility for preparing the annual operation plan and budgets. This work is overseen by the General Standing Committee, which is composed of representatives of each party, who report back to their respective Council representatives.

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Second, because the Council is constituted by the Cabinet official in charge of the federal environment agency for each party, the political interactions are more agency-to-agency than government-togovernment. At the administrative level, the CEC coordinates its activities through a large number of permanent and ad hoc working groups made up primarily of agency officials to develop programs and resources.17 The CEC coordinates the working groups, providing political direction through the Council and technical and administrative support through the Secretariat. The operational structure of the CEC is thus a collection of trans-governmental networks, which act under the authority and direction of the Council. This coordinating function is implemented through joint ministerial statements and the approval by the Council of an annual operational program prepared by the Secretariat. One further characteristic of the CEC that gives it a transnational character is the presence of several institutionalized avenues of public participation. The promotion of transparency and public participation are express objectives of the CEC, and respond to concerns raised by non-governmental organizations regarding the opaque and state-centric orientation of trade and environment policy discussions, as well as reflecting the generally trend in international environmental law to view openness as a constituent part of sustainable development.18 The Joint Public Advisory Committee (JPAC) is the primary vehicle for public input into the CEC’s activities. The JPAC itself is made of members of the public, who provide a variety of perspectives and expertise from both the private and non-governmental sectors. What sets the JPAC apart from the CEC’s other advisory bodies is that the JPAC is tri-national and provides advice directly to the CEC, as opposed to the National Advisory Committee and Governmental Committee, which are party specific and advise their respective governments. Because JPAC members do not act as representatives of their respective governments, they are able to provide a North American perspective, as opposed to any particular national perspective.19 The JPAC has broad scope to advise the Council on matters related to the NAAEC and has provided advice on substantive matters and on matters related to the administration of the CEC, including voicing concern regarding the inadequacy of the CEC’s budget, and process concerns. The JPAC has been an important catalyst on substantive matters, including promoting the climate change agenda within the CEC.20 To some degree the JPAC is able to draw the Council into a discursive process, as the

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Council has adopted the practice of responding to the JPAC’s advice, particularly where there are divergent viewpoints. The JPAC has also become an institution for broader public engagement. It holds its own open meetings, conducts workshops, and actively seeks input from citizens on matters within the CEC’s mandate. The other significant avenue for public participation is the citizen submissions on enforcement matters under Articles 14 and 15 whereby nongovernmental organizations or persons may prompt the CEC Secretariat to investigate enforcement concerns and make public the results of its investigation through the publication of a factual record. This process has been frequently resorted to and has resulted in the preparation of sixteen factual records to date.21 The non-enforcement issues raised by citizen submission provide a significant opportunity to question domestic enforcement practices. Here, too, the process has a discursive character, as the party subject to the complaint responds to the concerns raised, and other interested groups are consulted on the preparation of factual records. Notwithstanding the potential for citizen submissions to embarrass state officials and to point to unfair trade practices that arise from non-enforcement, the Council, which has full discretion to reject the preparation of a factual record, has done so in only two instances.22 There is also a party-initiated process whereby a state concerned with persistent non-enforcement by another party may resort to mandatory dispute settlement and ultimately the imposition of sanctions. However, the partyinitiated process has never been triggered.23 The CEC is best understood as a hybrid organization, acting more like an international organization in relation to enforcement matters, but in relation to its programmatic activities, it functions much more like a trans-governmental network. The enforcement mandate is not the focus of this chapter, but it is important to note that several recent studies have come to the conclusion that the competitiveness problems have proven largely to be less of a concern than originally anticipated.24 The regulatory race to the bottom has simply not materialized. As a result, much of the CEC’s energies have been directed towards its programmatic activities. (For example, the CEC devoted 56.5 per cent of its budget to programmatic activities versus 6.4 per cent for enforcement.25) The Council, in a response to advice from the JPAC, characterizes its mandate in the following terms: Your advice that trade-related issues should act as the guiding principle for NAAEC activities is not the Council's interpretation. The NAAEC

Regional Climate Policy Facilitation 219 is first and foremost an agreement to protect the North American environment, and although trade plays an integral role in our deliberations, it is one of many important activities that encompass our work. The objectives of the NAAEC, clearly set forth under Part One, Article 1, include protecting and improving the environment, promoting sustainable development, increasing cooperation between and among the Parties to better conserve, protect and enhance the environment, including wild flora and fauna, and enhancing compliance and enforcement of environmental laws and regulations. We will continue to promote a positive relation between trade and environment in a balanced way within the overall work of the CEC.26

The source of the CEC’s influence does not lie in the authority vested on it by the constituent parties, which, as noted, is highly conscribed. With an annual budget of US$9 million, the CEC has a very limited ability to provide material incentives, such as program or infrastructure funding, in order to influence outcomes. In the absence of sticks and carrots, the CEC must rely instead on persuasion. To use the CEC’s words quoted above, it “promotes” and “enhances.” It does not command. The CEC is non-directive in the sense that structurally it must depend on the exercise of soft power to achieve its objectives. Influencing outcomes through soft power relies on a governance structure that seeks to align the interests of others with those of the regulator.27 The currency of soft power is persuasion, not coercion. That information-based governance has become the principal mode of the CEC’s programmatic activities should not come as a surprise, as it flows from the structural features of the CEC. Gathering and distributing information to influence policy directions is a core activity of trans-governmental networks, which cannot rely on altering incentives through sanctions or payments. The networked structure allows members to draw on the expertise and experience across the network and provides avenues of dissemination back into domestic governance structures. Much of the CEC’s mandate involves matters traditionally understood as domestic concerns (i.e., they concern neither trans-boundary pollution nor shared resources) and would raise sovereignty concerns if solutions were perceived to be imposed. Mexico is particularly sensitive to having environmental solutions appear to be imposed upon it, given its very different stage of development and regulatory capacities. Under these conditions, information-based

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governance provides a self-regulatory and reflexive approach to transnational regulation. The provision of information steers the adoption of policy towards the goals of the CEC, but each network member remains free to determine its own policy choices.28 It is in this sense that the CEC is facilitative. It provides the informational resources and capacities that enable network members to realize collective policy goals. The CEC’s activities are weakly directive in the sense that they are intended to achieve shared goals, but not strongly directive in the sense of mandating any particular outcome. Even where the preferred mode of cooperation is not instrument creation, but is information production and distribution, the network still ought to be understood as having a regulatory character. In highly complex, information rich environments, networks often function as filters, sifting through large amounts of information, determining which information is credible and providing access to that information in a form that is useful to its members. As Anne-Marie Slaughter explains, the ability to privilege certain forms of information and to frame that information is an important source of power: “Regulation of information is governed by soft power. By changing the information available to others, you convince them that they want what you want – the very definition of soft power. The core role of the state thus shifts from enforcer to provider and guarantor of the quality of the available information.”29 Despite the CEC’s lack of autonomy and the non-prescriptive nature of its activities, it would be a mistake to dismiss the CEC as a mere talk shop. The singular advantages of trans-governmental networks is that while network members do not exercise authority over one another, because they are often made up of regulatory officials they do exercise authority within their own domestic sphere.30 As opposed to networks made up of non-governmental entities, trans-governmental network outcomes have bite because the network members have the authority to implement outcomes directly. Here the CEC has an innovative two-tiered network structure with a high-level network operating at the Council level through the agency heads (ministers or their representatives), and on a bureaucratic level through the various working groups. At the high level, ministerial oversight provides political direction and accountability for initiatives, while the administrative level provides the operational ability to implement policy.

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The CEC’s Informational Mandate: Salience, Credibility, and Legitimacy Information on its own is not self-activating in the sense that its mere provision will influence policy outcomes. Essential to the ability of information-based approaches to facilitate policy goals are the kind of information produced, the manner in which it is produced, and the use to which it is directed. The CEC’s ten-year review grapples with this question insofar as it recognizes that certain programs have had greater impact than others.31 It is difficult to draw any clear causal connection between policy outcomes and informational activities because the outcomes are subject to such a large number of intervening influences. However, research on the conditions under which the provision of scientific information affects policy processes indicates that scientific assessments that are salient, credible, and legitimate are more likely to be influential.32 Saliency refers to the production of information that is understood to be relevant by the intended audience and is provided in a usable form. Saliency is affected by the ability to match information to policy processes in timing (i.e., producing information when it is needed) and scale. In the context of a regional environmental cooperation organization, considerations of scale require sensitivity to the regional dimensions of a particular problem. Physical scale is of particular importance, with the CEC finding particular success with issues that have clear regional dimensions. For example, the CEC’s biodiversity programming has focus on ecosystems and species that extend across all three states. Much of this work has focused on the development of common mapping tools that can integrate information from each party and identify priorities for conservation.33 In a number of cases, the biodiversity program has resulted in the development of specific North American– scale conservation strategies.34 Scale also has relevance in relation to the movement of traded goods, as is evident in the CEC’s Sound Management of Chemicals (SMOC) program, which developed a series of regional action plans for the control of identified toxic substances on the basis that toxic substances often move across borders through trade activities.35 Conversely, the CEC’s trans-boundary pollution agenda has not progressed significantly, in large part because the issues are understood as being inherently bilateral and have bilateral institutions to address those issues.36

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Another related approach that has met with success in the CEC is the production of information that is comparable and compatible across jurisdictions. Here there is recognition that for information to be useful on a regional scale, meaningful comparisons between countries need to be possible. The Pollutant Release and Transfer Registry (PRTR) program, for example, takes data on the release and transfer of toxic substances from the three national tracking programs and compiles the data in comparable form, allowing for laggard jurisdictions and facilities to be more easily identified. This, in turn, created pressure for standard harmonization at higher levels.37 Compatibility underlies the CEC’s North American Environmental Atlas program, which has facilitated standardized mapping procedures among the mapping agencies, which in turn allows for the creation of highly integrated mapping data on environmental issues. Because saliency is determined by the end user of information, its saliency is further enhanced by being presented in a form that is easily usable by the intended audience. The PRTR information is, for example, collected and presented in the CEC’s annual Taking Stock report, which is both highly visible and easily accessible to end users, such as the public and non-governmental groups. The SMOC program, on the other hand, is oriented more towards regulators themselves. Here the principal outputs are toxin-specific remedial action plans that set out specific regulatory goals and objectives for each party to implement. The plans are supported by capacity-building programs as well to further improve the ability of Mexican regulatory officials to operationalize the requirements.38 Credibility of information refers to its ability to make claims of accuracy. Credibility is influenced by the credentials of the producers of information – their expertise and their perceived objectivity. Article 13 reports, for example, take advantage of the measure of independence that the Secretariat has from the parties, which is reinforced by the Secretariat’s institutionalized independence from the Council in citizen submission enforcement matters. Networks themselves, such as the various CEC working groups, are staffed by experts, enhancing their credibility to provide technical information. Network members will often share professional and disciplinarian backgrounds, including, in the case of scientists, a professional commitment to objectivity.39 The shared values within a network, in this case, defined by Article 1 of the NAAEC, increase the likelihood that network interactions will be based

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on reasoned dialogue, as opposed to bargaining. Credibility accrues over time, and in this regard, it is noteworthy that it is the CEC’s most long-standing programs, such as the SMOC program (initiated in 1995) and the PRTR program (initiated in 1995), that are viewed as being among its most successful.40 The CEC’s reports have not been free from scientific controversy, with some industry groups criticizing the CEC’s methodology in determining comparable pollutant releases under the PRTR program and its work on toxic chemicals.41 The presence of credibility concerns, particularly from groups outside of the CEC’s structure, points to the importance of transparency in the generation of policy relevant information. Here the closed structure of the working groups and the use of private consultants to prepare reports may harm credibility. Perhaps recognizing this concern, the Secretariat employs advisory groups made up of relevant industry and NGO participants to guide the development of Article 13 reports. On a broader scale, the structure of the JPAC, whereby members represent North American interests, as opposed to those of their home jurisdiction, can similarly be understood as enhancing credibility. Legitimacy speaks to the perceived fairness of an information-based process. Like credibility, it is process oriented. But while credibility is related to objectivity, legitimacy is related to accounting for the interests and values of those potentially affected by policy outcomes. Legitimacy is an important consideration in the influence of information because of the governance consequences of information provision. Trans-governmental networks are often the subject of criticism because of their closed, club-like structure, technocratic orientation, and lack of accountability.42 The CEC overcomes legitimacy concerns in two ways. First, because the Council is constituted by Cabinet-level appointees, it provides a higher level of political accountability, as the lines from elected officials to network decision-makers are not substantially attenuated. Where the Council has provided strong direction to the Secretariat, a more robust work program may be pursued. For example, the PRTR, the SMOC programs, and a number of the biodiversity programs were preceded by strong Council endorsements.43 However, the degree of political oversight exercised by the Council has been quite uneven. For example, the Council does not exercise its ability to provide clear recommendations to the parties, nor does it expressly endorse or adopt CEC outcome documents. Second, the prominent role of the JPAC and the formalized requirement for transparency provide procedural

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protections against the possibility that network decisions will fail to account for public sentiment, although, as noted, there are concerns that working group deliberations remain largely opaque.44 The accountability of the CEC is of particular importance, because the NAAEC itself provides considerable discretion to the CEC to shape its own agenda. Mitchell, Clarke, and Cash note that these attributes are interdependent in positive and negative ways. Participation in the production of information can generate both legitimacy and salience. Going back to the issue of scale, the usefulness of policy information often depends upon on the sensitivity of the information to the context in which it is used, which is often best determined by involving the end users in the generation of the information. In this regard, Mitchell et al. argue that the creation of salient policy information ought to be understood as an ongoing, communicative process. The networked structure of the CEC facilitates the co-production of information because the working group members are very often the intended audience. As a result, the officials whose cooperation is sought have some claims of authorship over the information, which can positively affect influence. Legitimacy and credibility can at times pull in opposite directions. Article 13 reports have credibility because of the Secretariat’s independence, but they risk legitimacy concerns precisely because of the parties’ non-involvement. The Secretariat’s practice of using broadly constituted advisory bodies in the preparation of Article 13 reports can be seen as a way of responding to legitimacy concerns. A process-oriented understanding of information generation points to the importance of capacity building for network effectiveness.45 Network members who can more effectively participate can better ensure the salience of the information produced and make strong authorship claims over the material. Finally, the open and participatory structure of the CEC points to the presence of multiple audiences to which environmental information is directed. Capacity building ought to focus on the ability of other end users of CEC generated information, both inside and outside government. The characterization of information-based governance as an ongoing process has several important implications for future climate policy at the CEC. First, the idea suggested by the JPAC and some commentators that the CEC ought to become a North American clearinghouse of climate policy information requires some refinement.46 The concept of an information clearinghouse might suggest a passive portal, which simply gathers and distributes environmental information.47 Under this model, an environmental information clearinghouse will filter information and

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facilitate its availability, but will not necessarily seek to transform that information. The clearinghouse model leverages the credibility of the clearing institution as a neutral arbiter but does not necessarily address the salience of information. The use of clearinghouse mechanisms is becoming more common in international environmental organizations, such as the Convention on Biological Diversity and the United Nations Environment Program,48 but very little empirical assessment of their effectiveness has been undertaken.49 But extrapolating from some of the successes of the CEC noted above, climate information that is translated into forms that are comparable and compatible, or rescaled, is likely to have more traction in policy debates. Clearinghouses of environmental information tend to operate in a networked fashion, relying on national or sub-national agencies to gather information, which is in turn assembled by the clearinghouse for dissemination to network members. However, the scale of the information often reflects the scale at which it is gathered. As noted, the CEC has met with success, not where it has merely acted as a cipher of information, but where it has rescaled that information in order to reframe local or national ecological issues at regional scales. Taking Stock can be understood as a form of clearinghouse, where its success is largely a result of generating information in a standardized and comparable format. Determining how information can be most usefully translated requires consultation with end users. Clearinghouses, however, are generally structured as unidirectional institutions, predetermining what information is gathered and how it is presented. Such an approach may be useful where the informational requirements of end users are well understood but is ill-suited for climate change, where the informational requirements are shifting and uncertain. The CEC’s success with PRTR developed over a number of years, with the CEC working group charged with implementing PRTR, developing an action plan to enhance the comparability of North American PRTRs.50 The approach has been incremental and responsive to the particular capacities of each party and concerns from monitored industries, and has included a consultative, multi-stakeholder group. The process for the development of PRTRs supports a process-oriented approach to the development of climate related information and underscores the importance of network creation and consultation in information-based regulatory strategies. Network structures within the CEC have been quite dynamic, with the number of working groups expanding and contracting, as required by particular programs, but network participation is not without

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costs. A key challenge for the CEC is to engage officials outside the parties’ core federal environment agencies in an effort to expand its networks both horizontally and vertically. The difficulty encountered by the CEC in engaging the Free Trade Commission has, for example, constrained CEC influence over environmental issues flowing directly from NAFTA, such as the pervasive concerns with Chapter 11.51 Similar difficulties are evident in the CEC’s ability to engage sub-federal governments, which is essential for climate change cooperation.52 The diffuse regulatory structure emerging in climate change is quite different from the more centralized structure associated with pollutant tracking and chemicals management. In the latter two cases, the federal environmental agencies have strong regulatory roles in the management of toxic substances. The coordination with other federal agencies and with state and provincial regulators has featured prominently in these programs. As elaborated on below, the significant role that is played by both energy regulators and by sub-national governments in climate change policy indicates that new network relationships will be critical to the success of the CEC’s climate agenda. The CEC’s Climate Change Activities Climate change has had an ephemeral presence in the CEC’s work agenda, and the activities that have been undertaken can be described as occurring in three phases. There was, starting in 1995, an early attempt to engage in climate policy through the development of a cooperative program on emissions trading. This work was initiated by a 1995 Council resolution, which took the form of a Statement of Intent to Cooperate on Climate Change and Joint Implementation.53 The resolution references the UNFCCC and the outcomes of the most recent international negotiations through the conference of the parties held in Berlin in 1995. This resolution predates the Kyoto Protocol by two years, and in 1995 the term joint implementation had a broader meaning that was not so specifically linked to emissions trading.54 As a result, Resolution 95-06 enumerates a wide range of cooperative activities and simply directs the Secretariat to facilitate cooperation on them. The work plan that evolved out of this resolution focused on emissions trading and produced a background report that focused on the potential for creating a GHG trading system in North America.55 As the international regime crystallized with the adoption of the Kyoto Protocol, the CEC’s work focused more specifically on the Clean Development

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Mechanism and Joint Implementation under the Kyoto Protocol.56 However, by 2000, the CEC’s programmatic work on emissions trading no longer appeared in the annual operating plans, although the CEC did produce a 2001 report entitled Mexico and Emerging Carbon Markets: Investment Opportunities for Small and Medium-Sized Companies and the Global Climate Agenda, which describes a number of case studies assessing the potential for CDM project development in Mexico.57 The trajectory of the CEC’s early work program on emissions trading closely tracks the interests of the parties in the UNFCCC process and the Kyoto mechanisms. In 1995, all three parties were actively engaged in international climate negotiations and had agreed to the development of an implementing protocol in the Berlin Mandate. The United States, in particular, was a strong supporter of the inclusion of flexibility mechanisms in the Kyoto Protocol. The decision to focus on emission trading also reflects the Council’s specific mandate to consider the use of economic instruments to implement domestic and international environmental goals.58 This enthusiasm was, however, short lived, as it became clear that the United States was not likely to ratify the Kyoto Protocol and by 2001 expressly rejected it. Assessed in terms of salience, the information being generated, while preliminary and exploratory, was still largely premature, as it predated any serious domestic commitments to binding GHG reductions. In the absence of any regulatory mechanisms that would put a price on GHG emissions, the use of market mechanisms to improve mitigation efficiency was moot. Joint implementation was a non-starter once it was clear that the United States would not become a party to the Kyoto Protocol. Likewise, interest in North American implementation of the CDM was severely limited by the non-participation of the United States and the lack of domestic implementation in Canada.59 From Mexico’s perspective, participation in the CDM was a desirable way to promote investment in clean technologies in Mexico, but the scale of the mechanism was global, in the sense that the rules were being developed through the UNFCCC regime. When emissions trading schemes did begin to develop in North America, they were arising at the sub-national level, and outside the framework of the Kyoto Protocol. The second phase of the CEC’s climate activities was one of retrenchment, with the CEC undertaking no activities directly related to climate change after its initial work on emissions trading. Nonetheless, climaterelated issues appear across a number of activities in this period (2000–9). In these instances, climate impacts are incidental to issues of wider

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focus such as air quality and energy. For example, the CEC’s project on developing comparable air emissions inventories included greenhouse gases among the pollutants considered.60 The project is framed in terms of air quality management but placed a particular focus on assessing air emissions inventories and monitoring programs across the three states. The background work does consider briefly the connections between air quality and greenhouse gas emissions but notes that current inventory practices need to be improved to support these activities.61 This work has been quite preliminary, essentially categorizing federal practices. A second area of clear relevance to climate change is the CEC’s work on renewable energy. Much of this work was initiated by an Article 13 report on the North American electricity market,62 and in 2004 the Council included enhancing opportunities for renewable energy as part of the Environment, Economy, and Trade program. In 2005, the CEC initiated a program on promoting a North American Renewable Energy Market, which ran until 2009. The resulting work program, overseen by a renewable energy experts committee, included a large number of reports on market mechanisms in support of renewable energy, mostly detailing existing practices, but with some examination of the potential for cooperation in the renewable energy market. Two other Article 13 reports bear on climate issues: a 2008 report on green buildings and a proposed report on sustainable freight transportation. Finally, many of the biodiversity programs note the potential impact that climate change may have on species protection and conservation programs. With the exception of the air quality program, the climate-related activities in this period fell within what is now being termed a “lowcarbon economy” agenda. It is difficult to assess the impact of these initiatives, given their fairly recent vintage,63 but considered through the lens of the CEC’s policy facilitation role, these initiatives point to some of the challenges associated with the more diffuse activities associated with the low-carbon economy agenda, as opposed to policies that focus exclusively on GHG emissions reduction. Unlike the PRTR and SMOC programs, which were strongly focused on regulatory cooperation and capacity within federal environmental departments, the audiences for renewable energy policy, green building, and sustainable freight are much broader, including regulators in other federal departments, sub-national and local levels, and industry groups. Network creation is more difficult in these areas, as the CEC must engage a very broad audience that is hard to define. To take renewable energy as an

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example, the regulatory landscape is crowded with diverse organizations such as state and provincial regulators, reliability councils, renewable energy certificate tracking and registry organizations, and utility organizations. The CEC’s credibility, which has been built up among environmental regulators through past programs, will need to be developed with these new groups over time. Again, in contrast to the very long-standing programs in PRTR, SMOC, and biodiversity – which have built on past successes by applying an accepted model, such as the North American Regional Action Plans or regional conservation strategies – the low-carbon economy activities have been completed in shorter times, with outputs that have little established context. In terms of salience, low-carbon initiatives may be harder to reframe as regional issues and may overlap with sector-based information networks.64 For example, cooperation on renewable energy has focused on renewable energy trade issues, which occurs bilaterally in accordance with transmission grid configuration.65 The third and current stage is characterized by direct re-engagement in climate issues, which began in earnest in 2009 with the Council’s decision to focus on “climate change and low carbon economy” in 2010–15. The CEC’s decision to pursue climate cooperation coincides with the North American Leaders’ Declaration on Climate Change and Clean Energy. While not referring to the CEC directly, the declaration does refer to the opportunities afforded by using bilateral and trilateral institutions. Moreover, many of the initiatives mentioned in the declaration find expression in the CEC’s draft Strategic Plan, including developing comparable approaches to measuring, reporting, and verifying emissions reductions, and developing low carbon growth plans. The Leaders’ Declaration also contains initiatives that have not been specifically taken up by the CEC but are being taken up in other bilateral and trilateral initiatives, such as the U.S. Mexico Bilateral Framework on Clean Energy and Climate Change, and the Canada-U.S. Clean Energy Dialogue. The JPAC has been very involved in development of a climate change agenda by holding workshops on climate policy coherence and North American energy markets, as well as providing advice to Council on the CEC’s future climate change related activities.66 After the 2010 Ministerial Session, the specifics of the climate change / low-carbon economy agenda were still being determined, but identified initiatives included cooperation to improve the comparability of greenhouse gas emissions data, methodologies, and inventories, and rather more vaguely, strengthened expert engagement and information sharing.67

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The context for North American climate cooperation in the post– Copenhagen (COP 15) era is quite different from when the CEC last explicitly decided to address climate change in 1995 to 2000. At that time, there was greater consensus on the direction of international climate negotiations, which placed a heavy emphasis on emissions trading as a dominant regulatory strategy. When it quickly became clear that Canada and the United States would pursue different approaches at the international level, there was little basis for facilitating coordinated federal policy. Michele Betsill has argued that – given the absence of common interests and clear areas where cooperation on climate change could be linked to other issues of common concern, such as air quality, at the federal level – the prospects for the CEC to play a prominent role in regional climate governance (principally, emission trading) were weak.68 In light of the deliberate alignment of Canadian international climate policy with that of the United States in the Copenhagen Accord and the North American leaders’ specific commitment to cooperate on climate change, one might ask whether a reassessment of these prospects is required. However, such an inquiry may focus unnecessarily on the shifting positions of the three federal governments. What has changed, or more accurately, become more clearly recognized, is that climate policy in North America will not be dominated by federal governments, nor is it likely that a single, dominant regulatory approach to greenhouse gas mitigation will emerge. Instead, policy plurality will be a prevailing feature of North American climate cooperation. This presents a challenge for the CEC in its role as climate policy facilitator. Whose policy is the CEC seeking to facilitate? As is evident from the CEC’s low-carbon economy activities, it is increasingly difficult to isolate certain policy solutions within a single agency, or even a single level of government. It is not sufficient for the CEC, an information network, to simply make policy information available without regard to the interests of end users. Understood as a dynamic process, the generation of information for policy purposes cannot simply be determined in an ex ante and synoptic fashion, but must be developed discursively over time. This suggests that the CEC in developing its climate agenda must pay particular attention to network creation and linkages to other agencies beyond its primary constituency. But because network participation comes with costs, the CEC must also produce information that has salience for these other agencies, and that, in turn, requires the CEC to focus on rescaling information so that it is relevant to both the end users and to the fulfilment of the CEC’s regional role.

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Developing approaches comparable to measuring and reporting of greenhouse gases capitalizes on both the CEC’s credibility in this field and on the salience of regionally scaled greenhouse gas data. From a network creation standpoint, the CEC has well-developed working groups that have coordinated environmental data collection and reporting through the PRTR program and, more recently, in relation to air emissions. The 2009 CEC Comprehensive Assessment of North American Air Emissions Inventories and Ambient Air Monitoring Networks, which provides an overview of domestic GHG inventory and reporting mechanisms, provides a starting point for this work. There is a high degree of uniformity among the parties in national inventories and reporting because these requirements are mandated globally through the UNFCCC. It is more at the entity level that greater attention will need to be paid to fragmentation.69 Both the U.S. EPA and Environment Canada have GHG reporting requirements.70 Mexico maintains national inventories, but not mandatory entity-based reporting. It should be noted that the GHG emissions reporting programs are separate from the U.S. Toxics Release Inventory (TRI) program, the Mexican Pollutant Release and Transfer Registry (RETC), and the Canadian National Pollutant Release Inventory (NPRI) program, which have been the subject of the PRTR program. Reporting requirements for GHGs are also present in a number of states and provinces.71 Reporting has been implemented, for example, in support of the various sub-regional emission trading systems.72 There is also a system of voluntary GHG reporting coordinated through entities such as the World Business Council for Sustainable Development (WBCSD), the Climate Registry, and standards organizations, such as ISO 14064.73 The Climate Registry in particular has as a central part of its mission the development of standardized GHG reporting requirements across U.S. states and Canadian provinces, in both public and private sectors.74 The WBCSD has been working directly with the Mexican government to develop a GHG accounting and reporting program.75 In light of the breadth and density of regulatory activity around GHG reporting, and given that much of this activity has occurred among groups that have not been directly involved in the CEC’s past related activities, neither the salience nor the credibility of a CEC based program on developing comparable GHG data can be assumed. Given the CEC’s capacity constraints, it will be able to focus its attention on only a portion of the broader field. The CEC’s limited engagement with climate activities means that the CEC has not generated much credibility as a

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climate change institution. As a result, the CEC must instead leverage its credibility in other areas while it builds its credibility among climate officials. In this respect, it is not surprising that the CEC has identified data comparability as an area where it can generate an impact. Because credibility focuses on expertise, it will be assessed relatively by end users. The CEC has never operated as a primary generator of scientific or technical information. Rather its strength and mandate have been to provide information in a usable form for policymakers in cooperative activities. Climate policy, as exemplified by the GHG measurement and reporting policy landscape, presents an additional challenge to the CEC in differentiation, because many institutions such as the ISO standards, the GHG Protocol, and Climate Registry operate transnationally. Where the CEC does differentiate itself, of course, is its intergovernmental nature. Focusing on the federal reporting programs, with some emphasis on capacity building in Mexico, would capitalize on areas of existing credibility among federal regulators. The CEC’s proposed intention to focus on black carbon, a particulate with climate change implications, which has strong links to transportation, similarly draws on CEC expertise on air quality and sustainable transport, including cooperative activities related to marine transport emissions.76 In terms of salience, the multilevel structure of climate change regulation presents a significant challenge for the CEC, which must navigate between local preferences and the desirability for uniform approaches towards GHG reporting. Much of the current differences relate to the degree of specificity with which GHG emissions are measured and the reporting burden that is placed on certain sectors or facilities, which is currently dictated by reporting requirements applying only to facilities above specified thresholds.77 Consideration of how comparable data might be used and by whom would sharpen the CEC’s focus. For example, measurement protocols are very sector specific and so may provide opportunities for the CEC to contribute to development or refinement of comparable GHG measurement and reporting standards in sectors with high degrees of North American integration, such as the auto sector.78 There is, of course, a strong link between emissions trading systems and GHG reporting, which will require jurisdictions or sectors involved in trading to have comparable reporting requirements. Here the market design rules will address reporting requirements. The initial salience of comparable GHG data will be scaled by the geographic extent of the market, not by membership in the CEC.

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At the heart of the CEC’s rescaling activities is its ability to frame environmental issues in terms of regional cooperation. Part of the success of the PRTR program was that governments and nongovernmental organizations found facility-based comparisons of toxic substances management a useful measure of environmental performance. Similarly, the CEC’s work on various renewable portfolio standards has sought to demonstrate the barriers to electricity trade imposed by divergent definitions of what counts as renewable. There may, and often are, local advantages to jurisdictions built into their renewable definitions, but when viewed from a broader perspective these policies impede GHG reduction goals.79 To take a final example, the CEC’s biodiversity work has increasingly observed the impacts of climate change on species and ecosystems of common North American concern. The CEC has developed a number of well-received tools to map and assess North American–scale biological resources, which could be extended logically to include climate impact data. These, in turn, could be used to develop regional climate adaptation programs and could build on the IPCC’s work on adaptation, which has a regional orientation.80 Reframing climate impacts as regional concerns also builds a shared context for regional mitigation. The challenges inherent in developing a fairly focused program on GHG data coordination underscore the importance of network creation in North American climate governance. Working group participation in the CEC has centred largely on officials from federal environmental agencies, but climate change will require deeper linkages both vertically and horizontally. The CEC has had some success in engaging international organizations in areas where the CEC has been influential, such as with the Stockholm Convention on Persistent Organic Pollutants. In one instance, the CEC actually received funding through the Global Environmental Facility to assist Mexico in the development of a National Implementation Plan under the Stockholm Convention.81 This is an interesting example of the CEC building on the credibility of its information activities under the SMOC program to forge new partnerships to complement its activities in this area. The CEC has also developed partnerships with the United Nations Environment Program, the World Health Organization, and the International Joint Commission.82 More fundamentally important to developing an influential climate program is the CEC’s ability to develop linkages to other federal

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departments and to sub-national agencies involved in climate activities. With respect to the former, the CEC has had limited success in engaging trade officials, notwithstanding a treaty-based mandate to do so. There are few indications that the CEC intends to focus directly on trade and environmental disputes that might arise in climate regulation, despite the potential for them to arise. This reticence, however, is an accurate reflection of the CEC’s limited capacity to address trade disputes. No high-level meeting has ever been convened between the environment and energy ministers, nor has there been any significant interaction between the CEC and the North American Energy Working Group (NAEWG), despite encouragement to do so from the CEC Council.83 There is particular merit in greater cooperation between the CEC and the NAEWG, but this has been hampered by the lack of institutional structure underpinning the NAEWG.84 The other energyrelated forums for cooperation in North America are the two bilateral clean energy frameworks, but these are simply executive framework agreements and, like the NAEWG, lack institutional structure. In interactions with sub-state climate agencies, the mechanism for engagement with sub-state governments, the Governmental Advisory Committee, is used only by the United States and, in any event, is not well suited to promote regional cooperation. Structurally, Governmental Advisory Committees provide advice to their respective national governments, which in many instances does not reflect the emerging pattern of sub-national cross-border cooperation. In many areas related to climate change, it is important to recognize that cooperation between sub-national levels of government is more easily facilitated through direct interactions than being routed through national capitals, as reflected in the growing number of sub-regional bodies cooperating on climate change.85 One result of the increased sub-state climate activity is new configurations of cooperation. To take GHG emissions reporting as an example, Ontario’s new GHG reporting rule, enacted to implement its commitments under WCI, references both the WCI rules and the EPA’s GHG Reporting Rule.86 Thus, there is an indirect diagonal linkage between the provincial regulator and the U.S. EPA, through the WCI, which has committed to harmonizing its own reporting rules with those of the EPA. Critical from the CEC’s perspective is recognition of these new routes and adaptation of its engagement models accordingly. The presence of forums of cooperation may provide opportunities for the CEC to develop linkages with other transnational climate organizations. The use of expert advisory boards is a model that the CEC uses in Article 13 reports but may make some sense in climate

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change and low-carbon economy activities. The CEC has also entered into cooperative arrangements with private sector groups on several occasions,87 but these arrangements are ad hoc and lack the structure of other public-private partnership arrangements operating in the climate area.88 The necessity to build new linkages is acknowledged in the CEC’s draft Strategic Plan, which identifies engagement of experts as an objective, with specific reference to the need to engage other levels of government.89 Understood from the perspective of the framework employed here, this engagement ought to be viewed as enhancing credibility and saliency of information-based activities. Finally, the CEC must be mindful of the need to address the legitimacy of the climate information it produces. Climate policy unavoidably implicates significant distributive justice issues. In the North American context, the common but differentiated responsibilities between Annex 1 and non–Annex 1 countries (under the UNFCCC framework) frames both the different goals and historic responsibilities of Mexico, on the one hand, and Canada and the United States on the other. The NAAEC makes no attempt to institutionalize differentiated roles. Indeed, much of the structure of the NAAEC is premised on the undifferentiated responsibility of each party to enact and enforce laws that provide for high levels of environmental protection.90 There is little to indicate that the undifferentiated structure of the CEC has undercut its legitimacy. When the CEC is understood as a policy facilitator and trans-governmental information network, the practice of unanimity in decision-making and equal funding contributions helps ensure that the interests of one or more parties do not dominate the CEC agenda. The CEC’s attention to capacity building in Mexico shows a further sensitivity to Mexico’s distinct interests and priorities.91 Within its past climate change activities, the CEC has devoted attention to opportunities for investment in carbon offsets and obstacles to the development of renewable energy and green building improvements in Mexico.92 But it needs to be recognized that Mexico has some different climaterelated priorities. Mexico is, for example, more vulnerable to the climate change impacts, necessitating greater emphasis on adaptation in Mexico.93 Mexico has also placed greater emphasis on land-use issues in its GHG mitigation strategy.94 Finally, and critically, Mexico’s GHG reduction goals are highly dependent upon the presence of adequate climate financing measures. The CEC’s well-developed transparency and consultation mechanisms will serve the CEC well in its development of a climate agenda. The multilevel and diffuse nature of climate governance will present

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additional challenges, particularly in consulting sub-national agencies and other climate governance organizations. Part of the challenge is the breadth of interests that are affected by the development of climate policy. In addition, there may be a need to find ongoing forms of consultation with key regulators outside the traditional working group structure of the CEC or to create new working groups or standing committees that reflect the CEC’s renewed focus on climate policy. The JPAC has been actively engaged in consultations on climate matters since 2009 and provides well-regarded links to the public. The legitimacy challenge for the CEC stems from the need to develop climate information in an ongoing and deliberative process. As currently structured, the various bodies of the CEC interact through formal channels, but there is little built-in opportunity for iterative development on policy outside the working groups. This points to the desirability of making the working group activities more transparent. It also suggests that greater attention must be paid to the form of the outputs and how they are addressed by the various CEC bodies. The PRTR program, for example, sought feedback from interested persons after the publication of the Taking Stock document and published a response to the comments received that framed future iterations of the document.95 Often, however, CEC reports and activities are not clearly projected into any particular policy discussion, nor do they form the basis of future deliberations. Conclusions This chapter has sought to consider the kinds of climate activities in which the CEC can usefully engage, and whether the pursuit of these activities will require institutional change within the CEC. The conclusions are equivocal. The approach taken in answering these questions has been to consider how the CEC might enhance its influence as a trans-governmental information network by paying attention to the kind of information it produces and how it produces it. The CEC does not have the ability to coerce its member states, or individuals within those states, to achieve its objectives. The CEC is almost entirely reliant upon its ability to produce information that is salient, credible, and legitimate to influence policy outcomes. The understanding that the production of environmental information is an ongoing communicative process between the producer of information and the end users, as opposed to being understood as a

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product that is unilaterally projected onto an audience, is supported by the examination of the CEC’s information production. At the most abstracted level, the basic architecture of the CEC is well suited to generating environmental information processes that are salient, credible, and legitimate. The Council provides a politically accountable body that is able to provide clear direction to the Secretariat. As domestic environmental ministries are the principal intended audience of much of the CEC’s output, Council direction provides saliency and, insofar as Council decisions are consensual, legitimacy. It is recognized that from the perspective of those who are directly affected by environmental decisions, the political accountability offered by the Council is highly attenuated. The JPAC provides a further measure of legitimacy by providing an avenue for both industry and the public to provide input into the CEC’s activities. The Secretariat, which has a measure of independence from the Council and is professionally staffed, enhances credibility. Similarly, the working group structure provides a form of administrative salience, in that activities are overseen by the agency officials who actually use the information and are themselves often experts. There is an informal checks-and-balances structure to the CEC, with each body able to exert some measure of influence over the other. However, it is evident that, while the CEC’s structural elements may yield information processes that influence environmental outcomes, they are not sufficient. Successful programs often had express and precise political direction from the CEC Council, were developed incrementally with opportunities for affected individuals and firms to provide input and to allow for credibility to accrue over time, and had clearly defined outputs, such as remedial action plans, conservation strategies, or in the case of the PRTR program, the Taking Stock reports. Not only were these outputs clearly defined, but they were readily identifiable with the CEC and were directly relevant to the regulatory mandates of the Parties. Given the contested nature of climate policy in North America, not only as between different interests and approaches between countries, but also between sectors and among the public more generally, political legitimization through Council endorsement will be particularly important. Credibility concerns will also be very high, not only because of the CEC’s late entry into the field, but because the field is already densely occupied by other institutions. Here I have suggested that the CEC may link its climate work to areas of existing credibility and high salience, as it appears to be doing with the identification of GHG data comparability.

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In terms of salience, the CEC has predominantly sought to rescale environmental information for decision-makers. Rescaling for climate change includes making data comparable, which, as the PRTR program illustrates, may be a useful activity in itself as a way to inform the public and firms of the quantum of emission relative to comparator emitters, which in turn can lead to benchmarking and sharing of best practices. But some caution should be exercised, given the very sector-specific nature of GHG emission measurement, and the relative expertise as between the CEC and existing public and private institutions addressing GHG data. The CEC does have some comparative advantages, though. Its strong linkages to federal environmental policymakers provide opportunities for the CEC to act as a source of policy diffusion. The CEC’s strong legitimization credentials will aid in these efforts. Because rescaling environmental information has the potential to reframe environmental problems, it offers opportunities for transforming state and individual preferences in cooperation. Climate change is not predominantly understood as a regional environmental problem, but as the ecological implications of climate change become better understood, functional linkages across ecological and social systems are likely to be uncovered. To the extent that some of these linkages are regional, increased cooperation at a regional scale is desirable. On this basis, a strong case can be made for the CEC to support increased regional coordination of climate impact mapping and analysis. The CEC will face significant challenges in network creation related to climate. Emission reduction extends far beyond the authority of federal environment agencies, requiring the development of horizontal and vertical linkages that have largely eluded the CEC. Viewing network creation as part of a broader process of information based approaches to governance strongly suggests that networks cannot be created a priori, but will emerge in conjunction with information that is salient, credible, and legitimate. The CEC’s ability to form international partnerships in other areas was preceded by a work program that attracted other participants. This again suggests that the CEC must proceed incrementally, starting with its networked structure centred in the three federal environment ministries, and seeking further collaborations as it develops its programs. Success in developing collaboration is not assured, as the CEC has produced some well-regarded analysis of trade and environment issues but was nonetheless unsuccessful in developing a collaborative relationship with the Free Trade Commission.96

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The fundamental challenge in assessing the fitness of an institution like the CEC to contribute to climate governance is the vastness of the problem itself, requiring the CEC to proceed incrementally and strategically. It is a fair statement that the CEC has always proceeded in this manner. Its role has been modest, in the sense that the CEC has always had to choose where its scarce resources might best be used. The difference with climate governance is that fitness is contingent on the governance characteristics of the larger problem structure, but these conditions are not static, suggesting a required capacity to adapt to changing conditions. The CEC’s lack of autonomy may constrain its ability to develop innovative governance arrangements in the absence of clear political direction from the Council. The biggest unanswered challenge to the CEC’s climate governance role is its ability to respond to this dynamic environment. NOTES 1 Oran Young, The Institutional Dimensions of Environmental Change: Fit, Interplay and Scale (Cambridge, MA: MIT Press, 2002), 20. 2 Arild Underdal, “Complexity and the Challenges of Long-term Environmental Governance,” Global Environmental Change 20 (2010): 386. 3 Ibid. 4 Young, Institutional Dimensions, 23–6. 5 Ronald B. Mitchell, William C. Clark, and David W. Cash, “Information and Influence,” in Global Environmental Assessments: Information and Influence, ed. Mitchell et al. (Cambridge, MA: MIT Press, 2006), 307. 6 North American Agreement on Environmental Cooperation (1993), 32 ILM 1480; North American Agreement on Labour Cooperation (1993), 32 ILM 1499; Agreement between the United States and Mexico Establishing the Border Environmental Cooperation Commission and the North American Development Bank (1993), 32 ILM 1545. 7 NAAEC, Articles 3 and 5. 8 Ibid., Article 16. 9 Ibid., Articles 17, 18. 10 Environment Canada, “Evaluation of Canada’s Participation in the Commission for Environmental Cooperation,” 18 April 2007, http://www. ec.gc.ca/doc/ae-ve/CEC-CCE/toc_eng.htm. 11 See Philippe Sands and Pierre Klein, Bowett’s Law of International Institutions (London, UK: Sweet & Maxwell, 2001) 16. 12 NAAEC, Article 10(3).

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13 The rare exception to this was the role of the CEC in preparing a draft agreement on trans-boundary environmental impact assessment. See NAAEC, Article 10(2). 14 See, for example, Article 15(2) preparation of factual record; 24(1) request for arbitral panel. 15 For example, decisions on citizen submissions of enforcement matters are taken unanimously, notwithstanding the requirement that decisions be taken not only by two-thirds vote. 16 The council has objected only to the preparation of one Article 13 report. The preparation of a report on case studies in trans-boundary environmental impact assessment was objected to on the basis that the negotiation of an agreement on TEIA was being conducted under the auspices of another intergovernmental process. See “Council Resolution 05-07,” 31 August 2005, Commission for Environmental Cooperation, http://www.cec.org/ Page.asp?PageID=122&ContentID=986&SiteNodeID=268. 17 The authority to create working groups is established in the council’s Rules of Procedure, Rule 7. See CEC-JPAC, “Rules of Procedure,” http:// www.cec.org/Page.asp?PageID=1366&ContentID=940&SiteNodeID=208. 18 John Knox and David Markell, “The Innovative North American Commission for Environmental Cooperation,” in Greening NAFTA: The North American Commission for Environmental Cooperation, ed. David Markell and John Knox (Stanford: Stanford University Press, 2003), 7. 19 JPAC Vision Statement, 26 July 1994, http://www.cec.org/Page.asp?PageI D=122&ContentID=1375&SiteNodeID=208&BL_ExpandID=. 20 Advice 01-04; 09-01. Generally, see John Wirth, “Perspectives on the Joint Public Advisory Committee” in Markell and Knox, Greening NAFTA, 199. 21 See CEC, “Factual Records,” http://www.cec.org/Page.asp?PageID=924& SiteNodeID=543. 22 But the council has narrowed the scope of complaints on several occasions. 23 John Knox, “The Neglected Lessons of the NAFTA Environmental Regime,” Wake Forest Law Review 45 (2010): 107. 24 Ibid. See also Kevin Gallagher, “The CEC and Environmental Quality: Assessing the Mexican Experience,” in Markell and Knox, Greening NAFTA, 117. 25 See CEC, Budget, Operational Plan of the Commission for Environmental Cooperation, 2010, http://www.cec.org/ Storage/85/8126_Operational_Plan_2010_en.pdf. 26 CEC Council to Glen Wright, 2010, 5, http://www.cec.org/ Storage/91/8889_UCAI-000934-10.pdf. 27 Joseph Nye Jr, Soft Power: The Means to Success in World Politics (New York: Public Affairs, 2004), 5.

Regional Climate Policy Facilitation 241 28 Anne-Marie Slaughter, A New World Order (Princeton: Princeton University Press, 2004), 189. 29 Ibid., 187. 30 Ibid., 168. 31 Report of the Ten-Year Review and Assessment Committee (TRAC), 2004, 16–19; see also Knox and Markell, “Conclusions,” in Markell and Knox, Greening NAFTA, 18. 32 Ronald B. Mitchell, William C. Clark, David W. Cash, and Nancy M. Dickson, Global Environmental Assessments: Information and Influence (Cambridge, MA: MIT Press, 2006). 33 Marine ecosystems, mapping marine and estuarine ecosystems of North America. See also Robert Glicksman, “The CEC’s Biodiversity Conservation Agenda,” in Markell and Knox, Greening NAFTA, 57–79. 34 Monarch butterfly; marine protected areas, grasslands. 35 Sound Management of Chemicals (SMOC), see Regional Action Plans (RAPs). 36 TRAC, 9; see also Knox, “Neglected Lessons,” 23; and John Knox, “The CEC and Transboundary Pollution,” in Markell and Knox, Greening NAFTA, 80–98. 37 Mark Winfield, “North American Pollutant Release and Transfer Registries: A Case Study in Environmental Convergence,” in Markell and Knox, Greening NAFTA, 38–56; but see TRAC. 38 Discussed in TRAC, 14. 39 Peter Haas, “Introduction: Epistemic Communities and International Policy Coordination,” International Organization 46 (1992): 1. 40 See TRAC, 17–18, describing PRTR, SMOC, Children’s Health, and the Environment and Biodiversity programs, views them as having influence (“helped moved the agenda”); see also Knox, “Neglected Lessons.” 41 TRAC, 17. 42 Slaughter, New World Order, 217. 43 Resolutions 95-05 (SMOC); Resolution 96-04 (Monarch Butterflies); Resolution 96-02 (Bird Conservation); Resolution 00-07 (PRTR). 44 NAAEC, Article 9(7). 45 Mitchell, Clark, and Cash, Global Environmental Assessments, 328–30. 46 See JPAC, “Advice to Council No. 09-01,” http://www.cec.org/Page. asp?PageID=122&ContentID=2745; see also Jeffrey Schott and Meera Fickling, “Setting the NAFTA Agenda on Climate Change,” Policy Brief 09-18, Peterson Institute for International Economics, 2009. 47 See Daniel Esty and Maria Ivanova, “Revitalizing Global Environmental Governance: A Function-Driven Approach,” in Global Environmental

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Governance: Options and Opportunities, ed. Daniel Esty and Maria Ivanova (New Haven, CT: Yale School of Forestry and Environmental Studies, 2002), 181. See CBD Clearinghouse Mechanism; Biosafety Clearing-House. See also Regional Seas Program, Nairobi Convention Clearinghouse and Information System. But see Pasi Laihonen, Risto Kalliola, and Jukka Salo, “The Biodiversity Information Clearinghouse Mechanism (CHM) as a Global Effort,” Environmental Science and Policy 7, no. 2 (2005): 99–108. See also Kirsty Mclean, “Bridging the Gap between Researchers and Policy-makers: International Collaboration through the Biosafety Clearing-House,” Environmental Biosafety Research 4 (2005): 123. CEC, “Council Resolution 02-05: Action Plan to Enhance Comparability among Pollutant Release and Transfer Registers (PRTRs) in North America,” http://www.cec.org/Page.asp?PageID=122&ContentID=1088& SiteNodeID=271. Mary Kelly and Cyrus Reed, “The CEC’s Trade and Environment Program: Cutting Edge Analysis and Untapped Potential,” in Markell and Knox, Greening NAFTA, 110; see also TRAC, 24. For example, the intergovernmental agreement in Canada respecting provincial participation in CEC activities did not gain traction with the provinces. CEC, “Council Resolution 95-06,” 13 October 1995, http://www. cec.org/Page.asp?PageID=122&ContentID=1190&SiteNodeID=280 &BL_ExpandID=. The term is found in Article 4(2)(a) of UNFCCC, but takes on specific meaning in Article 6 of the Kyoto Protocol. CEC Secretariat, “Analysis of the Potential for a Greenhouse Gas Trading System for North America,” 1997. This paper arose out of program entitled Cooperation on Greenhouse Gas (GHG) Emission Trading. See CEC, “Council Resolution 96-04,” 2 August 1996, http://www.cec.org/Page.asp? PageID=122&ContentID=1175&SiteNodeID=279. CEC Secretariat, North American Agenda for Action, 1999–2001, 66, describing project, Regional Cooperation toward Improved Understanding and Eventual Implementation of the Clean Development Mechanism and Joint Implementation, http://www.cec.org/Storage/32/2377_operation alPlan99-01_en.pdf; see also CEC, “CEC Council Joint Communiqué: Fifth Regular Session of Council,” 26 June 1998, http://www.cec. org/Page.asp?PageID=122&ContentID=1792&SiteNodeID=365 &AA_SiteLanguageID=1.

Regional Climate Policy Facilitation 243 57 CEC, Mexico and Emerging Carbon Markets: Investment Opportunities for Small and Medium-Sized Companies and the Global Climate Agenda, 2001, http://www.cec.org/Storage/43/3568_CarbonMarkets-EN_EN.pdf. 58 NAAEC, Article 10(2)(d). 59 Note that Canada has not developed CDM projects in Mexico. See Neil Craik and Joseph DiMento, “Climate Law and Policy in North America: Prospects for Regionalism,” San Diego Journal of Climate and Energy Law 1 (2009): 195. 60 CEC, “Council Resolution 01-05,” 29 June 2001, http://www.cec.org/Page. asp?PageID=924&ContentID=1126. 61 CEC, Comprehensive Assessment of North American Air Emissions Inventories and Ambient Air Monitoring Networks, September 2009, http://www.cec. org/Storage/88/8537_Air_Assessment_Report_en.pdf. 62 CEC Secretariat, Environmental Challenges and Opportunities of the Evolving North American Electricity Market, June 2002, http://www.cec.org/ Storage/31/2244_CEC_Art13electricity_Eng.pdf. 63 But see Eastern Research Group, “Assessing the Commission for Environmental Cooperation’s Results and Performance: Report on the Accomplishments of the CEC under the 2005–2010 Strategic Plan, March 2010,” on file with author. 64 For example LEED, ETNA. 65 Ian Rowlands, “Renewable Energy Politics across Borders,” in Changing Climates in North American Politics: Institutions, Policymaking and Multilevel Governance, ed. Henrik Selin and Stacey VanDeever (Cambridge, MA: MIT Press, 2009), 181. 66 CEC, “Advice to Council No: 09-01,” http://www.cec.org/Page.asp?PageI D=1226&SiteNodeID=564, and “Advice to Council No: 10-01,” “Advice to Council No: 10-02,” http://www.cec.org/Page.asp?PageID=1226&Content ID=&SiteNodeID=630&BL_ExpandID=. 67 CEC, Strategic Plan of the Commission for Environmental Cooperation: 2010–2015, 10 November 2010, http://www.cec.org/ Storage/58/10115_Strategic_plan_2011_en.pdf. 68 Michele Betsill, “NAFTA as a Forum for CO2 Permit Trading,” in Selin and VanDeveer, Changing Climates, 161–79. 69 See S. Young and C. Abbott, chapter 10, this volume. 70 The EPA rule, 40 CFR Part 98, is authorized under the Clean Air Act. The Environment Canada rule falls under the Canadian Environmental Protection Act, section 46. 71 Eastern Research Group, memo to EPA Review of Existing State GHG Reporting Requirements, 27 January 2009, http://www.epa.gov/ghgre-

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porting/documents/pdf/archived/tsd/Review%20of%20existing%20 state%20rules%20_1-27-09.pdf. For example, WCI, “Final Essential Requirements for Mandatory Reporting,” 2001; RGGI, “Model Rule,” 2005. See Young and Abbott. See Climate Registry, “Mission,” http://www.theclimateregistry.org/ about/mission/; see also Climate Registry, “The Common Framework for Mandatory GHG Reporting,” http://www.theclimateregistry.org/ government-services/common-framework/. See Greenhouse Gas Protocol, “Mexico,” http://www.ghgprotocol.org/ programs-and-registries/mexico-program. See SPP, “Report to Leaders,” 2005, 2007. See EPA GHG Reporting Rule (25,000); Environment Canada requirements (50,000). The CEC has engaged in previous sector-specific activities related to the auto sector. For example, see CEC, Greening the North American Auto Industry, http://www.sped.cec.org/Storage/63/5540_Project 6B-En.pdf. CEC, “Assessing Barriers and Opportunities for Renewable Energy in North America,” 2002; see also JPAC Advice 10-02; see also Rowlands, “Renewable Energy Politics.” IPCC, Working Group II Report, “Climate Change 2007: Impacts, Adaptation and Vulnerability,” http://www.ipcc.ch/publications_and_ data/publications_ipcc_fourth_assessment_report_wg2_report_impacts_ adaptation_and_vulnerability.htm. CEC, “Council Resolution 04-06,” 27 October 2004, http://www.cec.org/ Page.asp?PageID=122&ContentID=1013&SiteNodeID=269. Environment Canada, “Evaluation of Canada’s Participation in the Commission for Environmental Cooperation,” 18 April 2007, http://www. ec.gc.ca/doc/ae-ve/CEC-CCE/toc_eng.htm. See Ministerial Statement, http://www.cec.org/Page.asp?PageID=122 &ContentID=1288&SiteNodeID=219&BL_ExpandID=5. See also Final Communiqué, 2002, http://www.cec.org/Page.asp?PageID=122&Content ID=1289&SiteNodeID=219&BL_ExpandID=5. The NAEWG has been inactive since 2009. For example, the New England Governors – Eastern Canadian Premiers Climate Change Action Plan, discussed in Henrik Selin and Stacy VanDeveer, “Climate Leadership in Northeast North America,” in Selin and VanDeveer, Changing Climates, 111–35. See also Barry Rabe, “SecondGeneration Climate Policies in the States: Proliferation, Diffusion, and Regionalization” in Selin and VanDeveer, Changing Climates, 67–85.

Regional Climate Policy Facilitation 245 86 Ontario Ministry for the Environment, Guideline for Greenhouse Gas Emissions Reporting, December 2010, http://www.ene.gov.on.ca/stdprodconsume/groups/lr/@ene/@resources/documents/resource/stdprod_081651.pdf. 87 See CEC, “Resolution 95-14,” 9 November 1995, http://www.cec.org/ Page.asp?PageID=122&ContentID=1198&SiteNodeID=280. 88 For example, the Prototype Carbon Fund. See also Liliana Andonova, “Public-Private Partnerships for the Earth: Politics and Patterns of Hybrid Authority in Multilateral Systems,” Global Environmental Politics 10, no. 4 (2010): 25. 89 CEC, Strategic Plan. 90 NAAEC, Article 3. 91 TRAC, 13. 92 CEC, Mexico and Emerging Carbon Markets; CEC, Environmental Challenges and Opportunities of the Evolving North American Electricity Market; Centro Mario Molina, “Institutional Efforts for Green Building: The Case of Mexico” (Montreal: Commission for Environmental Cooperation, 2008). 93 Intersecretarial Commission on Climate Change, Estados Unidos Mexicanos, “National Strategy on Climate Change,” Tlalpan, Mexico, 2007. 94 Ibid. 95 See CEC, Response to Comments Received on the Development of the Taking Stock 1999 Report on North American Pollutant Releases and Transfers, August 2001, http://www.cec.org/Storage/41/3328_comments-e_EN.PDF; see also 1997 and 2000. 96 Kelly and Reed, “CEC’s Trade and Environment Program.”

9 Design Issues for Linking Carbon Markets brian c. murray, peter t. maniloff, and jonas monast

Among the most salient methods for regional cooperation in climate policy is mutual participation in a market for greenhouse gas emission (carbon) permits. In principle, this can occur through complete harmonization of climate policy targets and market rules across federal and state regulations to create a single carbon market. In North America, however, this appears far more likely to occur by linking separate regional markets, possibly federal and state/provincial, with each market operating subject to different but consistent rules.1 As described elsewhere in this volume, there is little prospect for the emergence in North America of a single, unified carbon market structure, such as the European Union Emissions Trading System (EU ETS). Instead, separate markets, such as the Regional Greenhouse Gas Initiative, the carbon market that has emerged under California’s cap-and-trade program, and Quebec’s emissions trading scheme operate in largely distinct geographic regions under their own rules, but as elaborated on below, may link by accepting one another’s instruments or through the common acceptance of third party instruments, such as offset credits. This confederated form of a carbon market adds complexity to the situation, but it is not unlike other markets that trade in differentiated commodities and assets, and thus there are working models to follow. The primary objective of this chapter is to consider the market design and oversight challenges associated with the development of linked carbon markets in North America. To this end, this chapter describes the economic appeal of the carbon market, why it is more efficient when linkage expands its scale and scope, what its core design elements are, and how these are affected by cross-jurisdictional market linkages. We then raise a number of specific requirements and challenges to

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cross-jurisdictional market implementation and discuss how some of these challenges can undermine policy coherence, if left unaddressed. We conclude the chapter by highlighting the market oversight and implementation challenges within the North American carbon market. Cap-and-Trade in North America Cap-and-trade is not a new economic policy option. The sulphur dioxide (SO2) emissions trading system in the United States established under Title IV of the 1990 Clean Air Act capped the amount of SO2 emitted into the atmosphere at ten million tons less than 1980 levels, a 50 per cent reduction, and established a system that distributed allowance permits to electric power plants, which they were allowed to trade with other potential buyers.2 The SO2 emissions trading system has been considered environmentally and economically successful.3 Targeted emissions reductions have been achieved faster and at lower costs than they would have in the absence of a trading scheme.4 This success of the SO2 emissions trading system has demonstrated that market-based instruments can be cost-effective while achieving environmental objectives.5 Conceptions of cap-and-trade programs and environmental markets have shifted; considered pejoratively by some as “licences to pollute,” these programs have nonetheless reduced pollution economically. The scale of CO2 reductions has grown primarily through cap-and-trade programs. The Kyoto Protocol of the UN Framework Convention on Climate Change (UNFCCC) produced the foundation for an international CO2 cap-and-trade system that legally bound signatory countries to reduce emissions below 1990 levels.6 Developed to meet the targets set by the Kyoto Protocol, the European Union Emissions Trading Scheme (EU ETS) is by far the largest multi-nation emissions trading system.7 Other signatory countries to the Kyoto Protocol have also discussed or begun to implement CO2 emissions trading systems, including Australia and New Zealand.8 The United States signed the Kyoto Protocol but did not ratify it and therefore is not subject to the protocol’s commitments.9 Canada was a signatory country but withdrew in late 2011 and as an Annex I country had binding commitments under the Kyoto Protocol’s first commitment period (2008–12). While some provinces have undertaken carbon tax (e.g., British Columbia) or cap-and-trade approaches (e.g., Quebec and Alberta) or are now considering it (Manitoba and Ontario), Canada

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has not implemented a national cap-and-trade program across all provinces and key emitting sectors. Mexico is a non–Annex I country under the Kyoto Protocol and thus has no binding emission commitments but does participate in the carbon market via the Kyoto Protocol’s Clean Development Mechanism (CDM) projects. Mexico, however, is considering nationally appropriate mitigation actions under auspices of the UNFCCC, which could further link it to extra-national carbon markets in the future. It should be noted that the Mexican national oil company, PEMEX, operated an internal cap-and-trade system among business units, which generated valuable capacity within Mexico to develop market-based carbon instruments.10 Domestic CO2 markets do exist in the United States, as the (first) Chicago Climate Exchange (CCX) and then the Regional Greenhouse Gas Initiative (RGGI) emerged as voluntary and mandatory capand-trade programs, respectively. As of this writing (spring 2013), California has a cap-and-trade system in place for electric utilities and large industrial facilities. This will expand to cover the transportation sector in 2015, reducing emissions to 1990 levels by 2020. California is also participating in the Western Climate Initiative (WCI), a partnership of California, four Canadian provinces, and several more observer states and provinces in the United States, Canada, and Mexico, with the goal of cooperating to cut greenhouse gases through a marketbased approach. At the time of this writing, the WCI is facing significant political hurdles in some U.S. partner states. Arizona, Montana, New Mexico, Oregon, Utah, and Washington all left the program in 2011. California, British Columbia, Ontario, Quebec, and Manitoba continue to develop coherent climate policies. Provided a WCI market does come to fruition, California regulators have indicated a willingness to link the state’s own cap-and-trade system with the broader regional market and have a specific linking agreement with Quebec.11 Rationale for a Market-Based Approach to Reduce Greenhouse Gases12 Economists have long argued for the use of economic instruments or market-based approaches to control pollutants as an alternative to technology proscriptive regulation, sometimes called “command and control.”13 Economic instruments place a monetary value on the pollutant (greenhouse gases, or GHGs, though we loosely use the term carbon

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here), creating a profit-loss incentive to substitute to lower-emitting and energy-efficient products and for technology change to low-carbon solutions. The two economic instrument approaches most commonly proposed are a carbon tax and cap-and-trade. With a carbon tax the government imposes a fixed price on the quantity of GHGs emitted and retains the proceeds to use or redistribute. The tax raises the cost of carbon-intensive actions and thereby motivates movement to low-carbon solutions. But a carbon tax does not guarantee a specific emission result; emitters will continue to emit as long as paying the tax is cheaper than the cost of reducing an emissions unit. As a result, there is concern that governments will not have sufficient information, or will face political resistance, to set the tax at a level that would effectively stabilize emissions and combat the underlying problem. Cap-and-trade programs control the quantity of emissions, distribute the fixed number of allowances to emit to the regulated entities either for free or through an auction, and allow regulated entities to trade these allowances in a market that ultimately determines the price of carbon. The underlying goal is to set the cap at a level that science and economics tell us is commensurate with the problem, ensure that the desired emissions reductions are achieved, and allow the market to set the price. In principle, by fixing emissions rather than allowing them to vary (as a tax does), a cap-and-trade program can provide more certain protection from climate change damages.14 Entities that are required to meet the cap can choose to purchase or sell emissions allowances, depending on their pollution abatement costs and the market price of the emissions allowance. Those who can cut their emissions at a lower cost than the allowance’s market value will abate more and purchase fewer (or sell extra) allowances, while entities that cannot cut their emissions below the allowance’s market value will purchase more allowances. Given that the aggregate emissions target must be met, a cap-and-trade system provides the incentive necessary for entities to meet their targets in a more cost-effective manner than if each entity was told exactly how much it could emit or specifically which technology it could deploy (the command-and control approach).15 An efficient cap-and-trade program reduces emissions employing when, where, and how flexibility. When flexibility reduces the cost of achieving a long-term emissions target by allowing parties to shift the timing of their reductions to smooth out costs.16 The premise is that the

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specific timing of reductions matters less than the cumulative reductions. Where and how flexibility operate on the principle that the location and method of reductions matter even less than the timing. Each tonne of greenhouse gas (GHG) emitted has virtually the same marginal environmental impact, regardless of source and location. Yet the costs of emission reductions can vary greatly by location and source. For example, economic modelling in the United States shows that at least in the initial stages, GHG reductions from the electric power sector are cheaper on the margin than reductions in the transportation sector because of a wider mix of fuel options in electric power. Costs will generally vary by country as well, reflecting differences in technology and the relative cost of capital, labour, and other factors of production. This means that to achieve a certain emissions target at the lowest cost, a cap-and-trade policy should include as many sources as possible, regardless of sector and location. For example, to optimize efficiency, a domestic program should be as close to economy-wide as possible, tapping a wide range of opportunities for cost-minimizing reduction efforts. In addition, countries can integrate cap-and-trade programs into a global market on the premise that the problem being faced is a global one, with dispersed responsibilities and opportunities for efficient reductions. This heterogeneity within the market is the underlying source of gains from trade. This need not imply that all countries, sources, and sectors should be subject immediately to a mandatory cap. There are economic and political reasons why some sources will not be capped. Developing countries have been excluded from mandates thus far because of economic hardship and the sense that the developed economies, the primary source of historic emissions, should be where mandatory reductions start. Even within capped countries, there will be sources not covered by the cap for different reasons – agriculture may have widely dispersed sources that are hard to monitor, small businesses may be exempt because the cost of compliance is difficult for them to handle, and other sectors may have mobilized political support for their exclusion – all of which, while not efficient, is reality. Within North America these varying political and economic pressures have led to the carbon markets with very different structures, as evidenced by the much narrower coverage of sources under RGGI (electrical power generation only), than that under WCI (more economy-wide). Market expansion does more than change when, where, and how emissions can occur. It also makes the allowance trading market itself more efficient through scale effects. A larger market size means more

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firms trading more allowances. A firm looking to buy or sell allowances will be able to do so more easily, through a central exchange, for instance, thus incurring lower transactions costs. An expanded market, however, may incur additional administrative costs. Instead of having a single state or provincial agency manage a market, state or provincial agencies would also have to communicate with a cross-jurisdictional body. This body would have some cost, but the experience of the Regional Greenhouse Gas Initiative of nine northeastern U.S. states suggests that administrative costs would be low compared to the overall size of the program. The Role of Offsets Even if emission sources remain outside the cap, they can still participate in the market by voluntarily reducing emissions and generating credits to sell to capped entities as “offsets” against the capped entities’ own emissions. If the out-of-cap reductions are cheaper than reductions inside the cap, offset trading reduces the overall cost of meeting the emissions target. An example is the Clean Development Mechanism (CDM), in which GHG reduction projects in developing countries generate credits for use by countries complying with the Kyoto Protocol. Recent analyses of federal cap-and-trade proposals in the United States show that the inclusion of offsets reduces the marginal costs of the program by up to 70 per cent.17 One feature of international offsets is that they create de facto market linkage across countries that use offsets but might not otherwise be linked. For instance, EU countries are linked via the EU Emissions Trading System (EU ETS) to meet international compliance obligations. EU countries are also allowed to use Certified Emission Reductions (CERs) from the CDM as a form of compliance in addition to their own EU allowances (EUAs). This not only means that EU countries are linked together by their own ETS, but also to other countries that use CERs for compliance. This is particularly noteworthy as other countries contemplate their own emissions trading systems, and the use of CERs for compliance as offsets can be the price point for the entire market.18 Offset trading does raise concerns that the reductions being credited may have occurred anyway (additionality), that emissions merely shift from the party receiving the credits to other parties not bound by a cap or an offset program (leakage), or that certain offset activities such as forest carbon sequestration are at risk of subsequent re-emission (permanence). These concerns are real, but substantial effort has been put

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into developing protocols to address them and enable equitable trading of offsets into compliance markets.19 Properly implemented, an internationally integrated cap-and-trade system with offsets offers a more robust and efficient path to climate goals. The Emergence of Separate Markets The potential for efficiency gains from a single integrated global carbon market is widely recognized, but the current reality reveals numerous carbon markets operating in pockets throughout the world in a largely independent fashion. This reflects the confluence of several phenomena: (1) uneven incidence of the legal context (regulatory or voluntary), stringency, and scope of emission reduction responsibilities around the world, (2) acceptance of emission markets in many parts of the world as an efficient means to address GHG goals where they exist, and (3) rejection or caution in other parts of the world about the use of emission market instruments to address these obligations. As a result, we have a mix of large-scale international multi-sector compliance markets such as the EU ETS, which in early 2012 was trading at the current equivalent of about nine to fifteen U.S. dollars per tonne CO2e with a market volume in the hundreds of billions of dollars per year, operating alongside smaller scale single-sector compliance markets such as RGGI, trading at less than two dollars per tonne and market volume in the low hundreds of millions of dollars per year, along with state- or provincial-scale markets operating autonomously within Kyoto countries, such as Alberta’s credit trading market in Canada.20 Throw into the mix specific voluntary markets with a range of prices reflecting different market standards, trading at a considerably smaller volume than the regulatory markets. Although each of the markets described above trades in the same units (tonnes of CO2 equivalent), their prices vary by roughly an order of magnitude. If the markets were linked and the credits sold in one market could be used by buyers in another, prices would converge substantially – to one single global price in the limit. As an example, the certified emission reduction (CER) offset credits generated by CDM projects under the Kyoto Protocol can be used for compliance in the EU ETS. Therefore, CERs sell for a price similar to “regular” EU ETS allowances (called EUAs) in the European markets, which then sets the price for non-European buyers of CERs.21 This is an indirect form of market linkage.

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Thus, despite large potential gains from a fully integrated global market, a piecemeal collection of separate markets has emerged and is likely to remain the rule, given persistent politically driven differences in the global coverage and stringency of emission mandates, adoption of market-based approaches, and market rules where they are adopted. As such, efforts by nations, states, or provinces to bilaterally or multilaterally link separate specific markets likely holds more promise for efficiency gains than the development of a single global market governed by one international body. We explore this further from a North American perspective. Gains from Cap-and-Trade within North America Several studies have modelled the impacts of U.S.-Canada linking on carbon markets. These authors find that, as the result of the much greater size and lower costs of the U.S. markets, linking would dramatically reduce Canadian costs while only slightly raising U.S. prices. A U.S. market would be approximately ten times the size of the Canadian market in both GDP and emissions. Assuming comparable targets of approximately 17 per cent reductions below 2005 levels by 2020 (as proposed under the Cancun Agreements to the UN Framework Convention on Climate Change), models project a U.S. allowance price of approximately thirty dollars and a Canadian allowance price of approximately sixty dollars in an unlinked system. If the two systems were linked, the United States would export approximately fifty megatons of emission reductions per year to Canada with an overall market price of thirty-one. The fifty megatonnes of internationally traded permits represent approximately 9 per cent of Canadian emissions and less than 1 per cent of U.S. emissions.22 The different overall price consequences for Canada and the United States may affect the political fortunes of linkage proposals, with the beneficiaries of linkage being U.S. sellers and Canadian buyers. Mexican carbon markets could also be linked with American or Canadian ones. Mexico has the potential for substantial emissions reductions at modest prices.23 This is due to both a large potential offset supply and the potential to develop non-emitting electricity sources. The Mexican market could link to the rest of North America either by linking a Mexican cap-and-trade system or by selling offsets credits to the United States and Canada. Mexico has been a major regional source of CDM projects and credits and could expand by supplying credits to a U.S. or Canadian system.24

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Efficiency, Reciprocity, and Coherence Linking separate cap-and-trade markets can increase the efficiency of emissions reductions by increasing the scope for when, where, and how flexibility. Sales of allowances from one market to another rely on where flexibility. They may also leverage how flexibility if the sources of emissions reductions are different in the different markets. This same trade also promotes reciprocity across members. The very nature of selling allowances from a low-abatement-cost region to a high-cost region ensures that the price of allowances, and thus the marginal cost of emissions reductions, is equivalent (reciprocal) across markets if no trade barriers are imposed. This means that both regions are undertaking equivalently costly reductions on the margin. Linking can also facilitate reciprocity and coherence while allowing differentiated, locally appropriate policy rules. However, as we will discuss below, if different markets have different rules and requirements, these features can effectively seep from one jurisdiction to the other. Policymakers thus need to pay special attention to ensure that rules are coherent and that one market’s rules do not undermine another’s. Potential for Market Differentiation Different regions may have different policy goals and thus different rules for allowance trading markets. Linking can still promote efficiency and reciprocity without undermining coherence, as long as the markets are compatible and linking rules are well designed. Most cap-and-trade systems discussed are based on absolute emission quantities: a firm emitting a tonne of a covered pollutant must hold an allowance for that tonne. Alberta’s cap-and-trade program is designed around emissions intensity. Emitters must meet a target that is defined in tonnes of emissions per unit of production. If their actual emissions intensity is greater than their target, they can purchase allowances from emitters who did better than their target. Parties can also reduce their effective emissions by purchasing offsets from uncapped sectors or from firms that exceeded their compliance obligations. Importantly, while the policy is designed and targets are set on the basis of emissions intensity, allowances are denoted and traded in tonnes. Because these allowances are defined in tonnes, they can be traded with emissions-based cap-and-trade. Markets can also tailor their scope as locally appropriate. For example, the Albertan system exempts facilities emitting less than 100,000

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tonnes per year. If Alberta were to link with another jurisdiction in which similarly small firms were included within the cap, capped small firms in the other jurisdiction could be at a competitive disadvantage relative to their Albertan peers, while the small Albertan emitters were free to increase emissions, lessening a form of cross-system emissions leakage, which diminishes the environmental benefit of the market. However, uncapped Albertan sources could be eligible for offsets if they reduce their emissions. This means that these small facilities, while not actually under the cap, still have an economic reason to reduce their emissions: by reducing emissions, they gain the ability to sell offsets. This lessens the potential for emissions shifts into Alberta, though it still involves a form of inequity if their gains from selling offsets are driven partly by not having compliance obligations that competing firms in other jurisdictions do. Clever rule design, such as accepting allowances from uncapped sectors, can facilitate policy differentiation even among linked markets. Types of Linking There are a number of ways two jurisdictions could link. Perhaps the most straightforward is a direct, bilateral trading link in which each jurisdiction accepts the other’s allowances for compliance and trading. For example, RGGI member states all accept allowances issued in any other member state. The other prevalent form of indirect linkage is the acceptance by different trading jurisdictions of common offset instruments issued by third parties for compliance. California and the WCI are currently evaluating offset project protocols, including protocols from the CDM. If they decide to allow CDM project credits (Certified Emission Reductions, or CERs), then offset suppliers will be able to decide whether to sell their credits in the WCI, EU ETS markets, or to non-ETS buyers subject to Kyoto commitments. One would expect such CERs to sell at or about the same price, regardless of the buyer, thereby linking the markets. However, several alternatives are possible. Under unilateral linking, one jurisdiction (the linker) accepts the other’s (linkee’s) allowances, but allowances cannot flow in the other direction. If the linker has higher marginal costs of abatement, the unilateral link is equivalent to the bilateral link. The higher-cost linker jurisdiction will import permits from the linkee, driving up prices in the linkee jurisdiction until prices are equal across jurisdictions. In this case, unilateral versus bilateral linking has little impact beyond a loss of liquidity in trading markets (as linker jurisdiction firms can only use linker jurisdiction allowances).

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If the linker has lower marginal costs and allowances cannot be used for compliance in both jurisdictions, the unilateral link is equivalent to not linking at all. Prices will be higher in the linkee jurisdiction than in the linker market, thus providing no gains from trade between linker and linkee allowances. Moreover, firms from the linkee jurisdiction cannot purchase linker allowances, because the agreement does not cut both ways. Therefore, prices will differ between markets as if the markets were not linked. In each of these cases, we assume that a single allowance could not be used for compliance in both jurisdictions (no double dipping). This means that both jurisdictions are communicating which allowances have been used, and keeping track via a cross-linked registry. If this tracking and cancellation of used credits in each jurisdiction does not happen, linkee jurisdiction allowances could flood the linker jurisdiction, linker market prices could collapse, and the linker market would be ineffective at reducing emissions. Another option would be to link a cap-and-trade system in one jurisdiction with a carbon tax in another, such as the current carbon tax in British Columbia. Similar logic would of course apply to linking with other tax systems. Adopting an equivalent tax rate would be the simplest link. This would reduce emissions and avoid leakage, but as discussed above, would not firmly limit emissions. Another province or state could also link with the BC tax by allowing its emitters to comply by paying the tax instead of holding allowances. The tax would then effectively serve as a price cap on the cap-and-trade system. If prices were higher in other provinces, emitters could instead choose to pay the tax, effectively capping the allowance price at the tax rate. In addition to increasing emissions beyond the cap level, this would result in large financial flows to the BC government. Cross-Jurisdiction Policy Spillovers A typical cap-and-trade system has a number of design elements that define the scale, scope, and distributional impacts of the program. Some design issues will interact across separate but linked cap-andtrade systems. This can result in policy seepage, in which the policy decisions of one jurisdiction carry over into the other via the allowance market, undermining policy coherence. As discussed above in the case of small emitter exemptions, if two jurisdictions link cap-and-trade systems with different scopes of coverage, uncovered emitters in one jurisdiction may have a competitive advantage over covered emitters

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in the same industry in another jurisdiction. This is especially true for industries with high exposure to carbon costs, either because they are large emitters or large users of carbon-intensive energy, or they compete in global markets with producers who are not subject to a cap (e.g., some energy-intensive manufacturing sectors such as primary metals). This competitive imbalance could result in economic activity moving towards the uncovered areas either via direct relocation or because the uncovered emitters increase their market share. This economic (and resulting emissions) relocation due to regulatory differences is a form of leakage and results in capital and jobs moving to the laxer jurisdiction and emissions increasing as emitters move to the uncapped area.25 Linking jurisdictions with different cap stringencies would not necessarily lead to competitive imbalances and leakage. Trading would equilibrate prices across jurisdictions, so firms will face the same effective stringencies, as the price reflects marginal cost of abatement across sources – one price means equality of marginal cost. However, if allocation mechanisms are different across jurisdictions – for example, some jurisdictions grandfather their allowances (give them away for free to regulated entities) and others auction them – and firms or production can relocate to gain greater allocations, they may do so. While the emissions limit would be maintained if the scope were consistent, emissions and capital and labour would effectively move with the production. Banking and borrowing rules are perhaps more prone to spillover effects in that the jurisdiction with more permissive rules will effectively determine the rules for the entire system. Banking is the practice of saving permits in one year and using them in subsequent years, while borrowing is the practice of allowing future-year permits to be used for contemporary compliance. Banking and borrowing are the force behind which allowance prices are expected to rise at the rate of discount: Pt + 1 = Pt(1 + r), as holders are indifferent between using or selling an allowance at value Pt and deferring its use or sale to the next period at a price that covers the time value of money, Pt(1 + r). If banking and borrowing rules are equivalent, then each jurisdiction’s rules reinforce this relationship. However, if one jurisdiction allows banking (or borrowing), then the other jurisdiction cannot effectively prohibit its effects. Firms that wish to bank can do so in the banking jurisdiction, either for their own future compliance use or for sale to others in the linked non-banking jurisdiction. Trade between jurisdictions (A, where banking is allowed, and B where it is not) will occur until their contemporaneous prices are equal (PAt = PBt). With banking and

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borrowing determining the temporal equilibrium in market A [PAt + 1 = PAt(1 + r)] and free trade in allowances between the markets, the banking and borrowing rules effectively apply to market B, whose temporal equilibrium relationship will be the same as if banking were allowed [PBt+1 = PBt(1 + r)]. The effective transference of allowance banking across jurisdictions can be somewhat mitigated if the policy design limits banking. If banking is limited, such as by a rule that firms can hold up only to a specified percentage of their compliance obligation in their bank, then firms would bank fewer allowances, and thus more allowances would be available for use in the non-banking jurisdiction, bringing down prices in both places. Price containment is another policy choice that can seep across jurisdictions through linked markets. This is a problem that has elicited much concern about the prospect of linking the U.S. market under recent policy designs that have price containment options (price collar and reserve mechanisms) with the EU ETS, which does not.26 A hard price ceiling (sometimes called a safety valve) means that the regulator commits to keeping prices at or below a target level, typically by releasing as many allowances as emitters will buy at the target price. For example, emitters in Alberta can comply with the Albertan cap-and-trade system by holding allowances or by paying a fee of fifteen Canadian dollars to the Albertan Climate Change and Emissions Management Fund. Firms would not choose to pay more than fifteen dollars for an allowance when they could instead pay the fee; thus the fee is tantamount to a hard price ceiling. If Alberta and the WCI were to link their allowance markets, the Albertan fee could act as a price cap across both markets. If WCI price fundamentals were above fifteen dollars per tonne, WCI emitters could purchase allowances from Alberta, lowering WCI prices and raising Albertan prices. If non-Albertan emitters could also comply by paying the fee, it would act as a hard cap in the WCI. If they could not and WCI prices remained above fifteen dollars, WCI emitters could purchase (in the limit) all allowances from the province of Alberta, which as described above, face a hard price ceiling of fifteen dollars by opting to pay the Alberta fee. This would effectively transfer funds from WCI emitters to the Albertan Climate Change and Emissions Management Fund. Albertan emitters would still face a price of fifteen dollars per tonne, and the Albertan price cap would help keep prices down in the rest of the WCI.

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A soft price cap also acts to constrain prices below a target level. However, it has only a limited quantity of additional allowances (or can allow only a limited quantity of additional emissions). This means that if emitters purchase all of the available allowances, prices can rise above the price cap. Unlike a hard cap, though, the cross-jurisdiction spillover effects of a soft cap can undermine both environmental stringency and price containment effectiveness. Environmental stringency could be weakened by the additional emissions based on the additional allowances released. However, cost containment in one market can also be weakened, because the limited quantities of allowances available for price containment are spread over a larger market. The effectiveness of the soft cap is undermined because the larger, region-wide demand spike could overwhelm the reserve pool of allowances, thus providing less power over price. Local price containment is sacrificed for more global price containment. Price floors can also affect prices across borders. For example, if California, which is expected to have high emissions costs and allowance prices, sets a floor price and links with another regional market, the California price floor would also act as a price floor for the other market. The California regulator would withhold allowances from the market to maintain the price in California. California emitters could purchase allowances from the other market, thus driving those prices up to the California floor. This both increases abatement costs in the other region and transfers revenue from California to the other region’s permit holders. While a single large jurisdiction may be able to implement its own priorities unilaterally with some effectiveness, all of these policies are more effective and efficient if implemented coherently. Similarly, the mechanics of trading, market oversight, and enforcement are vulnerable to leakage and arbitrage across jurisdictions if not implemented coherently. The central implication for North American carbon market cooperation is that efforts to seek efficiency gains through linkage will result in pressures for market policy harmonization. There is already some evidence of these harmonization pressures coming to bear, for example, in the joint effort by the three sub-regional cap-and-trade programs to develop common criteria for offsets.27 Market Rules and Oversight Issues surrounding the regulation of GHG emission allowances as financial instruments may also affect whether and how carbon markets

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link. While the EU ETS, RGGI, and the U.S. Acid Rain Program (established mandatory cap-and-trade systems) do not include specific rules governing financial market transactions associated with their respective compliance instruments, concerns about regulating carbon market activity became a significant issue in the U.S. climate debate in 2008 and 2009. These carbon market–related concerns first arose in the midst of the petroleum price spikes during the summer of 2008, with the national average price of regular grade gasoline rising by approximately 33 per cent between February and June – from US$3.02 per gallon to US$4.60 per gallon.28 At the time, there was no consensus regarding the causes of this dramatic surge in prices, and many federal lawmakers concluded that excessive speculation or potentially illegal market manipulation had played a role. Unlike the EU ETS, RGGI, and the Acid Rain Program, California’s carbon market was designed in the aftermath of the 2008 financial collapse and contains specific mechanisms to govern allowance trading. The collapse of financial giants Lehman Brothers, Bear Sterns, and AIG in the fall of 2008 and the ensuing financial crisis highlighted gaps in U.S. financial market regulation. Over the following two years, lawmakers and regulators conducted numerous hearings and investigations to determine the causes of the market failures. Key concerns included excessive risk-taking, lack of market transparency, and trading activity occurring beyond the scope of U.S. regulators, particularly non-standardized over-the-counter derivative instruments trading beyond the jurisdiction of U.S. regulators.29 Financial market concerns spilled over into the U.S. climate policy debate at the time. A 2008 report by the Congressional Research Service noted the “widespread suspicion that excessive speculation by hedge funds and others has affected energy prices” and predicted “the possibility that the price of allowances could also be subject to distortion or manipulation will be a policy concern.”30 This prediction was borne out over the summer and fall of 2009. By that time, some lawmakers were suggesting that concerns about the government’s ability to properly regulate a carbon market could lead them to oppose legislation creating such a market.31 In a market designed by government officials to address an environmental concern, value choices and political pressures may affect how regional or international markets link with one another. Linked markets with different requirements could encourage regulatory arbitrage across markets to avoid certain rules, driving trading activity to some venues and away from others. As Commodity Futures Trading

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Commission (CFTC) commissioner Bart Chilton observed in an opinion piece, “Whether trading occurs in Hong Kong, London or New York, to the extent practical, there needs to be global regulatory harmonization. While important to ensure national interests, without appropriate harmonization of rules, a virtual regulatory race to the bottom could occur. Traders seeking to ‘fly under the regulatory radar’ may try to choose the least restrictive regulatory environment, even at the expense of necessary oversight and transparency.”32 Depending on the evolution of the carbon market debates and the ongoing implementation of new financial regulations, lawmakers considering linking carbon markets may be particularly sensitive to differences in market rules. For example, disparities in any of the following elements could undermine targeted efforts to regulate carbon market activity: • transparency requirements, • the types of regulated trading activity (e.g., spot market activity and/or derivative markets), • market participation, • the financial instruments that may trade, • the venues where trading may take place, and • the government regulator(s) who oversee(s) market activity and the scope of the regulatory authority.

Legislative Proposals to Regulate a U.S. Carbon Market Every major U.S. federal climate bill introduced between 2008 and 2010 included provisions to address one or more of the market concerns listed above. The approaches varied, with some bills creating general standards for market regulation and others including specific requirements regarding what instruments may trade, where trading may occur, and who may participate in the marketplace. Although the U.S. Congress failed to pass a climate law in 2010, the evolution of the debate may prove instructive for future efforts to regulate allowances as financial instruments. The issue first appeared in legislation in the 2008 Climate Security Act (the Lieberman-Warner bill), which included a requirement that regulators produce a report within six months after the operation of the market regarding “volatility within the market and the average price of emission allowances during that 180-day period,” as well as a longerterm study on the operation of greenhouse gas markets.33 In June 2008,

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the same month that the Senate considered the Lieberman-Warner bill, Representative Ed Markey introduced the Investing in Climate Action and Protection Act (the Markey bill),34 which included detailed provisions governing financial market activity associated with a cap-andtrade program. Many of the subsequent climate bills built upon the framework created in the Markey bill. The Markey bill focused on transparency, excessive speculation, fraud, and manipulation. The bill proposed an Office of Carbon Market Oversight at the Federal Energy Regulatory Commission (FERC) to enforce the trading regulations, and called on FERC to prevent excessive speculation by creating position limits and position accountability requirements. The Markey bill required transactions involving a regulated carbon instrument to occur on a registered carbon trading facility and clear through a carbon clearing organization. The requirement did not cover derivative transactions, provided the transactions take place between persons who are eligible contract participants (e.g., financial institutions, regulated insurance companies, floor brokers, and large investors), as defined in the U.S. Commodity Exchange Act. Facilities seeking status as a registered trading facility would have to demonstrate that they could prevent market manipulation, ensure fair and equitable trading, maintain financial integrity of the transactions, have disciplinary procedures for those violating their rules, and make public daily information on settlement prices, volume, open interest, and opening and closing ranges for all regulated instruments traded on the trading facility. The facilities would enforce rules governing the operation of any electronic trading platform. The bill also required registration of brokers, dealers, and traders, prohibited these entities from engaging in manipulative or deceptive practices, and specified reporting requirements. Subsequent bills, drafted in the aftermath of the financial crisis (blamed by many on the unchecked proliferation of certain exotic derivative products) sought to limit or eliminate counter-party risks, market power concentration risks, and other risks associated with overthe-counter (OTC) trading.35 The Waxman-Markey bill also created a national market system for allowances to ensure consistent prices across trading venues. The U.S. Congress adopted the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) – a comprehensive financial reform bill – in July 2010 aimed at enhancing government oversight of financial markets, reducing systemic risk, and improving consumer protection.36 For example, the law addresses systemic

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risk concerns and increases transparency by creating a presumption that standardized derivative products trade on exchanges and clear through registered clearing facilities. Parties trading products that are not subject to the clearing requirements must report the transactions to trade repositories, or, if no trade repository is available for the product, to the appropriate government regulator. The law includes exemptions for transactions involving parties that are hedging commercial risks (e.g., electric utilities seeking to hedge fuel prices). In a signal that Congress may revisit the issue at a later date, the Dodd-Frank Act instructed the CFTC to conduct an interagency study regarding the “oversight of existing and prospective carbon markets to ensure an efficient, secure, and transparent carbon market, including oversight of spot markets and derivative markets.”37 The chairman of the CFTC chaired the interagency group, and other members included the secretary of agriculture, the secretary of the treasury, the chairman of the Securities and Exchange Commission, the administrator of the Environmental Protection Agency, the chairman of the FERC, the chairman of the Federal Trade Commission, and the administrator of the Energy Information Administration.38 Rather than offering specific legislative or regulatory approaches to regulating U.S. carbon markets, the interagency group recommended four objectives to guide market oversight: • • • •

Facilitate and protect price discovery in the carbon markets Ensure appropriate levels of carbon market transparency Allow for appropriate, broad market participation Prevent manipulation, fraud, and other market abuses39

Depending on lawmakers’ comfort with the new regulations, market oversight could become less of an issue for carbon markets, or future carbon market proposals may seek to address regulatory gaps in the financial reform bill.40 Linking Markets after the 2008 Financial Crisis These concerns may also affect policymakers’ comfort with linking to other regional, national, or international carbon markets. The financial crisis in 2008 demonstrates the ability of financial failures in one country to affect others. While the financial sectors in Canada and Mexico may have, better than others, weathered the 2008 financial crisis that

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began with U.S. financial institutions, the global economy is still feeling its effects years later.41 Unlike existing markets that link, or at least have products that trade across borders, government policy would create the fungible instruments in a mandatory carbon market, thereby placing more responsibility – and potentially more blame – on the backs of the policymakers themselves, should the market go wrong. As discussed above, linking to a market that allows instruments to trade with minimal oversight and allows unfettered market access could undermine a domestic law that sets strict requirements for who may trade in carbon market-based derivatives. Even where similar standards for oversight and transparency exist, trading activity in international markets that results in higher domestic energy prices could undermine support for a compliance market that depends on political support to maintain long-term viability. Tracking ownership of allowances could present another issue in the context of a linked international carbon markets. Without standardized rules specifying the type of information that market participants must report and when the reporting must take place, it could be difficult for regulators to monitor allowance ownership, including entities holding allowances or derivative contracts on behalf of others (otherwise known as beneficial ownership42), thereby complicating efforts to enforce position limits and evaluate ongoing market trends. These concerns are not insurmountable. There are myriad domestic regulations aimed at governing various aspects of international trade of commodities and associated financial instruments – from food safety to offshore financial market activity. These regulations may affect not only commercial activity within the country, but also the operations in other countries. For example, domestic food safety laws may influence agricultural operations in countries seeking to export food products, and financial laws may require domestic firms to disclose trading activities that take place in international markets. In the carbon market context, the Western Climate Initiative (WCI) – a multi-jurisdictional effort that originally included seven U.S. states (Arizona, California, Montana, New Mexico, Oregon, Utah, and Washington) and four Canadian provinces (British Columbia, Manitoba, Ontario, and Quebec) (collectively, the WCI partners), with six Mexican states signed on as official observers (Baja California, Sonora, Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas)43 – provides a useful case study of the tools available to regulate cross-border carbon market activity. As of April 2012, the WCI

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partners included California, British Columbia, Manitoba, Ontario, and Quebec, with California and Quebec in the process of implementing cap-and-trade systems and exploring how to link the two markets.44 The Western Climate Initiative: Cross-Border Market Oversight For purposes of market oversight, policymakers designing the Western Climate Initiative are exploring the framework for a linked international market. While the jurisdictions are designing a common framework for the cap-and-trade system – including the emissions cap, the sectors of the economy covered by the cap, and protocols governing offset credits – market oversight will differ between the Canadian provinces and the U.S. states.45 In the United States, the CFTC has jurisdiction over most derivatives markets for commodities, and the Dodd-Frank Act expands the CFTC’s authority to regulate derivative markets that were previously beyond the scope of the Commodity Exchange Act. Despite the fact that the WCI is a state-based market system, the U.S. states participating in the development of the WCI will have little ability to directly regulate financial market activity associated with the WCI carbon market(s). The Commodity Exchange Act pre-empts most forms of state regulation regarding commodity markets, preserving some authority for states to prevent fraudulent behaviour. As of this writing, the CFTC is not part of the official WCI negotiations. In Canada, by contrast, market regulation occurs primarily at the provincial level. Provinces differ in regulation requirements for exchange and OTC derivatives. In Ontario, OTC derivatives and exchange-traded derivatives are administered by the Ontario Securities Commission (OSC) and are regulated under the Ontario Securities Act (OSA) and the Commodity Futures Act (CFA). The CFA defines “commodities” to include emissions and emission credits.46 Like Ontario, Manitoba has commodity futures legislation that specifically regulates exchange-traded futures and options on futures. Other derivative products (generally OTC derivatives) are regulated under the Securities Act (Manitoba). In Quebec, the Quebec Derivatives Act (QDA) applies to both exchange-traded and OTC derivatives. Alberta, British Columbia, and Saskatchewan regulate exchange-traded derivatives. These provinces effectively exempt OTC derivatives from their

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securities regulations.47 In addition to laws governing market activity within individual provinces, the Investment Industry Regulatory Organization of Canada (IIROC) – a self-regulatory organization (SRO) – “oversees all investment dealers and trading activity on debt and equity marketplaces in Canada.”48 The IIROC prosecutes violations of Canada’s Universal Market Integrity Rules and refers other illegal behaviour to the appropriate government authority.49 In both the United States and Canada, SROs such as exchanges and clearinghouses also play important oversight roles. For example, the U.S. Commodity Exchange Act authorizes the CFTC to delegate authority to regulated exchanges to set position limits, monitor for fraud, oversee registration requirements for exchange members, and facilitate reporting and record-keeping.50 This combination of multiple market regulators with different rules and responsibilities creates the potential for market participants to focus their trading activity to take advantage of gaps in the regulatory structures. The WCI established a Markets Committee to determine how to design an oversight system that accommodates the differences between U.S. and Canadian market regulation, and also any unique aspects of the WCI carbon market that may call for additional oversight provisions.51 Many of the concerns and the approaches under consideration are similar to the federal policy issues described above. The WCI Markets Committee published draft recommendations in April 2010 to address many of the issues. In that document, the WCI Partners recommend treating allowances and related derivative products as commodities for oversight purposes. The partners also recommend not restricting market participation and requiring intermediaries such as brokers and dealers to register with a government authority. In order to establish jurisdiction over market participants, the WCI partners recommended the creation of a tracking system for allowances, with market participants required to report spot market transactions, as well as any allowances that participants hold or control on behalf of another entity. Information that the tracking system would record includes: • the identifying number of the account of origin; • the name of the account representative authorizing the transfer from the account of origin; • the identifying number of the receiving account;

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• the name of the account representative authorizing the transfer to the receiving account; • the serial numbers of the compliance instruments transferred; and • the price for each type of instrument.52 California subsequently issued its own market design regulations, including requirements to report transactions to a tracking system, as well as restrictions on the number of allowances an entity may purchase at an auction and restrictions on the number of allowances an entity can hold at a given time. These design elements may limit a market participant’s ability to influence market prices but can also create monitoring and enforcement challenges if California regulators approve linking with the state’s market with other states or provinces. Conclusions Markets for tradable emission credits have become the primary economic instrument throughout the world for cost-effectively reducing pollution. Emissions trading is designed to ensure that a given emissions target is achieved most efficiently, as those who can reduce emissions more cheaply do so and sell their excess credits to others for whom the task is more costly. This approach has been used to successfully mitigate a range of pollutants and is now being used in efforts to reduce greenhouse gas emissions in many jurisdictions around the world. The larger the extent of these carbon markets, the larger the potential gains from trade and the greater the opportunities for cost-effective emission reductions. With only a portion of the world’s economy subject to a carbon market, there is ample room for expansion. However, political and institutional factors limit the prospects for a single global carbon market operating under a single set of rules overseen by one international body. Therefore, more eclectic forms of linkage, such as connecting cap-and-trade programs operating at sub-national political regions within and across countries, may be necessary to accomplish expansion economies. Linking regional greenhouse gas markets can reduce the costs of reducing greenhouse gas emissions in ways just described. However, if cap-and-trade market design is not coordinated across systems, policy decisions in one jurisdiction can influence the market behaviour in other jurisdictions. Further, differences

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in pre-existing governance structures across jurisdictions, especially between the responsibilities of American states and Canadian provinces, mean that policy coordination will have to occur across levels of government as well as regions. Coordination is further complicated by the differing constitutional responsibilities for capital markets in Canada and the United States, potentially requiring coordination between provincial and U.S. federal regulators in relation to carbon markets (although it should be noted that cooperation between U.S. and Canadian securities and commodities regulators on general market issues is well established). Mexican participation in North American carbon markets is likely to be desirable from an efficiency standpoint, insofar as there are lower cost emission reduction opportunities in Mexico, which would lower compliance costs for U.S. and Canadian firms. In the absence of the development of its own national cap-andtrade program, Mexico could still link into other North American systems through offsets programs, such as the CDM, or through the development of offsets in accordance with criteria set by market rules in U.S. and Canadian systems.

NOTES 1 See N. Craik and D. VanNijnatten, chapter 1, this volume. 2 Clean Air Act (CAA) of 1990, 42 U.S.C. § 7651 (2009); see also Robert N. Stavins, “What Can We Learn from the Grand Policy Experiment? Lessons from SO2 Allowance Trading,” Journal of Economic Perspectives 12, no. 3 (1998): 69, 70. 3 Stavins, “What Can We Learn.” 4 Ibid. 5 Ibid. 6 Kyoto Protocol to the United Nations Framework Convention on Climate Change, 10 December 1997, 2303 U.N.T.S. 148 [hereinafter Kyoto Protocol]. 7 See Denny Ellerman and Barbara K. Buchner, “The European Union Emissions Trading Scheme: Origins, Allocation, and Early Results,” Oxford Review Environmental Economics and Policy 1 (2007): 66, 67, discussing the point that the EU ETS is clearly motivated by the Kyoto Protocol. 8 For an overview of current and planned emissions trading programs, see “Carbon Trading Schemes around the World,” Reuters, 14 December 2010.

Design Issues for Linking Carbon Markets 269 9 See Arjun Ponnambalam, “U.S. Climate Change Legislation and the Use of GATT Article XX to Justify a ‘Competitiveness Provision’ in the Wake of Brazil-Tyres,” Georgetown Journal of International Law 40 (2008): 261, 286, discussing U.S. refusal to ratify the Kyoto Protocol. 10 The United States and Canada are also signatories to the Cancun Accords. 11 For a detailed discussion of the regional cap-and-trade schemes, including the WCI, see B. Rabe, chapter 3, this volume. 12 The material in this section draws extensively from B.C. Murray, “Pricing Carbon and Other Options for Addressing the Economic Challenges of U.S. Climate Legislation,” Aspen Institute Congressional Program Series 25, no. 2 (2010): 21–30; and from B.C. Murray and H. Hosterman, “Climate Change, Cap-and-Trade and the Outlook for U.S. Policy,” North Carolina Journal of International Law and Commercial Regulation 34, no. 3 (2009): 699–720. 13 The initial idea of pollutant trading is often credited to Canadian economist John Dales. See John H. Dales, Pollution, Property and Prices (Toronto: University of Toronto Press, 1968). 14 See the basic contrast of price- and quantity-based approaches first introduced by Martin L. Weitzman, “Prices vs Quantities,” Review of Economic Studies 41, no. 4 (1974): 477–91. 15 Proscriptive or “command and control” policy instruments include technology mandates and performance standards. See Lawrence H. Goulder and Ian W.H. Perry, Instrument Choice in Environmental Policy, Resources for the Future Discussion Paper No. 08-07, 1 April 2008, http://ssrn.com/ abstract=1117566. 16 T. Dinan, and P. Orszag, “It’s about Timing,” Environmental Forum (November/December 2008): 36–8. 17 U.S. EPA, “American Power Act of 2010 in the 111th Congress (June 2010),” http://www.epa.gov/climatechange/EPAactivities/economics/legislativeanalyses.html. 18 B.C. Murray, W.A. Jenkins, J.M. Busch, and R.T. Woodward, “Designing Cap and Trade to Account for ‘Imperfect’ Offsets,” Duke Environmental Economics Working Paper Series, Paper EE 10-03, 2010, http://sites.nicholasinstitute.duke.edu/environmentaleconomics/files/2013/01/WP-EE-1003-V2.pdf. 19 B.C. Murray and W.A. Jenkins, The Economics of Offsets in a Greenhouse Gas Compliance Market, Policy Brief NI PB 09-11, Nicholas Institute for Environmental Policy Solutions, Duke University, 2009, http://nicholasinstitute.duke.edu/mitigationbeyondcap/offsetseries5#.UUtzyhnzF5w.

Regional Climate Policy Facilitation 243 57 CEC, Mexico and Emerging Carbon Markets: Investment Opportunities for Small and Medium-Sized Companies and the Global Climate Agenda, 2001, http://www.cec.org/Storage/43/3568_CarbonMarkets-EN_EN.pdf. 58 NAAEC, Article 10(2)(d). 59 Note that Canada has not developed CDM projects in Mexico. See Neil Craik and Joseph DiMento, “Climate Law and Policy in North America: Prospects for Regionalism,” San Diego Journal of Climate and Energy Law 1 (2009): 195. 60 CEC, “Council Resolution 01-05,” 29 June 2001, http://www.cec.org/Page. asp?PageID=924&ContentID=1126. 61 CEC, Comprehensive Assessment of North American Air Emissions Inventories and Ambient Air Monitoring Networks, September 2009, http://www.cec. org/Storage/88/8537_Air_Assessment_Report_en.pdf. 62 CEC Secretariat, Environmental Challenges and Opportunities of the Evolving North American Electricity Market, June 2002, http://www.cec.org/ Storage/31/2244_CEC_Art13electricity_Eng.pdf. 63 But see Eastern Research Group, “Assessing the Commission for Environmental Cooperation’s Results and Performance: Report on the Accomplishments of the CEC under the 2005–2010 Strategic Plan, March 2010,” on file with author. 64 For example LEED, ETNA. 65 Ian Rowlands, “Renewable Energy Politics across Borders,” in Changing Climates in North American Politics: Institutions, Policymaking and Multilevel Governance, ed. Henrik Selin and Stacey VanDeever (Cambridge, MA: MIT Press, 2009), 181. 66 CEC, “Advice to Council No: 09-01,” http://www.cec.org/Page.asp?PageI D=1226&SiteNodeID=564, and “Advice to Council No: 10-01,” “Advice to Council No: 10-02,” http://www.cec.org/Page.asp?PageID=1226&Content ID=&SiteNodeID=630&BL_ExpandID=. 67 CEC, Strategic Plan of the Commission for Environmental Cooperation: 2010–2015, 10 November 2010, http://www.cec.org/ Storage/58/10115_Strategic_plan_2011_en.pdf. 68 Michele Betsill, “NAFTA as a Forum for CO2 Permit Trading,” in Selin and VanDeveer, Changing Climates, 161–79. 69 See S. Young and C. Abbott, chapter 10, this volume. 70 The EPA rule, 40 CFR Part 98, is authorized under the Clean Air Act. The Environment Canada rule falls under the Canadian Environmental Protection Act, section 46. 71 Eastern Research Group, memo to EPA Review of Existing State GHG Reporting Requirements, 27 January 2009, http://www.epa.gov/ghgre-

Design Issues for Linking Carbon Markets 271 29 See, for example, testimony of Treasury Secretary Timothy F. Geithner before the House Financial Services and Agriculture Committees Joint Hearing on Regulation of OTC Derivatives, 10 July 2009, http://www. treasury.gov/press-center/press-releases/Pages/tg204.aspx. 30 Mark Jickling and Larry Parker, “Regulating a Carbon Market: Issues Raised by the European Carbon and U.S. Sulfur Dioxide Allowance Markets,” Congressional Research Service, 30 April 2008, 2. 31 See, for example, Senator Byron Dorgan, Senate Floor Statement on Climate Change Legislation, 16 July 2009, Congressional Record, 111th Congress, pages S7601–2. 32 Bart Chilton, “The Heavy Lift of Harmonization,” Reuters, 24 September 2010, http://blogs.reuters.com/financial-regulatory-forum/2010/09/24/ opinion-the-heavy-lift-of-harmonization-cftcs-chilton/. 33 S. 3031, § 2603(c). 34 H.R. 6186, 110th Congress. 35 For example, the Waxman-Markey bill also created a national market system for allowances to ensure consistent prices across trading venues. HR 2454, § 341(b)(2) and (c)(2). Two legislative efforts that received significant attention in the U.S. Senate during the first half of 2010 – the Carbon Limits and Energy for America's Renewal (CLEAR) Act, introduced by Senators Maria Cantwell and Barbara Collins, and the American Power Act, draft legislation released by Senators John Kerry and Joseph Lieberman – addressed concerns about risky market activity by limiting who may participate in allowance and/or derivative markets. 36 Public Law, 111–203, http://www.gpo.gov/fdsys/pkg/PLAW111publ203/pdf/PLAW-111publ203.pdf. 37 Dodd-Frank Act, s. 750. 38 Ibid., s. 750(a). 39 Interagency Working Group for the Study on Oversight of Carbon Markets, Report on the Oversight of Existing and Prospective Carbon Markets, 18 January 2011, 49–51. 40 For example, the bill does not apply directly to markets for actual emission allowances, otherwise known as “spot” or “cash” markets. 41 Keith B. Richburg, “Worldwide Financial Crisis Largely Bypasses Canada,” Washington Post, 16 October 2008; testimony of Arturo Valenzuela, assistant secretary, Bureau of Western Hemisphere Affairs, before the Subcommittee on the Western Hemisphere, Peace Corps, and Global Narcotics Affairs of the Senate Committee on Foreign Relations, Washington, DC, 17 February 2011, http://www.state.gov/p/wha/rls/rm/2011/156598.htm (“Not only

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did the region avoid the worst effects of the financial crisis, but current growth rates are projected to exceed 4 percent this year”). See Western Climate Initiative, Market Oversight Draft Recommendations, § 4.3.3. Western Climate Initiative, http://www.westernclimateinitiative.org. Ibid. California presents another related example, as it is designing a trading system pursuant to its own regulation and plans to link that market to the WCI system rather than rely on the WCI framework to fulfil its state law. Under OSC Rule 14-502, Designation of Additional Commodities. WCI Market Oversight White Paper, 18 November 2009, 16, http://www.westernclimateinitiative.org/document-archives/ Markets-Committee-Documents/Market-Oversight-White-Paper/. IIROC, “About IIROC,” http://www.iiroc.ca/about/Pages/default.aspx. Investment Industry Regulatory Agency of Canada, “Universal Market Integrity Rules,” http://www.iiroc.ca/industry/rulebook/Pages/UMIRMarketplace-Rules.aspx; Investment Industry Regulatory Agency of Canada, “How Our Enforcement Process Works,” http://www.iiroc.ca/ industry/enforcement/Pages/How-Our-Enforcement-Process-Works. aspx. 7 U.S.C. § 2. For detailed information regarding the WCI’s approach to market oversight, see Western Climate Initiative, “Markets Committee Archive,” http://www.westernclimateinitiative.org/ wci-committees/20-market-operation-a-oversight-committee. Western Climate Initiative, “Status Update on Market Oversight Recommendations,” 22 July 2010, 3.

10 Developing Integrated Carbon Accounting Systems steven b. young and clint l. abbott

The starting premise of this volume is that North American climate change governance activities are currently, and will continue to be, highly decentralized in their structure. The result is an array of regulatory and voluntary activities oriented towards mitigating greenhouse gas (GHG) emissions across different scales and diverse contexts. The specific challenges associated with integrating these activities are addressed elsewhere in this volume, but at the heart of many of these mechanisms is a system by which GHG emissions, emitted, reversed, or averted, can be measured, reported, and verified (MRV). Within a decentralized climate governance structure, cooperation between actors and organizations can occur only if the cooperating entities know and understand the emissions profile and reduction activities of the other actors across the overlapping systems of GHG control. The attractiveness of decentralized, flexible climate governance is that governments and firms can choose a reduction strategy that best suits their own social, economic, and operational requirements. However, the effectiveness of this flexibility to produce meaningful cooperation depends on the ability to compare their mitigation efforts. This requires a common metric that allows for comparisons across all forms of mitigation activities, ranging from basic command and control of industrial emission reductions and renewable energy low-carbon practices, to forest carbon sequestration. Within market settings, where emission reductions are monetized and are designed to be fungible, market efficiency and liquidity depend on the accuracy of the GHG measurements underlying the market instrument, as well as having credible and transparent reporting.

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At first view, GHG emission accounting would appear to be straightforward. Facilities generate emissions from various sources onsite, which can be measured and then aggregated at various levels. The information itself can be applied to a variety of GHG and carbon management activities, such as point source control and regulation, the creation of market instruments, voluntary reporting activities, or tracking the emissions associated with a particular product (e.g., carbon footprinting) or a series of actors (e.g., supply-chain carbon management). The purpose for which the accounts generated are used should not, in theory, affect the manner by which the measurements are actually done. The reality, however, is more complicated. At the core of the complications surrounding GHG accounting is the fact that GHG emissions are not so much measured as they are calculated. GHG emissions are usually determined by using estimates based on a predetermined emissions factor associated with a source and the associated activity data of the source. Difficulties arise though, due to the sheer volume and diversity of sources of GHG emissions across the economy. The diversity of sources requires the generation of varied calculation methodologies that must be tailored to various sectors, practices, and technologies, and account for tremendous variation of sources. The degree of accuracy of any particular measurement is contingent upon both the availability of technical data and the validity of assumptions embedded within the calculation itself. The structure of GHG accounting systems is further complicated by the variety of public and private objectives to which these measures are directed. In North America, the structure of GHG accounting is particularly diverse, with multiple programs operating across a variety of scales and contexts. The challenge that this structure poses is that as various GHG accounting programs proliferate in response to the expanding regulatory and voluntary management demands, the systems of accounting will diverge in their practices and conventions. Consequently, coherence across these systems will deteriorate, making cooperation more difficult. Quite simply, a tonne will not necessarily be a tonne. Integrated GHG accounting is an essential component of climate governance, as it provides a unifying infrastructure across the diverse regulatory tools that have emerged at various spatial and political scales. Practitioners involved in GHG mitigation activities are faced with a need to manage and interact with multiple and overlapping versions of rules, standards, and guidelines for GHG accounting. This diversity brings both benefits associated with flexibility and competition

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and costs associated with fragmented approaches. If the purpose of preserving the diversity of approaches is to maintain flexibility, it also necessitates a mechanism to ensure that practitioners can move efficiently and effectively across the range of GHG accounting tools. In order to understand why diversity is arising, and where integration is desirable, it necessary to map out the carbon accounting landscape in a more systematic way. This chapter proposes a framework that enables a comprehensive analysis of the differences in administrative scope, accounting system subjects, prescriptive measures, and the domains or purpose of the various accounting regimes. Although some fragmentation will continue to exist, the suggested framework provides a tool for understanding the interrelationships among accounting regimes, which in turn enables improved efficiency, coherence, and reciprocity among the regimes. The objective of this chapter is to present the broad contours of the system of carbon accounting in North America through a proposed framework. The framework is then used as a basis to examine the state of fragmentation among GHG accounting regimes, which leads to a presentation of observed and emerging pathways that are facilitating the integration of GHG accounting regimes across the broader system. Ultimately, the chapter links perspectives about technical translation and compatibility issues of GHG accounting to a discussion that highlights the governance implications, along with the key assumptions behind the science and art of carbon accounting systems. Understanding GHG Accounting GHG accounting has multiple components but typically includes the measurement, reporting, and verification of GHGs emissions and removals. The nomenclature surrounding GHG accounting is often used inconsistently, with terms such as carbon accounting or GHG inventories being used loosely and interchangeably with other terminology such as GHG accounting, carbon disclosure, and carbon reporting.1 As the terms suggest, some programs focus exclusively on carbon dioxide as the most prevalent GHG; however, most incorporate a range of GHGs. From a firm’s perspective, GHG accounting has been defined as “the recognition and consolidation of GHG emissions from operations in which the reporting company holds an interest, and linking the data to specific operations, sites, geographic locations, business processes and owners.”2 The private sector emphasis is on ownership and responsibility of emissions that need to be managed. The public sector, on the other

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hand, tends to focus on the measurement and aggregation of emissions across broader scales, such as geographic regions (cities, states, provinces, or countries) or industrial sectors. Regulation is typically applied at the facility level, where the emphasis is on legal ownership of sources of emissions and, as facilities are often privately owned, corporate carbon accounting practices underpin much of the system of MRV. The essential calculation that underlies all GHG measurement multiplies the activity data associated with a source by an emissions factor. Each type of source has its own set of emissions factors for each GHG, (i.e., methane from landfill, or carbon dioxide from a type and size of boiler). To provide a common basis for comparison, all GHG emission measurements are expressed in terms of their relative global warming potential (GWP), using carbon dioxide as the baseline. In order to convert GHGs other than carbon dioxide into a common metric, a conversion factor is used to create a carbon dioxide equivalent, or CO2e, where carbon dioxide (CO2) is given a value of one. This equivalency is widely accepted and broadly applied as an indicator of GHG heating effects. Commonly the heating potential is calculated using a hundred-year GWP time horizon, although twenty- and five-hundred-year GWP periods are also utilized (for example, methane’s GWP over one hundred years is 25 versus a value of 72 over twenty years). Recent carbon accounting discussions have suggested that the time period used for this indicator should be guided by the time period of the policy or business decision at hand;3 for example, a longer time horizon might be relevant for systems that assume forest growth. Moreover, the GWP of each gas is occasionally adjusted as a result of new science. The GWP for methane, notably, has been revised several times by the Intergovernmental Panel on Climate Change (IPCC).4 Regulations and national targets need to be explicit for accounting purposes as to what set of GWP indicators they refer.5 Determining emission factors and activity data requires knowledge of the specific processes and technologies from which GHGs are emitted. The accuracy and overall quality of each specific carbon accounting method is often categorized in tiers. The higher the tier, the greater the level of sophistication in the measurement, and the greater the expectation of accuracy. Tier 1 methods are the simplest and easiest to undertake but compromise the accuracy of measurement. Under UNFCCC guidance for national inventories, for example, Tier 1 uses very basic activity data and generic emissions factors that are relevant across all countries (e.g., this level may multiply the number of transportation

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vehicles in use by a generic emission factor for generic vehicles). Tier 2 utilizes more technology-specific emissions factors (where trucks, specifically, would be distinguished on the basis of fuel type, engine size, and mileage of the vehicle and emissions calculated for each group separately), and Tier 3 focuses on more detailed country-specific characterizations (where geographically specific fuel profiles and carbon contents could be additionally considered).6 More recently, largely as a result of heightened expectations around the EU ETS and U.S. EPA’s new GHG rule, a Tier 4 level has been defined for some sectors and technologies in order to heighten the degree of certainty in GHG measurements. At this level, there is a requirement for continuous emissions monitoring, where instrumentation is placed directly in the flow of gases (if implemented, each truck, for example, would have equipment and data systems installed to detect and record the flow of emissions as they occur). The measurement of either emissions averted or the GHGs that are sequestered is not radically different in principle but does involve different approaches and higher degrees of uncertainty in many cases. For example, determining the amount of GHGs sequestered by a reforestation project includes knowledge of the natural forest, soil, and weather conditions and involves approaches to monitor and account for sequestration over long time periods. For sequestration and carbon storage projects there is a heightened need to include verification to account for permanence of emissions avoided or removed. Given this complexity, it is quite common for GHG measurements to be attained by estimates from an abstracted level. For example, instead of calculating the emissions factors and activity data for various sources of GHGs for individual equipment within a facility, it may be more efficient to identify an emissions factor associated with the broader outputs of the facility. Therefore, if the facility manufactures steel, which has tens or hundreds of point sources in a steel plant, it may be preferable to identify an emission factor based on the amount of GHGs associated with the production of steel, using identified basic technologies. Regardless of the approach, once the data are obtained, they are formatted for internal and external reporting, used by firms to form their climate change strategies and activities, and these reports form the basis of voluntary and mandatory disclosure processes. For policymakers, GHG accounting and reporting serves multiple purposes, including reporting for the sake of public record (e.g., U.S. EPA Mandatory Reporting Rule – MRR)7, determination of allowances in a

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cap-and-trade (e.g., Western Climate Initiative – WCI), and development of carbon offsets projects (e.g., Alberta Specified Gas Emitters Regulation).8 These separate purposes will often require aggregation of emissions in different ways. For example, measurement and reporting done primarily for non-regulatory purposes is often aggregated on a corporate basis, as firms are less concerned with emissions from individual locations or sources than they are with understanding the broader emissions profile of the entire corporate entity. The extent of the corporation may in many cases span multiple jurisdictions, making it quite difficult to attribute reported emissions to a particular jurisdiction. Different reporting purposes also give rise to different information requirements, such as requirements to provide detailed information on the measurement methodology employed, the sources of background or supporting data, and verification procedures, clarity on the scope of coverage (i.e., whether the reported emissions cover all GHGs, just the Kyoto gases, or only carbon dioxide), and the period of measurement. In regulatory contexts, metadata on the emissions source such as the ownership and responsibility for control over the emissions are necessary. Overlapping but often different mandatory reporting requirements are yet another component to GHG accounting. For example, in the United States, the EPA’s MRR requires facilities with emissions exceeding 25,000 tonnes of CO2e to report.9 The equivalent rule in Canada requires only those facilities exceeding 50,000 tonnes to report, thus including only much larger sources compared to the United States. Sectoral coverage may also vary from regime to regime, such as whether major fuel suppliers (who are not direct emitters themselves) must report on their sales to downstream users (who are the actual emitters when they use fuel). Moreover, a number of private and public GHG registries have developed, which provide standardized formats for submitting and sharing GHG data. The Climate Registry (TCR), for example, receives GHG information directly from companies who voluntarily disclose emissions.10 Consequently, TCR supports a diversity of voluntary initiatives and mandatory programs in U.S. states, including California and Massachusetts.11 Registries often have the capacity to record and certify individual units of carbon credits (e.g., each tonne of CO2e of an offset credit receives its own certification number), which facilitates tracking to improve third-party assurance, avoid double counting, and allow for explicit retirement of spent offsets and allowances.

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In addition to the measurement and reporting components, GHG accounting includes verification and validation processes. For verification, assurance methods are employed that, similar to financial audits, involve an objective investigation that tests the validity of measurements and reports against a set of established criteria. Verification is essential to providing assurance of the accuracy of claims by an agency or firm. Validation is similar to verification, except it is conducted prior to data collection and is commonly used in offset systems to approve methods and project acceptance before an offset project is implemented. Verifiers and validators are both individual experts and specialized companies that house these experts. The knowledge and skill sets required include GHG science and quantification know-how, technical expertise on specific types of industry and technologies in facilities, and auditing experience consistent with both general principles and the intricacies of specific programs under which a facility is subject or a project is submitting. The field of players includes accounting and large consulting houses that are well established as the financial and business auditors, engineering firms that have deep relations with certain major sectors like waste management, power, or mining, and boutique consultancies that have specialized niches in GHG assurance. Credentials are issued by government agencies and authorities like the American National Standards Institute (as a validation and/or verification body) and are recognised by TCR and the Climate Action Reserve. In the voluntary carbon market, organizations like the former Chicago Climate Exchange, the Voluntary Carbon Standard, and the American Carbon Registry have parallel systems. General principles and guidance for verification and verifiers are expressed by the International Organisation for Standardisation (ISO) in international standards ISO 14065:2007 and ISO 14064–3:2006 and are widely referenced. The Structure of GHG Accounting Systems in North America Collectively, the varied GHG accounting systems in North America are implemented in specific programs, but GHG accounting requirements are also specified in more generalized standards or guidelines that do not operate as programs but rather supply rules or principles that may be adopted by programs or by individual actors.12 Programs may be administered by either government or private organizations (see, for example, the Alberta Greenhouse Gas Reporting Program13

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and American Carbon Registry14 respectively), they may be either voluntary or mandatory, and they may or may not include carbon trading. A distinctive feature of GHG accounting programs is that they are typically rule focused and include tightly defined variables such as scope, participation, eligibility of verifiers, eligibility of projects, and accounting metrics. Programs can provide considerable instruction on the what and how of measurement, reporting, and verification, including prescriptions on who must report and in what time period. In addition, programs have defined authorities that run each program, executing its rules and establishing the program operation. Standards, on the other hand, can be defined as “a guide for behaviour and judging good behaviour.”15 GHG accounting standards provide overarching principles and guidance on MRV and are often designed to complement the detailed rules present in programs. While carbon standards are often associated with a rule-based GHG program that may be established by public or private authorities at various scales,16 they may also stand alone. For instance, ISO 14064–3:2006 has emerged as the most widely used international GHG standard created thus far by ISO.17 This standard has experienced significant uptake by international programs in the United States and Canada, is being used by the non-profit Climate Action Reserve and American National Standards Institute (ANSI) to accredit third-party auditors, and has been built into provincial programs in Alberta, British Columbia, and Saskatchewan.18 Standards may be developed through formalized international processes, such as the ISO, or they may be developed through other processes coordinated by authorities like NGOs, industry associations, or individual companies (e.g., Voluntary Carbon Standard, GHG Protocol: Accounting and Reporting Standard).19 Therefore, a diverse range of actors, both within state-based systems and outside, are creating potentially competing standards for GHG accounting and climate governance. An example of this competition emerged when ISO decided to create a corporate accounting standard that was directly derivative of the GHG Protocol standard on corporate accounting but used different terminology and had differences in the auditability of the standards.20 Guidelines are slightly different from standards and programs but are intended to support both by providing specific details on the interpretation of standards and how to implement program rules. Guidelines often outline best practices and give calculation tools and specific technical guidance for quantifying GHGs from sources, sinks,

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and reservoirs (e.g., the Climate Registry General Reporting Protocol).21 Guidelines may be specified within a program’s rules. Since there is inevitably a range of tools that can be applied in innumerable ways, guidelines are potentially a source of further fragmentation. However, if a single best practice is widely adopted, the guidelines may also serve as a source of coherence. The various standards and guidelines can fit within the spectrum of soft to hard law, depending on the degree to which the standards form the basis for norms or legally binding rules. The fact that competing standards exist and have become embedded within the legal system in different ways perpetuates the fragmentation and lack of coherence in the GHG accounting system. The normative character of the instrument is also affected by the degree of detail prescribed. Some standards and guidelines are drafted very much as rules with a high degree of precision, while others are drafted as principles providing a more abstracted level of guidance that allows for greater flexibility in their application.22 Towards a Framework for GHG Accounting Given the proliferation and diversity of rules and standards associated with various GHG accounting systems, a broader framework is needed by which these various systems can be categorized and understood relative to one another and in the context of the programs and markets they serve. A framework also allows for a preliminary assessment of the ways in which GHG accounting systems diverge from one another and the existing pathways for convergence. The framework presented here has a number of distinct elements that correspond to key variances among GHG accounting systems. Appendix A lists the principal GHG accounting systems in accordance with the framework described below. The appendix, which identifies the major North American GHG accounting programs and relevant standards, is not intended to be exhaustive, but it does provide an illustrative sense of the range of systems operating in North America. A brief description of each system is provided in the appendix, but the principal systems are elaborated on in the discussion of the framework below. The framework comprises four primary characteristics: the administrative scope across which the system operates, the subject of the accounting system (e.g., whether the system seeks to measure emissions from products, facilities, corporations, or across entire economies of jurisdictions), the prescriptive nature of the system, and the domain

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or purpose of the system itself. Collectively, these four characteristics attempt to recognize the key factors that diverge across GHG accounting systems and are important to the flexibility of climate governance regimes. Systems of measurement operate at varying scales of administrative scope. This refers to the level at which rules used in specific accounting procedures and practices are regulated or standardized. Verification rules, for example, vary. They may require self-declaration, third-party audit, or checks done by the program authority. ISO documents are written as international standards that are applicable anywhere in the world. Regulations like the U.S. EPA’s MRR and Canada’s GHGRP are administered nationally. The WCI spans North America but is not relevant to all jurisdictions on the continent. The Pacific Carbon Trust is limited explicitly to the Province of British Columbia in its mandate to purchase greenhouse gas offsets for sale to government agencies. Private systems are generally devised to have an impact as broad as possible, such as to generate voluntary offsets to buyers across the United States or beyond. GHG are measured at sources, sinks, and reservoirs where gases are directly emitted, removed, or stored. Examples, respectively, are fuel combustion emissions from the tailpipe of a truck engine; tree growth, which involves absorption of carbon dioxide in photosynthesis; and carbon storage in underground geological formations. Depending on the aggregation of accounts from discrete sources, sinks, and reservoirs, the carbon account can be compiled and calculated for different subjects. Emissions from a facility are typically collected ot the base of the fence line of the property. Corporate accounting spans the sites and facilities owned or managed by a firm and typically also include indirect emissions from off-site electricity generation and employee travel. A product carbon footprint represents emissions from multiple facilities, likely spanning different countries, aggregated according to their fractions that can be assigned to a specific good or service. Another characteristic of accounting systems is the normative expectations imposed by standards and on participants in programs. The GHG Protocol has low prescriptive expectations, as it is a voluntary guideline and is relatively loose in some of the rules as to what needs to be done (employee travel emission may be included, and the protocol gives guidance to do so). The U.S. MRR, on the other hand, is highly prescriptive as to what facilities must report and what formulas each must use to measure sources to a level of accuracy and verifiability. The

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Chicago Climate Exchange occupied a middle ground on the spectrum of prescriptiveness: a corporation would voluntarily join the program and then sign a contract obliging it to report and reduce emissions using the private methods and tools provided by the exchange. The prescriptiveness of international standards is low, as they are typically designed as standalone documents intended to support analysts and program authorities, whereas programs, whether voluntary or regulated, are administered by administrative bodies that impose clear rules and refer to more detailed technical guidelines, criteria, and protocols to be used across the program. The third characteristic is what we term “domains,” by which we refer to the distinct purposes to which the accounting system is directed. We identify six principal domains. National Inventory Domain This domain maintains measurement approaches that are consistent between nations. Therefore, this domain shapes and is shaped by international agreements, such as the UNFCCC. The national inventories are not intended to control emissions from sources; rather, the domain is focused on accurate and consistent aggregation of emissions to compare levels across economies. Annex B states in the Kyoto Protocol are obligated to limit their emissions, but measurements are not based on facility level accounting, hence the aggregated nature of this accounting domain. It is worth noting that this domain feeds only into the single, international system. Facility Reporting Domain The facility reporting domain, introduced in the late 1990s, is regulatory, analogous to a command-and-control system, and is a precursor to site-level restrictions on industrial emissions. Facility reporting shows considerable fragmentation, as it includes national initiatives such as the EPA MRR for GHGs, regional efforts such as MGGRA, and substate rules such as those from the Oregon Department of Environmental Quality and under the Ontario Environmental Protection Act. Under a national administrative scope, facilities with annual GHG emissions over threshold quantities (25,000 tonnes per year in the United States and 50,000 tonnes in Canada) are required to account and report. In addition, half the Canadian provinces and more than one-third of US.

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states have their own requirements for facility-level carbon accounting but vary in their definitions of facilities required to participate and in prescriptiveness of emissions monitoring and verification.23 Voluntary Corporate Accounting Domain This domain involves organizations that determine their GHG emission impact privately or sometimes publicly. This domain is purely voluntary and, for a period, exhibited considerable fragmentation across firms, sectors, and various government-led or NGO collaborative initiatives.24 However, this domain has evolved and uses frameworks such as the corporate reporting standard devised by the Greenhouse Gas Protocol Initiative and the ISO 14064-1:2006. The purpose is not to meet legislated obligations. Instead, the domain is a voluntary arena intended foremost for an organization’s internal purposes, enabling it to measure what they manage. Results from voluntary corporate accounting may be used selectively in controlled public reporting, as in part part of an annual report or for public relations. They might also be used for client–competitor relations and serving customer demands for data, such as to meet requests from large retailers and brand-owners seeking GHG information on their suppliers. Corporate Disclosure Domain The corporate disclosure domain is an offshoot of voluntary corporate accounting that has taken on its own rules and methods. It is not focused on controlling emissions but instead meets the needs related to investor disclosure and reporting of financial risk. The corporate disclosure domain is driven from the investment side of companies and now involves what can best be characterized as semi- or mixed voluntary reporting. That is, some shareholder and investor reporting started voluntarily but has increasingly become mandated by shareholders and securities exchanges. The Carbon Disclosure Project is a non-profit organization that, since 2000, acts on behalf of institutional shareholders to request GHG emissions disclosure from companies and reports those measures in a global public database. Another example is the Ontario Securities Commission corporate sustainability reporting initiative, which creates reporting standards.25 The shareholder reporting may be separate from, or in addition to, the voluntary corporate

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reporting that individual companies (who report to the shareholders) may already be undertaking. The purpose is to enable shareholders to assess and quantify the moral, price, and risk-related decisions associated with the emission of GHGs and the corresponding management activities of firms. The Climate Disclosure Standards Board presents more prescriptive rules that are intended to structure GHG reporting of companies required to file annual reports to securities exchanges. This international effort explicitly aims to harmonize carbon disclosure reporting for integration with mainstream financial corporate reporting. Offsets Projects Domain This domain was first proposed in 1997 under the Kyoto Protocol by the UNFCCC under the Clean Development Mechanism (CDM). Carbon offset programs and their commensurate accounting systems are now active in several North American jurisdictions. There are also various smaller private organizations, often for-profit, with independent programs that operate to provide carbon offsets in the voluntary market.26 Despite these efforts, there are still large gaps in policy coherence and, consequently, in the economic efficiency of offsets MRV. The subject of GHG accounting in this domain is the offsets project, where particular methods apply to measurement, reporting, and verification of the difference in emissions from a baseline (business-as-usual) scenario, compared to a defined project scenario. Specific guidelines are defined for each project type or category, and these vary significantly, depending on the project type (coal mine methane, landfill, livestock, road surfacing, rice cultivation, cropland management, building energy efficiency, etc.). The central dilemma is one of specificity to each technology and project circumstance, versus replicability and consistency among guidelines. To a large extent, each offset protocol requires detailed technical rule-making that is often not transferable to other project types. Thus, there is a necessary fragmentation of guidelines covering numerous and diverse project types. Product Accounting and Reporting Domain This domain is motivated by consumer interest. Product-specific reports include efforts such as product carbon footprints, which aspire to detail the entire product supply chain. This domain is relatively young, and policy coherence has not yet emerged. From initiative to

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initiative, there is flexibility in methodologies for carbon measurement, and variation can be found amongst product categories and in different regions and sectors.27 Distinct from other voluntary reporting, this domain is not focused on facilities. Rather, the entire life cycle of a product is considered and involves accounting of emissions from multiple firms, numerous sites, and often many jurisdictions. Efforts to standardize product carbon footprinting, based on life cycle assessment, have been developed by the GHG Protocol Initiative and are proposed as an ISO international standard. There are also various collaborative and corporate programs underway; the Sustainability Consortium, an NGO-funded organization,28 and the Walmart Sustainable Product Index29 are two significant programs that have garnered a high profile in North America. An important sub-domain of product accounting and reporting is the area of Low Carbon Fuel Standards (LCFS). These focus on the lifecycle emissions of transportation fuels (gasoline, diesel, biofuels, and electricity), but, unlike consumer-focused product carbon footprinting, are built into regulatory frameworks with targets for fuel emissions that force total reductions over time, per unit of transportation. California initiated the first LCFS program, in effect in 2011.30 More than a dozen other jurisdictions in the United States and Canada are following California’s lead or considering LCFS, including sub-regional programs like WCI. From an accounting perspective, LCFS (and product carbon footprints in general) are complex and controversial: measurement includes estimates of emissions not just from the vehicle in the jurisdiction, but from indirect sources that are off-site and may be foreign. Moreover, LCFS compares fossil fuels to biofuels and thus raises significant measurement challenges associated with farming practices (like the degree of soil carbon sequestration over years of farming), and use and shifts in land used for agriculture.31 Under this framework, it is conceived that GHGs from a source – a single point of emission – are measured only once and can then be used to serve carbon accounts and programs with different purposes, to different audiences (i.e., in different domains), at varying scales. This makes sense both physically, as gases are generated at discrete points, and from a management efficiency perspective, as facilities should be able to use the same data to serve different purposes and audiences. As well, a number of approaches using the framework could examine and compare MRV activities within and across domains. Horizontal analysis examines the compatibility of programs within a domain, such

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Figure 10.1. Domains of carbon accounting National inventories Corporate disclosure Voluntary corporate accounting Scale of accounting • International • National • Province/state • Firm • Facility • Source

Offsets projects Product footprinting Facility reporting Domains • Different purposes • Different subjects • Different audiences

as alignment among voluntary offset programs. Vertical analysis can expose issues of coherence up and down the levels within a domain, such as the extent to which a state program complies with international standards, and provincial and national programs are integrated. Crossdomain analysis considers linkages between areas like regulated facility reporting and corporate disclosure. The intention in developing such a framework is not to create a typology of domains or of scales. Rather, the framework helps to visualize the interrelated components of GHG accounting and provides the foundation for analytical precision for discussing GHG accounting systems. In essence, integration is apparent within some domains, but not within others. Across domains, we see interactions and linkages – the MRR is a strong mandatory program and is crossing from facility level to corporate inventories. It makes sense that firms measure GHGs once at a site and use that for voluntary disclosure and supply-chain reporting. The verification of specific emissions is regulated by the MRR and is of sufficient rigour that can satisfy other purposes and audiences. Measurement is being integrated across domains, as it is a technical exercise at the micro level of sources and emissions. Verification follows measurement. There is variation in what tier of accuracy is required and what documentation is necessary. However, this situation is one of a highest common denominator: the most rigorous, accurate measurement will satisfy multiple reporting needs. Therefore, while flexibility is enabled, perhaps even encouraged in the system, measurement is

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still driven by the most rigorous program needs. Reporting remains domain specific and differs significantly, as it serves varying audiences and purposes. Each domain has a different purpose and is intended for different audiences and may involve several MRV objectives, because the way in which emissions are measured, reported, and verified must be relevant to that domain. The objectives may include the need for transparency, addressing competing business objectives, reducing risks and costs, reputation management, and meeting regulatory objectives such as accuracy and enforceability. For example, within the product footprinting domain described above, the measures are focused on emissions intensity, rather than absolute values, because the domain is concerned about the emissions per product. In comparison, the regulatory facility reporting domain includes absolute measures of a firm’s total annual emissions, rather than a facility- or product-specific intensity value.32 The domains themselves are boundaries that are largely independent (each functions towards its own purpose and audience); however, the GHG accounting results, the broader regulatory and voluntary programs, and the carbon markets operate in and over these domains and are highly interdependent. The overlapping nature of the instruments – that is, the programs, standards, and guidelines – presents challenges and opportunity to bridge domains. GHG accounting regimes can be better designed and integrated to allow for interoperability of methods, protocols, and registries. For example, a measurement taken once at a source in a facility can be used to report under the MRR facility rule, to internal firm management, to voluntary corporate accounting in an annual report, and to CDP corporate disclosure to investors. At a technical level, the methods and results of accounting for a particular technology (e.g., a fuel-efficient engine) should be consistent, whether that engine simply accounted as part of the facility, or whether it is a key component in a carbon offset project, or it provides electricity for the production of manufacturing and is accounted as part of a product carbon footprint. For the market operator, assurance in the MRV of that engine’s emissions provides value to any monetization of emissions reductions or allowance credits that in turn may feed via market transaction to facility-level compliance in separate jurisdictions. Cases of interdependence such as this demonstrate how the decentralized climate governance system may become more harmonized and coherent over time.

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Fragmentation Fragmentation in GHG accounting is apparent, as numerous and often inconsistent systems for MRV have emerged across North America, resulting in multiple, overlapping, and incompatible schemes in some areas. Projecting into the future, challenges will remain, including how far MRV methods may diverge and to what extent and in what domains fragmentation might be tolerable. The area of carbon offsets project accounting and reporting is an important domain where efforts in policy reciprocity have led to significant harmonization across North America. For example, the offset agreement under the WCI intends to establish in principle an “efficient offset system, consistent across … jurisdictions, [to] ensure an adequate supply of high-quality offsets.”33 As discussed by Murray, Maniloff, and Monast (chapter 9), the fungibility of offset credits among regional trading systems promotes system linkage and broader efficiencies. Moreover, via California’s endorsement of the Climate Action Reserve’s system, voluntary projects are linked to regulated offsets. Nonetheless, with this carbon accounting infrastructure in place, it remains to be formalized across the continent and tested in widespread implementation of carbon offsets. There is a clear example of significant ongoing fragmentation within product carbon footprinting. There are more than twenty privately run programs in this domain, operated by diverse NGOs and non-profit organizations.34 In addition there are significant multi-stakeholder product carbon footprinting standards under development relevant to the region: one by the GHG Protocol Initiative, and another drafted by ISO (as well as existing U.K., Japanese, and French standards). The whole field is one of ongoing harmonization competition between private and public authorities and international consistency, and regional interests are played out. One key methodological question that is not reconciled across this domain, for example, is whether and how companies measuring product carbon should include GHG emissions associated with final consumer use, which varies across regions and is inconsistent between households (e.g., emissions from the electricity generated to operate a cooking appliance in a household). The importance of this question and others concerning product footprinting in North America (unlike Europe, where there is direct government interest) is largely restricted to private firms and their relations with consumers, and is not urgent to regulators seeking industrial emissions

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reductions. Conversely, LCFS is an example product category area where U.S. and Canadian governments have expressed desire to harmonize multiple programs across state, provincial, and sub-regional scales.35 As stated at the outset, reciprocity is also a concern. Using an example from the firm level, the Carbon Disclosure Project reports that 73 per cent of the largest companies disclose GHG emissions, although more complete reporting, including indirect emissions, is much lower.36 Researchers have noted that the level of disclosure in the CDP is not sufficient to provide rigorous comparisons between firms.37 Within the facility level reporting domain, numerous programs have developed across multiple regions and at various scales, which provide schemes with similar purposes. National approaches for facility reporting between the United States, Canada, and Mexico differ in their accounting requirements, thresholds for site participation, transparency of reporting of activity data and emissions parameters, and expectations and processes for verification. State and provincial requirements add another layer of facility accounting, also potentially inconsistent with each other and with higher-level national rules. Alberta’s GHG reporting and reduction regulations are designed specifically not to align with other regions, as the program was developed in expectation of being supplanted by a federal system. Single facilities, in some cases, report under multiple different regulatory programs and, additionally, to industry sector reports and to voluntary private authorities. Facility level comparisons would need to be adjusted for considerations like the types of gases being reported, de minimis rules defining smaller sources that are excluded, and whether indirect emissions are included. The presence of divergent facility reporting rules makes inter-firm and inter-jurisdictional comparisons difficult, which in turn may undermine regional cooperation, as comparability of emissions is an important element assessing relative levels of mitigation effort and competitiveness. The coexistence of top-down and bottom-up approaches creates the possibility for further fragmentation and coherence problems. A question that remains for the future is whether top-down national inventories, as they become more sophisticated after more than a decade of reporting, and bottom-up approaches, as they become more pervasive and comprehensive, will generate compatible GHG measurements. Bottom-up inventories are not intended to be complete, as not every facility needs to report; however, information should be sufficiently

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complete to compare facility data on some segments of the economy to test for potential mismatches in methods and calculations. Should misalignments be exposed, likely neither the UNFCCC nor regulated reporting methods would need to respond with urgency. However, over time, the accuracy of both activity data and emissions factors, whether top-down or bottom-up, should be expected to converge. In a fragmented landscape, administrators and participants are suffering inefficiencies due to redundancies, delays, and uncertainty in relation to which final rules to follow. Carbon offset project protocols are illustrative. These are very detailed guidelines that address specific technologies, management practices, and industrial activities. They are created under private and public authorities, typically in processes that include project proponents, facility owners, technology firms, consultants, and diverse stakeholders. With several jurisdictions (Alberta, BC, RGGI, Ontario, California, etc.) supporting the use of offsets as part of reduction programs or for cap-and-trade mechanisms, there is an urgency to address fragmentation. A broader, deeper pool of projects will facilitate market efficiency and help generate more high-quality projects across the continent. At a minimum, offset developers will want to ensure that projects do not have to be subject to multiple sets of requirements to be fungible across different compliance markets. Pathways for GHG Harmonization and Coherence Some attempts have been made to move towards harmonization and a more coherent climate governance regime in North America. For instance, the convergence of GHG registries has improved coherence and efficiencies. One example involves TCR – a collaboration of North American governments at various levels that is designed to support programs “as a cost effective central repository or clearinghouse for reporting and/or tracking GHG data.”38 This initiative consolidates a number of previous reporting programs under a single umbrella, and it supports both voluntary corporate accounting and government mandated facility reporting. The infrastructure emerged from the California registry39 and provides a framework that supports state, U.S., Canadian, and Mexican programs.40 However, we argue that in addition to collaborative data management, four other pathways could address the currently fragmented approach to GHG accounting: internationalization, regulation, markets, and networks. While these are discussed separately below, the

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pathways themselves may contain considerable overlap. For instance, as regulations are developed, expert networks may play a critical role in the transfer of knowledge and information between governments, non-profit organizations, and business actors about those regulations. The internationalization pathway refers to the effect that international norms and standards can have on North America. This mechanism includes both formal international standards (developed with government oversight) and so-called private standards that are developed by firms, NGOs, and professional organizations. Internationalization may occur via top-down regulation that stems from international institutions, such as the UNFCCC or the WTO. However, since agreements and standards generated in this level typically place demands upon nations, rather than individual firms, they are less likely to lead to a clear international standard until they develop a finer degree of resolution. Internationalization may also arise in a more horizontal fashion, with firms or governments adopting established standards for competitive reasons or to satisfy public demands for high environmental integrity. The GHG Protocol and the Carbon Disclosure Project have served as internationalization mechanisms in this respect. In terms of increased regulation of emissions through mechanisms such as the EPA MRR, a race to the top has been created across different jurisdictions, leading to an alternate harmonization pathway.41 For instance, the WCI, because of its dominant U.S. membership, has adopted the EPA MRR. Consequently, Ontario, as a non-U.S. member of the WCI, has also integrated the EPA rules into its own regulatory implementation, rather than developing its own separate rules. The interest in adopting tougher rules arises because they may reduce costs in the longer term if MRV becomes more stringent through other means, such as international agreements, and because of the incentive to protect reputations. This demonstrates how a single regulator effectively raises standards across jurisdictions outside of its authority. A simple example is convergence on the definition of facilities required to report GHGs: the MRR threshold of 25,000 tonnes of emissions is becoming the North American norm. Market instruments require fungibility across different market systems, which in turn increase the pressure for various actors within the market to adopt similar MRV regimes with identical levels of stringency. For example, the WCI has established a 95 per cent accuracy rule on total reporting and a de minimus threshold for excluding sources with a cumulative total of less than 3 per cent. These technical expectations

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force participants to focus their MRV efforts to defined levels of accuracy and assurance. For firms that fall within the jurisdictions of the WCI initiative, there is a reduced benefit to trading with any organization that may have a lower level of accuracy, because allowance units may not be accepted. Otherwise, discounting or adjustments may be required to bring them on par with WCI. Moreover, a large market provides fluidity across more jurisdictions, reducing process costs associated with administration of MRV and program rules. As discussed by Brian Murray, Peter Maniloff, and Jonas Monast (chapter 9), joint offset criteria have been established by the WCI, RGGI, and MGGRA, which propagate accounting rules and expectations more widely in the region.42 As discussed by both Barry Rabe (chapter 3) and Neil Craik (chapter 8), networked approaches within and between levels of government and organizations can be critical for gathering and disseminating information, to broker norms and agreements in climate governance.43 Given that GHG accounting is based primarily on information – the transparency of its sharing, the accuracy of the data, and how easily the information can be accessed and verified – networks can be expected to become a central pillar to connect seemingly disparate actors and regimes. Expert networks or epistemic communities were first conceptualized by Haas (1992), who defined them as a “network of professionals with recognized expertise and competence in a particular domain and an authoritative claim to policy-relevant knowledge within that domain or issue area.”44 Early epistemic community research focused mainly on networks of scientists45 but has since broadened to include a variety of professional associations and expert groups.46 Such networks have increasingly emerged as another potential pathway to improve coherence across the GHG accounting system. There are multiple examples in GHG accounting where experts are increasingly connected across domains. In fact, numerous government and non-profit initiatives are collectively helping to professionalize the industry of GHG measurement and management and provide structure to MRV. For example, training courses are provided by government agencies, and industry associations and non-profit organizations increasingly help define best practices, which in turn are adopted across sectors and jurisdictions. The competency and accreditation of those involved in the GHG industry is evolving rapidly to support the increasing complexity of GHG accounting. ISO established base

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standards for verification bodies and competency requirements for verification teams.47 In 2010, Environmental Careers Organization Canada established requirements defining accreditation of GHG professionals in five areas of speciality.48 In 2011, in collaboration with the GHG Management Institute (a professional association), the program became international and reinforced the importance and legitimacy of a designation for GHG professionals.49 The expertise of the collective body of professionals has been noted as a critical success factor in the establishment of rigorous, meaningful, and successful initiatives.50 As further evidence of an emergent network of experts, a new academic journal was published in 2011 (Greenhouse Gas Measurement and Management), which contributes a forum for the creation of a body of technical expertise and discourse and ultimately serves as a path for possible harmonization, with aims to do so worldwide.51 Heather Lovell and Donald MacKenzie52 argue that some professional groups, specifically the financial accounting professionals, were slow to engage with the GHG accounting debates. Yet their influence as an epistemic community to frame both the problems and the solutions within the field is growing, thus confirming our hypothesis that such expert networks comprise a pathway for increasing coherence. Conclusions This chapter presented a framework that captures the various domains and scales of GHG accounting and serves as a tool to compare and contrast the emergent accounting practices, which is essential to enable convergence within GHG accounting. Trends indicate that the accounting systems have become increasingly focused, homing in on facility level emissions and even specific products in recent years. Yet, rather than occurring within established regimes, this finer resolution has resulted in further expansion of GHG accounting programs. Evidence demonstrates that some harmonization has occurred, such as the widespread business uptake of the GHG Protocol for voluntary corporate reporting and the adoption of EPA MRR standards in the WCI, but a five-year outlook predicts only marginal change, rather than sweeping efforts to streamline. Different pathways provide potential opportunities for harmonization to occur, including internationalization, regulation, markets, and expert networks, but they are often countered by other pressures, including political and self-serving business interests.

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At times, this results in a tension between actor groups and the disparate needs and goals within and across domains. Traditional top-down systems may place different levels of government in an authoritative position, but the reality in GHG accounting is that information is held by individual industrial firms, associations, and non-governmental agencies, thus limiting the ability of any single, coordinated body to be informed enough to exert control. Unlike in Europe, where the EU ETS has been a strong force of harmonization, the North American GHG accounting landscape lacks a dominant domain or a centralized institution that is likely to impose uniform GHG accounting practices across jurisdictions and across domains. Yet, many developments have become highly prescriptive and require MRV on a lower range of GHG levels (e.g., 25,000 tonnes of CO2 rather than 50,000 tonnes), which in turn, increases the range of actors that now need to account for emissions (e.g., medium-sized enterprises that do not emit the same levels as large firms are included as a result of the lowered threshold). Even small companies are included, although in a non-regulated manner, since they are part of broad supply chains that serve large firms, which are seeking competitive advantage through the use of consumer-oriented product carbon footprints or are obligated by shareholders to provide corporate disclosure of indirect GHGs and climate action plans. Moreover, the historical tendency to focus on emissions neglects the rising importance of sinks and reservoirs as a critical component in the overall goal of reducing GHG emissions. To clarify, accounting has typically focused on the emissions at firms and facilities as the main producers of the emissions. However, forestry management and the agricultural sector, for example, play a key role in managing sinks. Thus, GHG accounting will need to further expand to include more comprehensive measures for different sectors. The expansion could pose further risks for fragmentation in the absence of concentrated collaborative efforts. As well, additional domains may emerge in coming years as climate change programs and requirements give rise to new types of GHG accounting. Supply chain methods and approaches will connect facilities across different companies, and across jurisdictions, and support the management of more carbon-efficient sourcing, product take-back, and transportation logistics.53 Ultimately, GHG accounting can be understood as a form of system infrastructure that provides a form of currency amongst policies,

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organizations, and jurisdictions that facilitates comparability and trade. Nevertheless, fragmentation and incoherence can be expected. Diversity and divergence are not to be feared, given the flexibility that each GHG accounting sub-system provides to ensure that local, context-specific needs can be considered but still contribute to the overall reduction in GHG emissions. Moreover, the competition that naturally emerges from the various programs has thus far encouraged a race to the top for measuring and reporting, simply to ensure that multiple reporting needs can be satisfied. The search for compatible standards can improve economic efficiency, while amplifying emission reductions. Regardless of the degree of integration that emerges, accounting of GHGs across North America will increasingly cover more domains of activity, serving varying purposes at different scales, and with different degrees of harmonization or fragmentation. Integration of MRV is important because accepted standards and interoperability of protocols can support programs across jurisdictions and potentially reduce process costs and provide business and policymakers with ready-touse tools. Furthermore, being able to compare efforts and to ensure reciprocity in effort assures cooperating partners of each other’s commitments to achieving shared goals. An integrated GHG accounting system is key to creating the ability to compare across domains. NOTES 1 World Resources Institute & World Business Council for Sustainable Development, The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, 2nd ed. (Washington, DC: WBCSD/WRI, 2004); E. Gentil, T.H. Christensen, and E. Aoustin, “Greenhouse Gas Accounting and Waste Management,” Waste Management & Research 27 (2009): 696–706; O.J. Cacho, R.L. Hean, and R.M. Wise, “Carbon-Accounting Methods and Reforestation Incentives,” Australian Journal of Agriculture and Resource Economics 47, no. 2 (2003): 153–79. 2 K. Ritter, S. Nordrum, M. McMahon, T. Shires, and M. Lev-on, “Advancing Global Consistency in Estimating Greenhouse Gas Emissions from Oil and Gas Industry Operations,” Engineering Institute of Canada (EIC) Climate Change Technology, IEEE, 2007, 2. 3 See, for example, A. Kendall, B. Chang, and B.A. Sharpe, “Accounting for Time-Dependent Effects in Biofuel Life Cycle Greenhouse Gas Emissions Calculations,” Environmental Science & Technology 43, no. 18 (2009): 7142–7.

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4 Methane values for the 100-year horizon vary across the four IPCC assessment reports published. See Intergovernmental Panel on Climate Change (IPCC), IPCC Fourth Assessment Report: Climate Change 2007: The AR4 Synthesis Report, Geneva, 2008, http://www.ipcc.ch/publications_ and_data/ar4/syr/en/contents.html; Intergovernmental Panel on Climate Change (IPCC), “IPCC Third Assessment Report: Climate Change 2001” (TAR), Geneva, 2008, http://www.grida.no/publications/other/ipcc_tar/; IPCC, IPCC Second Assessment: Climate Change 1995, Geneva, 1995, http:// www.ipcc.ch/pdf/climate-changes-1995/ipcc-2nd-assessment/2nd-assess ment-en.pdf. 5 For a social science–based explanation of the commensurability of these gases and their GWPs, see D. MacKenzie, “Making Things the Same: Gases, Emission Rights and the Politics of Carbon Markets,” Accounting, Organizations and Society 34, nos 3–4 (2009): 440–55. 6 These are illustrative examples, not necessarily the exact guidance provided. 7 See Environmental Protection Agency (EPA), Mandatory Reporting of Greenhouse Gases Rule (74 FR 5620), 40 CFR Parts 86, 87, 89 et al. (2009), http://www.epa.gov/ghgreporting/. 8 See Alberta Environment, Specified Gas Emitters Regulation: Technical Guidance Document for Baseline Emissions Intensity Applications, 18 July 2007, http://www.environment.gov.ab.ca/info/library/7811.pdf. 9 EPA, Mandatory Reporting of Greenhouse Gases Rule. 10 See the Climate Registry (TCR), http://www.theclimateregistry.org/. 11 Ibid. 12 See appendix A for a non-exhaustive summary of twenty-five initiatives that fall into one or more these three types. 13 Government of Alberta, Environment, “Greenhouse Gas Reduction Program,” http://www.environment.alberta.ca/01838.html. 14 American Carbon Registry, Winrock International, http://americancarbonregistry.org. 15 K.W. Abbott and D. Snidal, “International Standards and International Governance,” Journal of European Public Policy 8, no. 3 (2004): 345. 16 H.V. Morais, “The Quest for International Standards: Global Governance vs Sovereignty,” University of Kansas Law Review 50 (2001): 779–822. 17 International Organisation for Standardisation (ISO), GHG Schemes Addressing Climate Change: How ISO Standards Help, 2010, http:// www.iso.org/iso/ghg_climate-change.pdf; ISO 14064-3:2006 – Greenhouse Gases – Part 3: Specification with Guidance for the Validation

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and Verification of Greenhouse Gas Assertions, http://www.iso.org/iso/ catalogue_detail?csnumber=38700. Ibid. WBCSD/WRI, Greenhouse Gas Protocol; ISO, International Standards and “Private Standards,” February 2010, http://www.iso.org/iso/private_standards.pdf. J.F. Green, “Private Standards in the Climate Regime: The Greenhouse Gas Protocol,” Business and Politics 12, no. 3 (2010): 3. Ibid. For example, the IPCC guidance on national inventories refers to TCCCA principles (transparency, consistency, comparability, completeness, accuracy). See Intergovernmental Panel on Climate Change (IPCC), 2006 IPCC Guidelines for National Greenhouse Gas Inventories: Volume 1, General Guidance and Reporting, 2006, http://www.ipcc-nggip.iges.or.jp/public/2006gl/ vol1.html. ISO 14064-2:2006, “Guidance for Measurement of Offset Projects,” adds conservativeness to the TRACC list, which is important for representation of offset credits. Marten Law, “Washington State Issues Revised Proposal for Mandatory Greenhouse Gas Reporting,” 24 September 2010, http://www.martenlaw. com/newsletter/20100924-wash-mandatory-ghg-reporting. Appendix A lists several corporate efforts dating back to 1992. See Ontario Securities Commission (OSC), OSC Corporate Sustainability Reporting Initiative: Report to Minister of Finance, 18 December 2009, http://www.osc.gov.on.ca/documents/en/Securities-Category5/ rule_20091218_51-717_mof-rpt.pdf. Refer to appendix A. Also see, for example, David Suzuki Foundation and the Pembina Institute, Purchasing Carbon Offsets: A Guide for Canadian Consumers, Businesses, and Organizations, July 2009, http://www.davidsuzuki.org/publications/resources/2009/purchasing-carbon-offsets/. Appendix A lists four initiatives, including the GHG Protocol private standard, the U.K. guidelines, and the ISO draft standard. The Sustainability Consortium, “Sustainability Measurement & Reporting System (SMRS),” 2011, http://www.sustainabilityconsortium. org/smrs/. Walmart, “Walmart Announces Sustainable Product Index,” 16 July 2009, http://www.walmartstores.com/pressroom/news/9277.aspx. See California Environmental Protection Agency, Air Resources Board, “Low Carbon Fuel Standard Program,” http://www.arb.ca.gov/fuels/ lcfs/lcfs.htm. These issues are broadly described as the “fuel vs food” debate, wherein it is argued that crop prices rise and/or cropland is diverted away from

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33

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food purposes as increased agriculture shifts to provide increased volumes of feedstock for use in biofuel. See S. Srinivasan, “The Food versus Fuel Debate: A Nuanced View of Incentive Structures,” Renewable Energy 34, no. 4 (2009): 950–4; R.W. Harrison, “The Food versus Fuel Debate: Implications for Consumers,” Journal of Agricultural and Applied Economics 41, no. 2 (2009): 493–500. Alberta’s system is a notable exception, as its regulation is structured around facility-level intensity targets for heavy industry. See Government of Alberta, “Emission Monitoring and Reporting,” http://environment. alberta.ca/0972.html; Climate Change and Emissions Management Act, S.A. 2003 c. C-16.7. Western Climate Initiative (WCI), “Final Recommendations Offset System Process,” 22 February 2012, http://www.westernclimateinitiative.org/ news-and-updates/143-final-recommendations-offset-system-processavailable. Simon Bolwig and Peter Gibbon, Counting Carbon in the Marketplace: Part I – Overview Paper, Organization for Economic Cooperation and Development (OECD), Global Forum on Trade: Trade and Climate Change, 2009, http:// www.oecd.org/redirect/dataoecd/29/40/42886201.pdf. See, for example, Western Climate Initiative (WCI), “Final Complementarities Policies White Paper,” 20 May 2010, http:// www.westernclimateinitiative.org/component/remository/ Complementary-Policies-Committee-Documents/. Carbon Disclosure Project, Carbon Disclosure Project 2010: Global 500 Report, 2010, https://www.cdproject.net. V. Valk, “Emissions Reporting: Different Standards, Different Results,” Chemical Week 171, no. 3 (2009): 13. See the Climate Registry. Ibid. Climate Registry, “Mandatory Reporting,” http://www.theclimateregistry. org/government-services/mandatory-reporting/. B.G. Rabe, “Race to the Top: The Expanding Role of U.S. State Renewable Portfolio Standards,” Sustainable Development Law & Policy 72 (Spring 2007): 10–16. WCI, Ensuring Offset Quality: Design and Implementation Criteria for a HighQuality Offset Program, May 2010, http://www.westernclimateinitiative. org/component/remository/general/Ensuring-Offset-Quality-Designand-Implementation-Criteria-for-a-High-Quality-Offset-Program/. This joint white paper was released by the three regional climate initiatives in North America: the Northeast and Mid-Atlantic Regional Greenhouse Gas Initiative (RGGI), the Midwestern GHG Reduction Accord (the Accord),

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50 51 52

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and the WCI. See B.C. Murray, P. Maniloff, and J. Monast, chapter 9, this volume. B.G. Rabe, chapter 3, this volume; Neil Craik, chapter 8, this volume. P. Haas, “Epistemic Communities and International Policy Co-ordination,” International Organisation 46, no. 1 (1992): 3. Ibid. See, for example, A. Verdun, “The Role of the Delors Committee in the Creation of the EMU,” Journal of European Public Policy 6, no. 2 (1999): 308–28. International Organisation for Standardisation, “ISO 14065:2007: Greenhouse Gases –Requirements for Greenhouse Gas Validation and Verification Bodies for Use in Accreditation or Other Forms of Recognition,” 2011; “ISO 14066:2011: Greenhouse Gases –Competence Requirements for Greenhouse Gas Validation Teams and Verification Teams,” 2011. Environmental Careers Organization (ECO Canada), “Become a Certified GHG Professional,” ttp://www.eco.ca/certification/ greenhouse-gas-professional/. T. Stumhofer, “Inside the Institute: Ending the ‘Carbon Cowboy’ Era: Globally Certifying GHG Management Professionals,” GHG Management Institute, 2011, http://ghginstitute.org/2011/06/07/ending-the-carboncowboy-era-globally-certifying-ghg-management-professionals/. Green, “Private Standards.” Greenhouse Gas Measurement and Management, http://www.tandfonline. com/toc/tgmm20/current. H. Lovell and D. MacKenzie, “Accounting for Carbon: The Role of Accounting Professional Organisations in Governing Climate Change,” Antipode 43, no. 3 (2011): 704–30, doi:10.1111/j.1467-8330.2011.00883.x. See, for example, the Greenhouse Gas Protocol Initiative, “Greenhouse Gas Protocol (GHG Protocol),” http://www.ghgprotocol.org/.

11 Trade Rules, Dispute Settlement, and Barriers to Regional Climate Cooperation andrew green

International trade seems at times to be the bête noire of environmentalists. Not only is trade itself blamed for direct harm to the environment from the related transportation of goods, but the institutions established under international trade agreements are blamed for restricting the ability of governments to implement environmental policy.1 When an environmental policy imposes costs on a foreign industry, that industry (directly or indirectly through its government) may challenge the policy under a trade agreement in an attempt to eliminate the policy. The mere threat of such challenges may change environmental policy. Of course, on the other side, environmental policies are frequently blamed for making domestic industries uncompetitive. Such claims may lead to a weakening of policy or the use of trade measures to overcome the competitive effects of the environmental policy. In the context of North American climate policy, the presence of differentiated climate policies between free trade partners means that these competitive pressures exist within a highly trade competitive environment, potentially amplifying the competitiveness concerns arising from adopting climate policies. However, the story need not be so bleak. Trade rules may actually aid in ensuring that there are effective and efficient environmental policies and, in particular, in integrating climate policies on a regional basis. Climate policies clearly have the potential to impose high costs on industries and may make (or be perceived to make) domestic industries less competitive, compared to industries located in countries or jurisdictions with weaker environmental policies. The spectre of a race to the bottom and leakage looms over any discussion of stringent climate

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policies. Yet trade rules can reduce a key source of tension between countries and inefficiencies in policies – the use of climate measures as a form of protectionism. In particular, trade rules have the potential to constrain the more economically powerful actors in a relationship with such an asymmetry of economic power as NAFTA. By reducing the ability of jurisdictions to use climate policies as a hidden form of protectionism, trade rules facilitate the development of policies with legitimate environmental aims and provide scope for leading climate jurisdictions to maintain the competitive position of domestic industries subject to higher compliance costs. Further, trade rules may be able to foster the interdependence of the NAFTA countries by providing incentives for policy conformity. While there is a potentially positive role to be played by trade rules in fostering integration, there are constraints on this role. This chapter discusses three significant constraints. First, gaps in the exceptions for environmental measures potentially constrain members' ability to take climate action. Second, it is difficult to separate policies that are legitimately aimed at addressing climate change from policies that either in whole or in part hinder trade in the guise of addressing climate change. Finally, even if policies that hinder trade unnecessarily could be identified, it is difficult to design governance structures to ensure compliance by all parties to the trade agreement, particularly where there is a significant asymmetry in the economic relationship between countries. Such structures are necessary for the trade regimes to aid in addressing the power imbalance across NAFTA parties. In order to examine the ability of trade rules to affect regional climate policy, both positively and negatively, this chapter begins with a brief overview of the interaction of climate policies, trade, and competiveness concerns, before reviewing the trade rules, and their exceptions, under the WTO and NAFTA, that constrain domestic climate policies. This chapter then discusses the limitations of these rules to support regional climate policies. Finally, in response to these limitations, the chapter sets out some recommendations for governance reforms. These recommendations relate to increasing the transparency and inclusiveness of the dispute settlement system, changing the remedial options in the event of non-compliance with trade obligations by one of the partners, and negotiating some changes to substantive rules to reduce tensions and increase scope for climate policies, including a nonaggression agreement and peace clause.

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The Competitiveness Question As discussed elsewhere in this volume, the NAFTA parties' economies are closely tied together.2 Canada and Mexico were the top two purchasers of U.S. exports in 2009, representing 31 per cent (combined) of U.S. exports. Further, at 25 per cent (combined) of U.S. imports, they were the second- and third-largest suppliers to the United States in 2009.3 Approximately 75 per cent of Canadian exports went to the United States, while about 1.3 per cent were purchased by Mexico. In terms of imports, about 50 per cent of Canadian imports came from the United States and approximately 5.5 per cent were from Mexico.4 Over 80 per cent of Mexican exports went to the United States in 2010.5 Machinery, vehicles, and oil were among the leading goods traded.6 There are also significant markets related to climate change. For example, in 2008, Canada exported electricity worth $3.8 billion to the United States and imported $1.3 billion of electricity.7 Canada and Mexico are also the lead suppliers of oil and gas to U.S. markets. There is a high degree of imbalance in the trading relationships between the United States and its NAFTA partners, with the latter being heavily dependent on the U.S. marketplace for its exports, making undisturbed market access a key strategic aspect of Canadian and Mexican trade policy. There has long been a fear that environmental measures will lead to shifts in the location of industry and a loss of competitiveness absent protection for industries facing costs from these environmental measures.8 This fear is particularly acute in the climate change context, given the potentially high costs of reducing GHG emissions. The first question to ask is whether there is any indication that climate measures will actually affect trade between the NAFTA countries. Studies have generally found that the industries most at competitive risk are, not surprisingly, industries that are carbon-intensive and face competition from producers in other countries.9 For example, studies in Canada have shown that a number of industries will be harmed by stringent climate policies, including chemicals, iron and steel, oil, gas, and coal.10 Similarly a World Resources Institute / Peterson Institute study found that a number of U.S. industries faced competitiveness concerns as the result of climate policies, including iron, steel, copper, aluminum, cement, glass, paper, and chemicals.11 Modelling the effects on Canada of a unilateral 20 per cent emissions target by the United States, Dave Sawyer and Carolyn Fischer find a small but positive effect, particularly

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on energy-intensive sectors in Canada that become more competitive.12 Taken together, these studies indicate some evidence of competitiveness impacts of climate policies, though they may be confined in particular to a few industries.13 Policies that target the GHG emissions of specific products, such as Low Carbon Fuel Standards (LCFSs), are likely to have competitive impacts. Indeed, they are designed to decrease the market share of carbon-intensive products. The tension between economic competitiveness and environmental policies is exacerbated in the context of climate change, because addressing climate change is an aggregate public goods problem – that is, addressing climate change will depend on the aggregate efforts of those who emit greenhouse gases.14 A public good is by definition nonexcludable (that is, one individual or state cannot be excluded from enjoying the benefits) and non-exhaustible (the amount one person or state enjoys does not diminish the amount for others). There is, therefore, an incentive to free-ride on the efforts of others by continuing to benefit from GHG emissions while allowing others to bear the costs of reductions. This free-rider issue could lead to a range of policy outcomes for NAFTA countries. First, this tension could push governments to harmonize their environmental policies. The free-rider and competitiveness concerns can be greatly reduced and, in some cases, completely eliminated if all countries in the region agree to impose the same costs from environmental regulation. For example, Jeffrey Schott and Meera Fickling call for the standardization of definitions of renewable energy and coordination of policies.15 Debora VanNijnatten’s chapter in this volume outlines similar harmonization pressures in the transportation and energy sectors.16 Such harmonization would improve efficiency and increase trade, reducing concerns that different policies either favour or harm particular industries. Harmonization could happen voluntarily, where each country agrees that it is in its economic interests to do so – it may lose an advantage in some industries but gain in others. Such voluntary harmonization is desirable, depending of course on the nature of the harmonization process and the ability of some players (such as the United States) to impose a form of harmonization that is more favourable to their own interests. The likelihood of harmonization depends on the transaction costs of agreement, which are somewhat reduced in the NAFTA context given the small number and close relationship of the parties. A second possible strategy for governments facing this concern over the competitiveness impacts of climate policies is to reduce the domestic

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costs of climate policies – that is, reduce their stringency. NAFTA countries could make climate policies less stringent in order to reduce their costs on domestic industries – in the so-called race to the bottom. The race is generated by both the concern that companies will lose business and/or leave the jurisdiction because of the costs of climate policy, and the aggregate public good nature of climate change (that each country hopes to obtain the benefits of reduced risk of climate change without the costs). There is little evidence that companies have left jurisdictions because of environmental costs.17 However, climate policy may be different because of the potentially very high costs that may be imposed, particularly in carbon-intensive sectors. Moreover, whether or not companies actually leave, the threat may make politicians pay attention to pleas from industry to weaken environmental policies. Finally, governments may address competitiveness concerns by using environmental policies as a means to enhance the competitive position of domestic producers. For example, the United States may enact an environmental standard for renewable energy that favours its producers rather than those of the other NAFTA participants. Similarly, Canada may heavily subsidize the production of wind turbines, thereby both affecting imports from the other NAFTA partners into Canada and increasing exports from Canada into the other NAFTA countries (and correspondingly harming the domestic industries in these other countries). The development of parochial climate policies creates potential barriers to economic integration and efficiency across the NAFTA region.18 NAFTA countries may also put in place border measures that raise the cost of imports from other countries. The threat of choice in the climate area is the imposition of taxes at the border on all imports from countries that do not have comparable environmental policies – these are called Border Tax Adjustments (BTAs). U.S. climate bills, for example, have proposed requiring importers from countries with less stringent climate policies to purchase “international allowances” at the border.19 These policies can protect domestic industry from lower cost imports and provide an incentive for other countries to adopt similar policy goals to those of the country imposing the BTA and possibly even to integrate policy measures.20 As we will see, if BTAs are only offsetting the higher domestic costs of climate policies, they may be compatible with obligations under trade agreements. However, some countries such as France, and influential commentators such as Nobel Laureate Paul Krugman, have argued that such taxes should be used to force action by countries that are not taking action on climate change.21

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To the extent they are not tied directly to domestic costs imposed by a tax, they would likely not comply with trade obligations22 and in this way may hinder integration to the extent that they increase trade tensions between countries. How Can Trade Rules Help (or Hurt)? The relevant trade rules are found in both the WTO agreements and in NAFTA. The substantive rules respecting barriers to trade (nondiscrimination) and subsidies are similar in both regimes, but each maintains distinct dispute settlement procedures: a permanent dispute settlement body and Appellate Body in the case of the WTO, and an ad hoc system of arbitration under NAFTA. NAFTA also contains, under Chapter 11, specific provisions protecting foreign investors from discriminatory activities. Whether trade rules will help or hurt in the movement towards regional integration of climate policies depends in large part on three factors. First, trade agreements can aid in fostering climate action by limiting the ability of governments to put in place policies that are aimed in whole or in part at protecting domestic industry. There may be important political economy reasons for governments to take into account the competitiveness of domestic industry. Trade rules allow governments to take account of such concerns without giving domestic industry an unfair advantage.23 They do so in large part by attempting to ensure that policies are to the greatest extent even-handed across producers – that is, impose the same costs on everyone – unless there are compelling reasons to differentiate between producers. These rules therefore allow for the creation of the larger, more open markets that are central to the economic efficiency aspect of the Bodansky-Diringer integrated approach discussed in chapter 1. Second, the dispute settlement system has to be effective in recognizing when a party has not complied with these trade rules. Finally, the remedies and incentives in the event of non-compliance need to be sufficient to induce the parties to comply. The latter two factors are particularly important in the NAFTA context. Trade rules will help regional cooperation to the extent that they constrain the ability of parties to use climate policies for purely or largely protectionist purposes. Further, they can provide the basis for cooperation and policy conformity by providing outer bounds on how environmental and trade impacts may interact. This part, therefore, first focuses on the principal trade rules that affect climate change. The next parts then move on to discuss the limitations in the use of these rules.

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Treating All Producers the Same Both the WTO agreements and NAFTA incorporate the nondiscrimination principle. This principle has two basic elements: the national treatment and most favoured nation principles. The national treatment principle essentially holds that governments can use domestic taxes and regulations that impose costs on imports but only to the same extent that they impose these same costs on domestic producers – that is, there can be no discrimination between “like” domestic and imported products.24 The most favoured nation principle prohibits discriminating between like products from two different countries – that is, in general, a country cannot impose a cost or provide a benefit to producers from one country but not another, just because of where they were produced.25 The core concern under the national treatment principle is to avoid protectionist domestic measures and ensure “equality of competitive conditions for imported products in relation to domestic products.”26 Similarly, the most favoured nation principle aims to eliminate different treatment across countries.27 However, how to determine whether there is a relevant form of discrimination has been very controversial. The key determinants relate to what constitutes the harm (e.g., the discrimination comes from less favourable treatment under the national treatment provisions) and what the comparable or like products are. The more broadly the relevant dispute settlement body interprets the provisions, the less scope the governments have to take climate action. For example, a number of states and the U.S. federal government have contemplated enacting a LCFS that would prohibit or penalize imports of fuel produced through carbon-intensive processes. Such a standard would significantly affect production from the carbon-intensive Canadian oil sands. Canada may claim that a LCFS that seems neutral on its face (that is, applies to all fuel), in fact impermissibly discriminates against Canadian oil as oil is essentially the same, regardless of how it is produced, or the measure is aimed solely at imposing costs on Canadian oil.28 Conversely, the imposing jurisdiction would counter that it is making a legitimate distinction between products based on their environmental characteristics (carbon intensity); that is, the conventional and non-conventional (oil sands) oil are not “like” products. Such differential treatment is at the basis of a simmering trade dispute between Canada and the European Union over a proposed EU fuel quality directive.29 The directive would rank fuels on the basis of their carbon footprint, with oil from the oil sands potentially getting a higher

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(worse) ranking than oil from conventional sources. Canada threatened a trade complaint if the directive was adopted, on the basis that the ranking would discriminate between oil sources without a scientific basis. These same types of discrimination challenges could arise for many different types of climate policies, including, importantly, domestic emissions trading programs, depending on how the policies are structured. Decisions respecting whether products are “like” products leaves considerable discretion to panels and has important unresolved questions. For example, to what extent may governments impose regulations (evenly on both domestic products and imports) relating to how the product was produced (e.g., the amount or type of energy used) as opposed to the products themselves? How important are consumers' preferences, such as where governments feel consumers should prefer the more climate friendly product but in fact do not?30 This non-discrimination principle in effect also underlies the rules relating to BTAs. BTAs are often intended to overcome the decrease in competitiveness where a country imposes costs on domestic producers (to reduce emissions, for example) but other countries do not impose similar costs. To do so, they offset the difference in costs from climate policy, either through charges imposed on imports or the rebate of taxes paid for products that are exported. As noted above, the United States has contemplated such measures in recent climate change bills. Whatever amount is charged on imports or rebated for exports must be equivalent to the tax that was imposed on the domestic production of the good.31 The central principle is ensuring that domestic and foreign producers face the same regulatory costs in the same market. These rules aid in ensuring that states do not resort to self-help remedies to force other countries to take actions they themselves are not willing to impose. However, there are a number of concerns. First, while for imports BTAs ensure that domestic consumers face the same higher costs for all products, for exports rebating taxes means that domestic producers and foreign consumers face lower costs. Such rebates may, however, help overcome the political economy constraints from stringent climate policies.32 Second, BTAs can be imposed only where the other countries do not have comparable climate policies. Determining comparability may undermine the ability of states to adopt a climate policy that is best suited to their own domestic political and economic conditions. This has particular salience in North America, where climate policies are not centrally coordinated. That said, Canada has deliberately sought to align its climate policies with the United States

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to avoid competiveness concerns (and arguments that Canada is not maintaining comparable policies). In addition, it is uncertain how the comparability requirement meshes with the desire of the international climate regime to allow common but differentiated responsibilities for developing countries. As a non–Annex 1 country, Mexico ought not (under the terms of the UNFCCC) be required to maintain climate policies that are comparable to Annex 1 countries, such as Canada and the United States. This difficulty points towards the value of commensurable measurements for climate policies in addition to its push towards fostering reciprocity.33 Further, it protects against the policy incoherence of allowing policies and activities in one jurisdiction to undermine those in another, which is a key element of the Bodansky-Diringer integrated multitrack approach to climate governance.34 Limiting Subsidies WTO agreements significantly limit the ability of governments to use subsidies that affect trade. The term subsidy is very broadly defined and clearly covers many current climate policies, such as direct production subsidies, loans, interest deductions, and the provision of goods or services at below market rates.35 It also likely covers many policies that have been central to energy policies, such as feed-in tariffs, which provide a premium on prices for energy from renewable sources. Emissions trading programs may also be found to be subsidies if the government distributes the emissions credits or permits for free as opposed to by auction.36 Subsidies that are based on the amount of the good exported are prohibited.37 In addition, governments may not use subsidies that are narrowly tailored to a particular industry and that harm producers in other countries.38 Subsidies for renewable energy, for example, may be seen as tailored to a single industry and harm imports such as of electricity. For example, Japan, the United States, and the EU have recently challenged Ontario’s Green Energy Plan, which essentially provides very high energy prices for renewable energy, conditional on producers’ obtaining equipment from Ontario.39 In January 2012, the WTO composed a panel to hear this challenge. Canada lost this challenge at the panel stage and is appealing the decisions to the appellate body.40 Limiting subsidies may be valuable to the extent that the subsidies are inefficient. Subsidies require raising public funds that can lead to economic losses. From the trade perspective, subsidies may negatively

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affect imports and harm producers in other countries. Reducing these subsidies is more efficient and may reduce tensions between countries that affect their willingness to integrate policy. The difficulty, as discussed below, will be in determining when a subsidy is aimed at protecting a domestic industry and when it is legitimately aimed at addressing climate change.41 Protecting Investors One of NAFTA’s most controversial provisions is Chapter 11. Among other things, it provides national treatment and most favoured nation protection to investments. It also provides that investors may seek compensation in the event of expropriation or measures tantamount to expropriation.42 Chapter 11 panels have adopted quite varied criteria for identifying expropriation – from very broad, including both open and incidental interference with property,43 to more narrowly focused on expectations.44 If the claim that a policy amounts to expropriation is successful, the investor can obtain compensation from the regulating government. Such compensation can be quite large, given the size of the investments that are at stake.45 One of the difficulties in assessing the likely impact of Chapter 11 is the lack of a system of legal precedents, which makes uncertain the breadth that future panels may give to this provision. Chapter 11 has been criticized for overly restricting domestic environmental policy, both directly and as a result of a fear by governments of the size of these claims. Investors have used Chapter 11 to challenge a range of environmentally related policies of the NAFTA members on the basis that the environmental restriction was tantamount to an expropriation of an investment.46 Some possible sources of Chapter 11 claims include refusal to provide or sell emission credits to investors from other countries47 or a LCFS.48 The first such challenge has been initiated by Mesa Power Group LLC, an American company that had proposed wind power projects in Ontario, against Ontario’s Feed-In Tariffs (FIT) program.49 Mesa Power submitted a notice of intent to submit an arbitration claim under Chapter 11 in July 2011. They claimed that the Ontario government program violated Chapter 11 because it changed the interconnection rules for wind projects to the detriment of Mesa Power and because it imposed obligations for companies to purchase equipment domestically to benefit from the FIT program.

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Providing Space for Climate Action While the WTO agreements and NAFTA impose constraints on the ability of countries to use measures that affect trade, they also allow scope for taking environmental measures that may otherwise interfere with trade relations. The key exception is Article XX of GATT, which applies both to taxes and regulations under the WTO agreements and to the principal restrictions under NAFTA.50 Article XX provides a list of reasons for which governments may take actions that otherwise would violate the trade provisions. The two most relevant exceptions are for measures “necessary to protect human, animal or plant life or health” (Article XX[b]) and measures “relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production and consumption” (Article XX[g]). Article XX limits these exceptions somewhat by requiring that the measures not “be applied in a manner which would constitute a means of arbitrary discrimination between countries where the same conditions prevail or a disguised restriction on international trade.” In general, panels have not examined the particular goals of a challenged measure too closely. Instead, they have tended to focus on the connection between the measure and the goal. In terms of Article XX(b), to determine whether the measure is necessary, the panel will attempt to balance the importance of the objective, how much the measure contributes to the objective and the trade impact of the measure.51 The WTO Appellate Body has set a fairly high bar in ensuring that the measure actually contributes to the specified goal.52 It has also examined the potential alternative policies the government could have put in place, requiring that a measure be feasible to be considered as an alternative that could have been taken.53 The tests under Article XX(g) are similar but less stringent, requiring mainly that the measure be “primarily aimed at” the objective of the measure.54 The Appellate Body has taken a broad approach to the interpretation of Article XX in recent years, providing governments with some flexibility to take environmental action.55 The flexibility from environmental exceptions allows governments to innovate and experiment with domestic policies. Governments can put in place climate measures that discriminate against imports if they are necessary to their climate agenda. Article XX allows climate policies with trade effects, but theoretically only to the extent that such effects are unavoidable. This flexibility also reduces barriers to integration that some

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domestic producers may wish to put in place.56 At the same time, decisions establishing the legitimate use of environmental concerns may set an outer bound on the types of policies that may be adopted, possibly fostering closer cooperation and greater policy conformity. Article XX therefore fits with the necessity to balance policy coherence and flexibility – it gives scope for parties to experiment within bounds.57 However, these functions depend on how well the Article XX tests perform in separating legitimate from illegitimate policies. To frame the issue in terms of North American climate cooperation, the exceptions under Article XX provide some flexibility for North American jurisdictions to maintain distinct climate policies, notwithstanding incidental trade effects. The next part discusses this issue of the ability of these rules to adequately sort policies, along with several other important limitations on the role of trade rules. Limits on the Policing Role of Trade Rules There are a number of limitations on the ability of trade rules to reduce barriers to coordination and climate policy. For example, companies may not know they have been harmed by illegitimate climate policies. Companies must understand both trade rules and the nature of their interaction with environmental policies. Some (mainly larger) companies or sectors may have the expertise or resources to understand these effects but many do not, with the result that some potential challenges may not happen. Further, the cost of the challenges in some cases may be too high for companies to bear, particularly where the companies either directly launch the challenge (as under NAFTA Chapter 11) or must support their government's challenge. Similarly, while Canada and the United States have significant experience in trade challenges and resources to launch such challenges, Mexico has fewer resources to bring to bear to support challenges by its industry. These resource and information constraints obviously play out differently across countries, potentially limiting challenges against policies of the United States and Canada. While these obstacles to challenges are important, this part will focus on three other obstacles that play an important role in limiting the ability of trade rules to address the asymmetry in power within NAFTA: the lack of clear environmental exceptions for some trade rules, the difficulty of sorting legitimate from illegitimate policies, and the weakness of the remedial provisions.

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Gaps in Environmental Exceptions As discussed in the last section, both the WTO agreements and NAFTA contain a few exceptions to the general trade rules for environmental measures. However, gaps in these environmental exceptions limit their ability to overcome obstacles to integration. First, the Article XX exceptions do not apply to all types of measures. Most importantly, Article XX does not cover subsidies. The WTO Subsidies and Countervailing Measures Agreement provides the main restrictions on subsidies but does not have an Article XX-type exception, nor does it explicitly incorporate Article XX.58 This gap is very important, since subsidies have been a central feature in climate change policies, such as subsidies for renewable energy or provision of permits for free (rather than under an auction) under an emissions trading scheme.59 Uncertainty over the extent of permissible subsidies is problematic for countries seeking to address climate change. It leads either to a lack of action because of a fear of challenges or, more likely, a breach of trade obligations, which gives rise to challenges and tensions that are not conducive to integration.60 Second, even where there are environmental exceptions, there is a lack of clarity over the extent of these exceptions. The Appellate Body has in general taken a fairly broad approach to Article XX in recent cases, providing hope for greater flexibility in innovating on climate policies.61 However, panels have significant discretion, such as in determining whether a particular climate measure is necessary to protect plant, animal, or human life or health under Article XX(b). Is the measure sufficiently connected to the objective of addressing climate change? Are alternative measures feasible? The greater the discretion for panel members, the more important is the manner in which these panels are appointed as panel members may take decisions that accord with their own policy preferences.62 Panel members drawn from trade circles may have less sympathy for environmental measures that affect trade than members who have more diverse backgrounds. Moreover, as discussed below, the legitimacy of the decision will depend not only on the identity of the panel members but on the general structure of the decision-making process, such as its transparency. Difficulty in Sorting Policies Even if there were relatively clear rules and exceptions under trade agreements, climate change raises profound challenges for any panels

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trying to determine if a particular climate measure comports with these rules and exceptions. There are different ways in which climate policies and trade can interact: some climate policies may have no impact at all on trade or do so to the minimum extent possible, given the environmental objective; some policies may be aimed primarily or at least partly at addressing climate change but are also intended to restrict trade (such as a tax that may reduce emissions but is structured in a way that benefits domestic producers); and some policies may be aimed only colourably at climate change but in fact seek to restrict trade (for example, a ban on importation of a particular biofuel may be claimed to be an environmental measure but in fact increases rather than decreases emissions and has as its sole purpose the protection of the competing domestic biofuel producers). Dispute settlement bodies will have difficulty ascertaining into which category a particular measure falls. This difficulty arises from the nature of climate change and measures taken to address it, including concerns about panellists determining: • The costs of the measure or the goal: A country could base a defence of its climate measure on the claim that it will be particularly affected by climate change or that measures will be particularly costly.63 A panel would have to determine the extent to which this is true,64 even though there is incomplete information about the costs and benefits of measures for different countries, and the information that does exist often lies with the responding country. • The preferences of the citizens of the regulating country: The regulating member may claim that the goal is legitimate and important because its citizens are particularly fearful of the effects, or care about the effects of climate change on other countries or other generations.65 Even in the absence of free-riding, differences in such preferences can lead to different approaches to climate change. Panels may in some cases have to assess the preferences of the citizens of the responding country, and that will be extremely difficult. • The effectiveness of the measure: The panel will need information on how effective the measure is likely to be to determine whether the measure is “necessary” or “related to” the goal. In the area of climate change, there is considerable uncertainty about such issues on how effective particular measures will be and how stringent measures should be over time. Again, these difficulties point to the value of commensurable measurements to allow comparisons

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across countries, fostering both reciprocity (as discussed in chapter 1) and policing of trade commitments. • Trade effects of the measure: While panels may be able to more easily determine the trade effects of a measure than its costs or environmental impacts, this information may also be difficult to obtain in some cases.66 • The feasibility of alternatives: The regulating member may argue that alternatives are either not as effective or not feasible. Assessing such arguments requires considerable information about what else the member is doing and could be doing to address climate change. The search for alternatives will be difficult if this notion of alternatives is read fairly narrowly, such as the effectiveness of a tax versus emissions trading program. It will be even more challenging if the concept of alternatives could be expanded to address such issues as the value of adaptation versus mitigation. Dispute settlement panels therefore may have difficulty obtaining the information necessary to base their conclusions regarding particular measures. They must balance a range of factors to determine whether they believe that the measures are legitimate environmental policies and not hidden forms of protectionism. The uncertainty surrounding the costs and effectiveness of climate measures makes such balancing extremely difficult. Weakness of Remedial Provisions Even if the rules and basic exceptions are in place and panellists can make some form of allowable determination about the legitimacy of the policy, there must be adequate remedies for non-compliance with trade obligations in order for trade rules to play their potentially beneficial role in addressing power imbalances between NAFTA parties. Trade rules are not helpful if they are continually and openly violated. The difficulty is designing effective remedies, given the size of the different parties. The principal remedy under trade agreements is a form of selfhelp. If the regulating party does not alter its policy when it is found in violation of trade obligations, the complaining party may impose trade sanctions on imports from that party. These trade sanctions are typically intended to be equivalent in size to the nature of the violation.67 However, there are significant concerns about this form of remedy, largely related to the power imbalances across NAFTA parties.68 On

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the most basic level, it seems counterproductive to attempt to resolve disputes about trade protectionism by permitting countervailing protection – that is, greater trade protection. This concern leads to deeper issues that specifically relate to the ability of trade rules to help address power imbalances within NAFTA. First, some countries may not have the ability to actually enforce the provisions. In particular, more tradedependent countries in a trade relationship such as Mexico or Canada may not have enough trade leverage with the larger countries to use remedies effectively.69 The remedy works through harming the exports of the non-compliant country in the same sector in which the measure was applied, or, if there is insufficient trade in that sector, in another sector. However, there does need to be a sufficiently high level of trade to induce political action that counterbalances the protectionist pressure of the relevant domestic industry in the non-compliant country. Further, even if there is a sufficiently large amount of trade, the complaining country must be willing to bear the economic cost of imposing the remedy. Second, even if the smaller countries can impose retaliatory measures that harm the larger countries economically, they may be unwilling to do so. The smaller countries may fear that the larger country will retaliate in the event the smaller country imposes penalties. The retaliation may take the form of trade matters but may be perceived to be more likely in other areas, such as aid or other areas of collaboration.70 On the other hand, even if some parties cannot use retaliatory penalties specifically, dispute settlement findings of rule violation may lead to reputational harm to the responding country. This reputational effect may be of some benefit to countries unwilling to impose retaliatory penalties, by constraining responding parties.71 The reputational effect may be international, in that a finding of a trade violation is a signal to other countries that the violating state is a poor partner and therefore raise the cost (lower the possibility) of other forms of international cooperation (for example, on defence or financial regulation or any other issue). The reputational effect may also be internal or domestic. A government found to be violating its international obligations may be politically harmed, as the finding of trade violation is in effect a signal to domestic parties that the government is trading off favours to some industries at the expense of other industries, or consumers more generally. However, both of these forms of reputational harm may be muted in the case of climate change, as the regulating government may argue that any violation of trade rules is legitimate, as it is attempting to address climate change.

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One final concern about remedies arises because of the federal structure of the NAFTA countries. Many of these sub-national governments have climate policies that may not comply with trade rules. Ontario’s energy policy, for example, which requires some purchasing from Ontario suppliers, is arguably a violation of subsidy or other trade rules. As noted above, the WTO and NAFTA rules in this area are fairly loose, with the WTO, for example, requiring the federal government to use reasonable measures to ensure regional and local governments observe the agreements.72 As a result, enforcement of the rules on sub-national governments depends on the internal politics of each country. Governance and Credible Policy Review These limitations in the rules and institutional structure constrain the potentially beneficial role that trade rules can play in the integration of climate policies across the NAFTA parties. It is therefore important to consider changes that could enhance the role of trade rules in this area, including new governance mechanisms for dispute settlement, new rules concerning review, options for improving remedies, and options to avoid disputes in the first place. New Governance Mechanisms A large number of commentators in recent years have discussed criticisms of and possible reforms to the dispute settlement system, a number of which are relevant to regional climate policy integration.73 First, it is likely preferable to avoid the dispute settlement bodies completely, if possible. While there will be consultations between the parties prior to a dispute (and in fact must be in the WTO context), it would be useful to have a body that reviews complaints and aids in settlement prior to the panel stage. For example, in the WTO there is a Sanitary and Phytosanitary Measures (SPS) committee composed of member states to which members can raise concerns in an effort to resolve disputes before a formal challenge. Such a committee would be useful in reducing the number or scope of challenges, particularly if it had the assistance of experts in the science and policy of climate change.74 This committee could also have beneficial implications for conformity, as it may create a forum for NAFTA parties to discuss policy coordination, including working towards standard harmonization, at least at the level of soft law

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(as discussed in chapter 1). Such a forum would potentially complement bottom-up forms of standard convergence.75 Second, when a dispute does actually become a formal challenge, a key concern with the WTO and NAFTA processes is the lack of transparency in dispute settlement. In general in the past, hearings have been closed. There has been some progress made in the openness of hearings when the parties agree. However, if there is a concern about the lack of information before the panel or the voting based on the political ideologies of panel members, the continuance of a lack of transparency reduces the legitimacy of the decisions of these bodies. The lack of transparency only reduces the legitimacy and quite possibly the efficiency of the resulting decisions.76 Similarly, the WTO has in general limited the potential role of NGOs and other non-parties to disputes, despite the wide-ranging implications of many disputes. When the WTO Appellate Body attempted to allow amicus briefs, there was an immediate and firm backlash from member governments. Developing countries in particular feared that NGOs would provide support for issues that are of most concern to developed countries.77 However, to the extent that relevant information is not before the panels (possibly because of an externality to either of the parties to the dispute), the panel decision will be deficient. Finally, a concern with the substantive legitimacy of climate measures by panels or the Appellate Body is that they have considerable discretion to decide whether a measure is legitimate. The fear is that the panels or the Appellate Body may substitute their views on these issues for those of the regulating member. There has been considerable empirical and theoretical work undertaken about the extent to which judges in domestic courts vote in accordance with their own policy preferences or attitudes.78 The same concern about attitudinal voting arises in the trade dispute context. The size of this concern depends on who is on the dispute settlement panels and whether the decisions can be appealed and to whom. For example, there may be concerns about the preferences of panel members where they tend to be drawn from trade circles. These preferences may represent a particular view of the importance of trade versus other values. In this regard, the WTO dispute settlement process has advantages over the NAFTA process. Under the WTO, the parties can appeal panel decisions to the Appellate Body, a standing body that can hear appeals on questions of law. This Appellate Body was a significant positive innovation under the WTO from the former GATT period. It allows at least some re-evaluation of trade disputes by a purportedly more

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neutral, more diverse body. Under NAFTA, dispute settlement relies principally on ad hoc panels to decide disputes. There is no system of precedents and no standing Appellate Body. In some NAFTA disputes (under Chapter 11), a party to a dispute may apply to a domestic court to have the decision reversed. In this sense, the application becomes similar to a domestic judicial review with issues of deference to a prior decision.79 However, a more general appellate body under NAFTA would be useful to at least reduce variance in decisions, and perhaps, depending on its composition, reduce the impact of attitudinal voting. Procedural and Substantive Review The issue of the legitimacy of dispute panels reviewing domestic policy is particularly acute in the context of substantive reviews of domestic policies. Substantive review involves a panel reviewing and determining whether a challenged climate measure was legitimate and acceptable under WTO agreements or NAFTA, on the basis of substantive policy choices made by the domestic government. Substantive review may be beneficial to the extent that an impartial panel oversees these decisions by domestic governments.80 However, panels may be able to adequately review domestic policies only if they have sufficient information and the expertise to understand the information (in addition, of course, to the concern about attitudinal voting discussed above). Mistakes by the WTO introduce inefficiencies into climate policies by rejecting legitimate policies.81 Under substantive review, panels have to determine whether to stringently review measures taken by governments, in which case there are concerns about the ability of panels to determine the true purpose and legitimacy of the policy, or to defer to the regulating government, in which case there is little control over protectionist action by governments.82 The alternative to substantive review is procedural review. A procedural review would involve the WTO panel assessing whether the domestic government has taken the necessary procedural steps in deciding to adopt a particular measure. If so, the panel would not review the substance of the decision, leaving the domestic government to make any trade-offs it felt necessary after going through the required process. If governments must follow fair procedures (including potentially specific forms of risk assessments), decisions may be improved in welfare terms, and the opportunity for protectionist decisions may be decreased.83 The concern, of course, is that governments will follow the required procedure, but these procedures will not make any difference to the resulting decision.

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The choice between substantive and procedural review depends on a number of factors, including the extent of divergence between the preferences of panels and regulating countries, the relationship between the expectations of panels regarding information it cannot obtain and the actual information, and the extent to which procedural requirements actually affect the ability of members to provide protectionist benefits to domestic industry.84 Moreover, the usefulness of these procedural requirements will depend on the relationship between these procedural requirements and the accountability mechanisms in the individual country or between countries (that is, to the extent other countries can determine that there are protectionist measures and put pressure on the regulating member). In the end, some form of mixed strategy is likely best – perhaps procedural review with a minimal substantive review of the plausibility of the underlying claims of risk or policy objectives.85 Expanding Remedial Options The form of the remedy will also be important in determining whether trade rules can address asymmetries in power across NAFTA countries. One potentially attractive alternative is a form of compensating trade concessions – that is, the losing party must make some trade concessions to the winning party.86 Such concessions would aid the countries that do not have the power to impose countermeasures, although it could violate the most favoured nation principle. Financial compensation may therefore be necessary as an alternative form of remedy, with the added benefit of potentially providing resources to the harmed country. One difficulty, however, is that the requirement of monetary compensation is not self-enforcing. There must be some other mechanism in place to ensure that the losing party pays its fine.87 Further, such payments would not induce a country to comply if the government is able to impose the cost of the payment not on the industry that benefits from the protection but across all taxpayers.88 Of Safe Harbours and Peace Clauses One way out of concerns about the impact of trade rules on integration of climate policies is through explicit negotiation rather than allowing these matters to be decided by panels. Panels allow a degree of uncertainty into policy processes, which can hinder both innovation in policy

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and the willingness to engage in broad experimentation in regional integration. Resolution of trade and environment conflicts by panels also raises the spectre of vindication of the preferences of panel members rather than of the citizens of the NAFTA members. Negotiations between the NAFTA countries may overcome some of these concerns but raise other issues, including potentially high transaction costs and risks of greater scope for protectionism. One possible form of negotiated solution to the uncertainty over the trade compliance of climate measures (and in particular, measures that are integrated across countries) is a safe harbour for particular climate measures. For example, Gary Hufbauer, Steve Charnovitz, and Jisun Kim argue for a negotiated safe harbour that specifies that parties to the safe harbour agreement would not challenge the climate measures of other members where the violations were primarily technical and sets out particular permissible measures.89 Such a safe harbour agreement may be more likely to be negotiated within a regional context like NAFTA than the WTO and has the virtue of providing broad space for climate measures. However, it may not significantly retain the benefits of trade rules. Trade rules limit the ability of countries to use climate measures to protect domestic industries and therefore harm producers in other countries.90 Any such safe harbour may be difficult to negotiate to ensure that the stronger NAFTA partners continue to be restrained in using climate measures that hinder economic growth in the other members. In the face of a safe harbour, Mexico, for example, could not only be harmed by such measures in Canada or the United States but would have less recourse for ensuring that protectionist measures were removed. Narrow, specific exceptions may be useful, however, and, in particular, a clearly specified environmental exception for subsidies relating to climate change.91 Further, a safe harbour for climate measures from Chapter 11, while hard to negotiate, may provide clarity for governments seeking to put in place policies and to integrate across the parties.92 In any of these safe harbours, there should be a requirement that the measure be connected to the goal of addressing climate change and be non-discriminatory and transparent. Even if there can be no generalized exception for climate measures, some specific negotiations may be possible. For example, Robert Howse has argued that one solution to the concern about the lack of an environmental exception covering climate subsidies is bargaining over

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permissible forms and levels of subsidies.93 The NAFTA counties could even schedule and establish reduction formulas for climate subsidies. The extensive use of subsidies, and their use by sub-national governments, may make the transaction costs of such negotiations very high.94 However, given the regional nature of the negotiations (as opposed to involving all WTO members), there may be some prospect of an agreement on at least some categories of subsidies (for example, for specific sectors such as wind turbines). It would also permit and perhaps encourage greater conformity of policies across NAFTA countries. Finally, a third form of negotiation could be over a non-aggression clause – that is, an agreement prohibiting any unilateral trade measures (such as border tax adjustments) relating to climate change for a specific period of time (as opposed to a peace clause, agreeing not to challenge any domestic measures of other countries as inconsistent with trade rules).95 Such a non-aggression clause could be important to Mexico, in light of its differential climate commitments internationally, and given the resources and opportunity costs necessary to put in place a climate policy that is equivalent to those that could be put in place in the United States or Canada. Unilateral measures are obviously double-edged swords. On the one hand, they create tensions that may reduce the possibility of cooperation on climate issues. On the other, the threat of unilateral measures may be necessary to bring some governments, particularly in Canada, to the table to discuss integration. However, the hope would be that part of the negotiation of any such non-aggression clause would be serious commitments by the member countries to further integration. Moreover, any such clause could still allow imposition of domestic measures ensuring that imports face general restrictions similar to those of domestic producers (for example, that all biofuels face similar environmental standards). The difference would be that for a specific period of time, no border measures could be used. Trade rules can help overcome obstacles to regional integration of climate measures and provide a push for conformity. For these rules to play such a role effectively, however, greater attention needs to be paid to the governance arrangements that support them. In particular, the nature of the dispute settlement procedures and institutions will play a key role in ensuring that the synergies between climate and trade are realized. Further, some negotiations will be required to specifically address areas that will clearly be issues, such as the application

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of Chapter 11 or the use of subsidies. It is essential to think through these governance arrangements and rules carefully, as both the extent of climate action and integration and the economic growth of NAFTA parties depend on it. NOTES 1 For an overview of some of the debates over trade and the environment, see Chris Wold, “Taking Stock: Trade's Environmental Scorecard after Twenty Years of ‘Trade and Environment,’” Wake Forest Law Review 45 (2010): 319; and Steve Charnovitz, “The WTO’s Environmental Progress,” Journal of International Economic Law 10, no. 3 (2007): 685. 2 See Studer, chapter 2, this volume; see also Jeffrey J. Schott and Meera Fickling, “Revisiting the NAFTA Agenda on Climate Change,” Policy Brief PB10-19, Peterson Institute for International Economics, July 2010, for a discussion of the interdependence of the three economies and its relation to climate policy. 3 In 2009, U.S. exports to Canada were $204.7 billion while to Mexico were $129 billion. Canada and Mexico exports to the United States were $224.9 billion and $177 billion in 2009, respectively. See Office of the United States Trade Representative, “North American Free Trade Agreement (NAFTA),” http://www.ustr.gov/trade-agreements/free-trade-agreements/ north-american-free-trade-agreement-nafta. 4 Government of Canada, “Trade Data On-Line,” http://www.ic.gc.ca. 5 Government of Mexico, “Snapshot: US – Mexico,” http://photos.state. gov/libraries/mexico/310329/Econ/Fact_Sheet_Bilateral_Trade_2011.pdf. 6 See notes 3 and 4. 7 Jan Carr, Power Sharing: Developing Inter-Provincial Electricity Trade, C.D. Howe Institute Commentary, July 2010. 8 See John Knox, “The Neglected Lessons of the NAFTA Environmental Regime,” Wake Forest Law Review 45 (2010): 101. 9 Trevor Houser, Rob Bradley, Britt Childs Staley, Jacob Werksman, and Robert Heilmayr, Leveling the Carbon Playing Field: International Competition and US Climate Policy Design (Washington, DC: World Resources Institute and Peterson Institute for International Economics, 2008). 10 National Roundtable on the Environment and the Economy, Achieving 2050: A Carbon Pricing Policy for Canada (Ottawa: NRTEE, 2009). 11 Houser et al., Leveling the Carbon Playing Field. See also Nicholas Stern, The Economics of Climate Change: The Stern Review (Cambridge, UK: Cambridge

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University Press, 2007), finding that only a small number of industries that are carbon-intensive will face significant increases in costs from carbon pricing. Dave Sawyer and Carolyn Fischer, “Better Together? The Implications of Linking Canada-US Greenhouse Gas Policies,” C.D. Howe Institute Commentary 307, August 2010; see also John Stephenson and Simon Upton, “Competitiveness, Leakage and Border Adjustment: Climate Policy Distractions?” (Paris: OECD, Roundtable on Sustainable Development SG/SD/RT, 2009) 3, examining impacts on post-industrial countries’ GDP. Trade in a number of sectors could be significantly affected. For example, U.S. policy on carbon could have a large impact on a few particularly carbonintensive sectors in Canada and Mexico. Canada was the number one source of U.S. imports in the areas of steel (with 17.6 per cent share of imports), cement (29.2 per cent), paper (53.1 per cent), and aluminium (55.7 per cent), and the number two source of U.S. imports of chemicals (with a 20.1 per cent share). Mexico was the third-largest source of U.S. imports of steel (8.2 per cent), fourth for cement (8.8 per cent), fifth for paper (4.8 per cent), and tenth for chemicals (2.1 per cent); Gary Clyde Hufbauer, Steve Charnovitz, and Jisun Kim, Global Warming and the World Trading System (Washington, DC: Peterson Institute for International Economics, 2009), 14–15. Scott Barrett, Why Cooperate? The Incentive to Supply Global Public Goods (Oxford: Oxford University Press, 2007); and Stern, Economics of Climate Change. Schott and Fickling, “Revisiting the NAFTA Agenda.” D. VanNijnatten, chapter 4, this volume. See Wold, “Taking Stock,” discussing the literature on environmental races to the bottom. Jonathan B. Wiener, “Think Globally, Act Globally: The Limits of Local Climate Policies,” University of Pennsylvania Law Review 155 (2007): 1961. The bills proposed delayed implementation of the allowance purchase requirements to 2020 or 2025, although some members of Congress wanted implementation sooner if a cap-and-trade system were put in place. Schott and Fickling, “Revisiting the NAFTA Agenda.” Tracey Epps and Andrew Green, Reconciling Trade and Climate: How the WTO Can Help Address Climate Change (Cheltenham, UK: Edward Elgar, 2010). Paul Krugman, “Building a Green Economy,” New York Times, 7 April 2010. Hufbauer, Charnovitz, and Kim, Global Warming. Trade rules and climate policies may interact in three principal ways. First, trade rules may limit the ability of governments to use domestic policies

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(such as taxes, regulations, or subsidies) to protect domestic industry in the guise of climate action. Second, countries may take unilateral measures to force other countries to take action on climate change (such as border taxes aimed at punishing free-riding countries). Finally, trade rules can be used to support multilateral agreements such as agreements under the UNFCCC. This article principally addresses the first type of interaction. See Epps and Green, Reconciling Trade and Climate, discussing types of interactions between trade rules and climate policies. The main national treatment provisions are found in Article III of GATT and Article 301 of NAFTA. There are also national treatment provisions relating to investments under Article 1102 of NAFTA. However, one NAFTA panel has found that the WTO and NAFTA Chapter 11 national treatment provisions should not necessarily be interpreted identically (Methanex Corporation v United States of America (3 August 2005), 44 International Legal Materials 1345). The main most-favoured nation provisions are found in Article II of GATT and Article 308 (tariffs) of NAFTA. There are also most-favoured nation provisions relating to investments under Article 1103 under NAFTA. WTO Appellate Body Report, EC-Measures Affecting Asbestos and AsbestosContaining Products, WT/DS135/AB/R, adopted 5 April 2001 (EC-Asbestos) at para 97, quoting an earlier Appellate Body decision: WTO Appellate Body Report, Japan-Taxes on Alcoholic Beverages, WT/DS8/AB/R, WT/ DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996. WTO Appellate Body Report, Canada – Certain Measures Affecting the Automotive Industry, WT/DS139/AB/R, WT/DS142/AB/R, adopted 19 June 2000. For a discussion of the interpretation of “like” products and its relationship to climate policies, see Epps and Green, Reconciling Trade and Climate; Hufbauer, Charnovitz, and Kim, Global Warming. “EU at Stalemate on Canada’s Oilsands Ranking,” CBC News, 23 February 2012, http://www.cbc.ca/news/canada/calgary/story/2012/02/22/ oilsands-european-union-vote.html. See, for example, Robert Howse and Elizabeth Tuerk, “The WTO Impact on Internal Regulations: A Case Study of Canada-EC Asbestos Dispute,” in The EU and the WTO: Legal and Constitutional Issues, ed. G. de Burca and J. Scott, 283–328 (Oxford: Hart Publishing, 2001). For imports, see GATT Article II.2(a), permitting imposition on imports of a charge equivalent to an internal indirect tax, provided it is consistent with the national treatment principle in Article III.2; and for exports, see GATT Article XVI and Subsidies and Countervailing Measures Agreement

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Article I.1(ii), permitting exempting or remitting taxes borne by the like product destined for domestic consumption. One issue that is extremely important in this debate is whether BTAs can be used for emissions trading programs. The question in effect is whether the requirement to have an emissions permit is an “internal charge equivalent to an internal tax.” It is unclear and may depend on the specifics of the emissions trading program, such as whether the permits are auctioned or given away for free. For a discussion of these issues, see Joost Paulwelyn, U.S. Federal Climate Policy and Competitiveness Concerns: The Limits and Options of International Trade Law (working paper, Nicolas Institute for Environmental Policy Solutions, Duke University, 2007), http://nicholasinstitute.duke.edu/ climate/policydesign/u.s.-federal-climate-policy-and-competitivenessconcerns-the-limits-and-options-of-international-trade-law#.US_stVojoVk; and Javier de Cendra, “Can Emissions Trading Schemes Be Coupled with Border Tax Adjustments? An Analysis vis-à-vis WTO Law,” Review of European Community and International Environmental Law 15, no. 2 (2006): 131. See chapter 1 for a discussion of the value of commensurable measurements in fostering reciprocity and therefore policy integration. See chapter 1. Andrew Green, “Trade Rules and Climate Change Subsidies,” World Trade Review 5, no. 3 (2006): 1; and R. Howse, Subsidies to Address Climate Change: Legal Issues (Winnipeg: International Institute for Sustainable Development, 2009). Pauwelyn, U.S. Federal Climate Policy. SCM Agreement, Article 3. SCM Agreement, Article 5. Canada – Certain Measures Affecting the Renewal Energy Generation Sector, WT/DS412, (in consultations). See also Richard Blackwell, “Japan Takes Issue with Ontario’s Green Energy Plan,” Globe and Mail, 13 September 2010. Similarly unions in the United States have recently started a procedure to challenge Chinese subsidies on renewable energy equipment. See Keith Bradsher, “Union Accuses China of Illegal Clean Energy Subsidies,” New York Times, 9 September 2010. International Centre for Trade and Sustainable Development, “Canadian Renewable Energy Case under Appeal at WTO,” 17(6), Bridges Weekly Trade News Digest, 20 February 2013. See, for example, Alan Sykes, “The Questionable Case for Subsidies Regulation: A Comparative Perspective,” Journal of Legal Analysis 2, no. 2 (2010): 473.

Trade Rules, Dispute Settlement, and Barriers 327 42 NAFTA, Article 1110. In particular, Chapter 11 essentially states that a party cannot expropriate an investment or take measures tantamount to expropriation, except for a public purpose, on a non-discriminatory basis, in accordance with due process of law and on payment of compensation. Chapter 11 also provides that governments must treat investors in accordance with international law (Article 1105). 43 Metalclad Corporation v United Mexican States (30 August 2000), 16 ICSID Review 168 (such measures include “not only open, deliberate and acknowledged takings of property … but also covert or incidental interference with the use of property which has the effect of depriving the owner, in whole or in significant part, of the use of reasonably-to-be-expected economic benefits of property”). 44 Methanex (2005) (“a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process and, which affects, inter alias, a foreign investor or investment is not deemed expropriatory and compensable unless specific commitments has been given by the regulating government to the then putative foreign investor contemplating investment that the government would refrain from such regulation”). 45 For example, in the Metalclad (2000) in which a U.S. investor challenged decisions by Mexican state and local governments blocking its wastedisposal facility, a Chapter 11 panel awarded Metalclad approximately US$17 million. Gus Van Harten, “Judicial Supervision of NAFTA Chapter 11 Arbitration: Public or Private Law?,” Arbitration International 21 (2005): 493. 46 Such challenges include (in addition to the Metalclad claim) a ban on a gasoline additive (Ethyl Corporation v Government of Canada (24 June 1998), 38 International Legal Materials 708), a ban on the export of PCB waste (SD Myers, Inc v Government of Canada (12 November 2000), 40 International Legal Materials 1408), and a Californian ban on sale of a gasoline additive (Methanex (2005)). 47 David Hornsby, Alastair Summerlee, and Kenneth Woodside, “NAFTA’s Shadow Hangs over Kyoto's Implementation,” Canadian Public Policy 33, no. 3 (2007): 285. 48 See Cymie Payne, “Local Meets Global: The Low Carbon Fuel Standard and the WTO,” North Carolina Journal of International Law & Commercial Regulation 34 (2009): 893, discussing the WTO implications of a Californian low carbon fuel standard. 49 “Oil Tycoon Takes on Ontario Green Energy Act over Wind Farm,” Globe and Mail, http://www.theglobeandmail.com/report-on-business/

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industry-news/energy-and-resources/oil-tycoon-takes-on-ontario-greenenergy-act-over-wind-farm/article2097575/. Under Article 2101, for the purposes of trade in goods and technical barriers to trade, “GATT Article XX and its interpretative notes, or any equivalent provision of a successor agreement to which all Parties are party, are incorporated into and made part of this Agreement. The Parties understand that the measures referred to in GATT Article XX(b) include environmental measures necessary to protect human, animal or plant life or health, and that GATT Article XX(g) applies to measures relating to the conservation of living and non-living exhaustible natural resources.” Appellate Body Report, Korea – Measures Affecting Imports of Fresh, Chilled and Frozen Beef (2001) WTO Doc. WT/DS161, WT/DS169/AB/R. For a discussion of the tests under Article XX, see Donald Regan, “The Meaning of ‘Necessity’ in GATT Article XX and GATS Article XIV: The Myth of Cost-Benefit Balancing,” World Trade Review 6, no. 3 (2007): 347; and Alan Sykes, “The Least Restrictive Means,” University of Chicago Law Review 70, no. 1 (2003): 403. For an alternative to be feasible, it must provide the same level of protection (e.g., of the environment), must be less trade restrictive than the challenged measure, and must be reasonably available (e.g., not prohibitively costly). Appellate Body Report, Brazil – Measures Affecting Imports of Retreaded Tyres (2007) WT/DS332/AB/R. Appellate Body Report, US – Standards for Reformulated and Conventional Gasoline (1996) WT/DS2/AB/R, at 22. There is another general form of exception under NAFTA, which provides that in the event of an inconsistency between NAFTA and certain listed international environmental agreements, the obligations in the latter prevail. However, this provision does not significantly add to the protection that would exist under treaty law and in any event does not address what countries may be allowed to do under these agreements. See John Knox, “The Neglected Lessons of the NAFTA Environmental Regime,” Wake Forest Law Review 45 (2010): 101. There has been considerably less flexibility in relation to Chapter 11. Arguably the inclusion of the “public purpose” requirement under Chapter 11 provides scope, at least notionally, for governments to take environmental action. In addition, Article 1114 states, “Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory

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is undertaken in a manner sensitive to environmental concerns.” The language of this provision is not particularly clear or helpful in terms of an exception for environmental measures. See chapter 1 for a discussion of the trade-off between coherence or integration and flexibility. The SCM Agreement did have a very narrow category of “non-actionable” subsidies that provided some (very limited) scope for environmental subsidies, but this category was time limited and has expired and not been renewed (SCM Agreement Article 8.2). Robert Howse, Subsidies to Address Climate Change: Legal Issues (Winnipeg: International Institute for Sustainable Development, 2009). It may be possible to argue that a state could rely on Article XX where it is non-compliant with the SCM Agreement, but such an interpretation seems unlikely (see Howse, Subsidies). For example, the Japanese challenge to Ontario’s green energy plan discussed above. See Knox, “Neglected Lessons”; and Epps and Green, Reconciling Trade and Climate. Andrew Green, “Incomplete Information and WTO Review of Domestic Climate Measures” (paper presented at Michael J. Trebilcock Symposium, University of Toronto, September 2009). The costs and benefits of addressing climate change vary considerably across countries, with developing countries facing some of the greatest potential harms from climate change. Barrett, Why Cooperate?; and E. Posner and C. Sunstein, “Climate Change Justice,” Georgetown Law Journal 96 (2008): 1565. Chad Bown and Joel Trachtman, “Brazil: Measures Affecting Imports of Retreaded Tyres: A Balancing Act,” World Trade Review 8, no. 1 (2009): 85 (discussing the interaction of Article XX and domestic environmental externalities [that is, externalities whose impact is felt within the regulating member]). The effects of climate change are likely to be spread across countries and across time. Determining the appropriate response will involve ethical judgments about these distributional effects. See Stern, Economics of Climate Change, xv. Stern used a particular discount rate to account for intergenerational equity, acknowledging this choice was based on an ethical determination. For criticisms of the discount rate chosen by Stern, see, for example, M. Weitzman, “The Stern Review of the Economics of Climate Change,” Journal of Economic Literature 45, no. 3 (2007): 703; and W. Nordhaus, “The Stern Review on the Economics of Climate Change,” Journal of Economic Literature 45, no. 3 (2007): 686.

330 Andrew Green 66 Chad Bown and Michele Ruta, “The Economics of Permissible WTO Retaliation,” in The Law, Economics and Politics of Trade Retaliation in WTO Dispute Settlement, ed. Chad P. Bown and Joost Pauwelyn, 149–93 (Cambridge, UK: Cambridge University Press, 2010). 67 See Dispute Settlement Understanding, Article 22. 68 See a discussion of these power imbalances, see Studer, chapter 2, this volume. 69 See, for example, Jide Nzelibe, “The Case against Reforming the WTO’s Enforcement Mechanism,” University of Illinois Law Review 1 (2008): 319, for a discussion of these issues in the context of developing countries. 70 See, for example, Andrew Guzman and Beth Simmons, “Power Plays and Capacity Constraints: The Selection of Defendants in World Trade Organization Disputes,” Journal of Legal Studies 34 (2005): 557, finding evidence that smaller countries may not bring challenges where they are fearful of retaliation. 71 See Joost Pauwelyn, “Optimal Protection of International Law: Navigating European Absolutism and American Voluntarism” (University of St. Gallen Law & Economics Working Paper No. 27, 2007), http://ssrn.com/ abstract=1019415; and Joel P. Trachtman, “Building the WTO Cathedral,” Stanford Journal of International Law 43, no. 1 (2007): 127, discussing the role of reputational penalties and the different effect of reputation in the face of efficient breach as opposed to mandatory compliance approaches. 72 GATT, Article XXIV(12). 73 For example, see Warren Schwartz and Alan O. Sykes, “The Economic Structure of Renegotiation and Dispute Resolution in the World Trade Organization,” 31 Journal of Legal Studies 31 (2002): S179; Joel P. Trachtman, “Building the WTO Cathedral”; Marco Bronckers and Naboth van den Broek, “Financial Compensation in the WTO: Improving the Remedies of WTO Dispute Settlement,” Journal of International Economic Law 8, no. 1 (2005): 101; Nzelibe, “Case against Reforming,” 319; and Kyle Bagwell, “Remedies in the WTO: An Economic Perspective,” in The WTO Governance, Dispute Settlement & Developing Countries, ed. Merit E. Janow, Victoria J. Donaldson, and Alan Yanovich, 733–70 (Huntington, NY: Juris Publishing, 2008). 74 See Epps and Green, Reconciling Trade and Climate, for a discussion of such a committee in the WTO context. 75 For a discussion of standard harmonization, see VanNijnatten, chapter 4, this volume. 76 Ibid. 77 See Wold, “Taking Stock,” for a discussion of the transparency and amicus issues.

Trade Rules, Dispute Settlement, and Barriers 331 78 There is a large and growing literature examining whether justices vote in particular cases in line with their policy preferences; for example, for discussion of these models in the U.S. context, see J. Segal and H. Spaeth, The Supreme Court and the Attitudinal Model Revisited (Cambridge, UK: Cambridge University Press, 2002). 79 For a discussion of the application of public law principles to the review of Chapter 11 decisions by courts, see Van Harten, “Judicial Supervision.” 80 Andrew Guzman, “Determining the Appropriate Standard of Review in WTO Disputes,” Cornell Journal of International Law 42 (2009): 45. 81 Michael Trebilcock and Julie Soloway, “International Trade Policy and Domestic Food Safety Regulation: The Case for Substantial Deference by the WTO Dispute Settlement Body under the SPS Agreement,” in The Political Economy of International Trade Law: Essays in Honor of Robert E. Hudec, ed. Daniel L.M. Kennedy and James D. Southwick (Cambridge, UK: Cambridge University Press, 2002), 553, arguing for a deferential role for WTO panels in decisions raising concerns about scientific uncertainty and risk preferences; and Andrew Guzman, “Dispute Resolution in SPS Cases,” in Ten Years of WTO Dispute Settlement, ed. D. Horovitz, D. Moulis, and D. Steger, 215–33 (London: International Bar Association, 2007), arguing for limited review of health measures because of the risk of errors by the WTO panels. 82 Robert Howse, “Democracy, Science and Free Trade: Risk Regulation on Trial at the World Trade Organization,” Michigan Law Review 98 (2000): 2329; and Alan O. Sykes, “Domestic Regulation, Sovereignty and Scientific Evidentiary Requirements: A Pessimistic View,” Chicago Journal of International Law 3, no. 2 (2002): 353. 83 For example, see Howse, “Democracy, Science and Free Trade,” arguing that procedural constraints imposed by the WTO may promote deliberative democracy in regulating states. For example, in the health and safety area, Trebilcock and Soloway argue for a relatively deferential form of WTO review focusing on “certain minimum objectively verifiable characteristics of the regulatory process (which we characterize as form and process review, rather than substantive review.” Trebilcock and Soloway, “International Trade Policy and Domestic Food Safety Regulation,” 543. 84 For a discussion of the choice between substantive and procedural review, see Green, “Incomplete Information.” 85 Trebilcock and Soloway, “International Trade Policy and Domestic Food Safety Regulation.” 86 See, for example, Robert Z. Lawrence. Crimes and Punishments? Retaliation under the WTO (Washington, DC: Institute for International Economics, 2003); and Bagwell, “Remedies in the WTO.” But see Alan Sykes, “Optimal

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Sanctions in the WTO: The Case for Decoupling (and the Uneasy Case for the Status Quo),” Stanford Law School, Law and Economics Research Paper no. 379, 2009. Robert Z. Lawrence. Crimes and Punishments? Retaliation under the WTO (Washington, DC: Institute for International Economics, 2003); Trachtman, “Building the WTO Cathedral”; and Bagwell, “Remedies in the WTO.” Nzelibe (2008). Hufbauer, Charnovitz, and Kim, Global Warming. Epps and Green, Reconciling Trade and Climate. See ibid., and Howse, Subsidies to Address Climate Change. Schott and Fickling, “Revisiting the NAFTA Agenda.” Howse, Subsidies to Address Climate Change. See also Alan Sykes, “The Questionable Case for Subsidies Regulation: A Comparative Perspective,” Journal of Legal Analysis (2010): 273. Epps and Green, Reconciling Trade and Climate. See, generally, Zhong Xiang Zhang, Climate Change Meets Trade in Promoting Green Growth: Potential Conflicts and Synergies, East-West Center Working Papers, No. 105, December 2009, http://www.eastwestcenter.org/fileadmin/stored/pdfs/econwp105.pdf; and in the NAFTA context, Schott and Fickling, “Revisiting the NAFTA Agenda.”

12 Conclusion neil craik and debora vannijnatten

This volume has proceeded on the basis of two principal premises. The first, which is largely descriptive, is that the structure of North American climate change governance is decentralized and diverse in both the range of actors involved in cooperative activities and the form of activities undertaken. The second, which is more conceptual, is that North American climate governance, while consisting of distinct cooperative activities, can be understood as a complex system with multiple operating sub-systems. Conceptualizing North American climate governance in this way draws our attention to the ways in which the main structural features of the system mould the interactions among its constituent governance sub-systems. Our primary interest here is the degree to which these various governance activities interact with one another in mutually reinforcing ways that achieve collective climate change goals – what we refer to as policy integration. Interactions in the North American Climate Change Governance System The main structural features of the system of climate governance in North America, namely its decentralization, diversity, and dynamism, were described in chapter 1 and, as noted above, have served as a starting point for our inquiries. In much of the literature on climate governance “architecture,” the degree of centralization is presented as a policy choice.1 That is, political entities at the global, regional, and national levels can consider the degree of centralization within a governance arrangement as a question of institutional design. While that may be be true within particular arrangements, it is quite clear that

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in North America, polycentricity is driven by institutional, political, and economic constraints. The policy challenge, then, is not so much to determine whether decentralized governance arrangements are suitable for addressing climate change at a regional scale, but rather how to account for these constraints in designing policy tools. Here, our focus is on how these structural features have influenced the interactions among governance sub-systems, both within the polycentric system and beyond it. In this respect, it is important to note that the constraints associated with decentralized structures in North America do not necessarily operate in the same direction or through uniform pathways. For Mexico, polycentricity is less a function of its own governance and economic framework, which is clearly more centralized than Canada and the United States, and more of its proximity – politically and economically – to decentralizing forces in the broader system. While a defining feature of North American climate change governance is the absence of strong linkage to commitments flowing out of the UN climate regime, the international regime still exerts influence over important aspects of the North American climate change governance system. Yet these connections between global commitments and local implementation have tended to be loose and often interrupted. For example, national GHG reduction commitments have been formulated and agreed to by national executive bodies operating within the global climate framework. However, a significant constraint on the development of nationally coordinated regional climate policy has been the (un)willingness of the U.S. national government to develop national climate policies. The failure of the U.S. Congress to pass legislation on climate and energy matters has not only constrained the consolidation of the global regime, it has also influenced the way its neighbours view their own climate policy choices, as well as the prospects for transnational cooperation. Canada has maintained a “wait and see” stance in its own domestic policy choices, while Mexico has moved ahead with its own national legislation, which is tied strongly to the UN climate finance schemes. In those sub-national jurisdictions where public sentiment and economic interests actually make climate policy feasible, the development of GHG mitigation goals is connected only loosely to global commitments, which are in some senses “blocked” at the national level. Unlike Europe, where individual country commitments are intended to roll up into the broader European climate obligations (e.g., under the European “bubble”), in North America sub-national climate activities,

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particularly in the United States and Canada, have been formulated quite independently of national commitments. A similar structure is present within the multiple systems of GHG accounting, whereby the accounting rules are both top-down and bottom-up. Top-down national inventories are based on calculations using highly abstracted emission factors and econometric information, while facility-based GHG accounting is more closely tied to the actual source emissions. Young and Abbott note that as source- and facility-based accounting becomes more comprehensive and is rolled up to subnational and national levels, there will be a sort of reckoning, as aggregated facility accounting is unlikely to match the more approximate national inventories. Again, there is a disconnect between the global accounting requirements flowing from the UN climate regime and the bottom-up facility-based accounting, which has arisen in response to a quite different set of requirements and interests. The emerging system of global climate finance faces similar pressures. As described by Demerse and Gúzman, the substantial global political commitments are likely to be met by the United States and Canada only partially through public funds and will require significant private financing. On the public financing side, as shown in the fast-start financing, the structure is centralized, operating through central agencies at the national level and implemented through multilateral and bilateral arrangements.2 However, in private sector financing, involvement is not likely to be prescribed but will rely on actors to self-initiate in response to market incentives. The result, like carbon accounting and mitigation commitments, is the requirement to integrate global and national requirements across a diverse range of decentralized activities, both public and private. Mexico is on the receiving end of these interactions; given its great need to attract international financing to meet national GHG targets, it is likely to be pulled in multiple directions by these diverse financing arrangements. Underlying these top-down and bottom-up interactions is the federal structure of the three North American states. The chapters in this volume affirm the continued importance of sub-national governments, as independent sources of the climate policy goals and as tools that “float upward,” but also as drivers of significant cross-jurisdictional interactions that are shaping the dynamics of regional climate policy. The configuration of governance arrangements, overlap in policy responsibility over climate-related matters and also the asymmetry across federations due to the variable distribution of authority, is leading to novel pathways of policy diffusion within North America and beyond.

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The influence of federalism, we argue, is not only vertical, but also horizontal and diagonal. Consider, for example, Rabe’s discussion of the relationship between sub-national cap-and-trade systems and anticipated national systems. He notes that sub-national systems were developed with consideration of how participating jurisdictions could potentially reap first-mover advantages through “early emission reduction” credits. As the debate over a national cap-and-trade program unfolded, the fate of sub-national systems and whether they could coexist alongside a national system received considerable attention and found expression in some of the draft bills.3 Although prospects for national cap-and-trade systems seem uncertain now, this dynamic is being replicated in negotiations on the sub-national role under emerging national GHG regulatory regimes – given the threat of federal pre-emption in the United States, the continuing negotiations on “equivalency agreements” in Canada, and the manner in which sub-national policy experimentation is informing the new framework for climate policy in Mexico. Looking at the density of interactions of sub-national governments across borders, it is also evident that the variable distribution of authority and capacity is influencing the way in which climate governance arrangements are developing and interacting with one another. British Columbia’s emulation of California’s standards, as VanNijnatten shows, or the variable memberships that Ontario has taken out in the various sub-national cap-and-trade programs, as Rabe discusses, indicates some of the horizontal pathways for policy diffusion that have been forged. In Mexico, with some exceptions (for example, participation by the six Mexican border states as observers to the WCI), climate cooperation has been mediated through national central agencies, resulting in fewer direct, substantive interactions between Mexican sub-national governments and their North American counterparts. Moreover, the extensive regulatory authority over environment and energy matters possessed by sub-national governments in Canada and, to a lesser degree in the United States has resulted in some diagonal links between sub-national governments and other governance levels. For example, the sub-national cap-and-trade programs discussed by Rabe contemplate future linkages to other global trading programs, through offset programs, such as the Clean Development Mechanism, or by direct trading of allowance units. In Mexico, as Demerse and Gúzman, as well as Etcheverry, point out, states are interacting directly

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with the CEC, European funding agencies, and global climate bodies, as they receive various forms of support for their nascent climate policy infrastructure. Such interactions are likely to increase, as international funding agencies move to support implementation of the new Mexican GHG and renewables targets. Thus a key part of the structural dynamic that has been emerging in North America is that policy goals and policy tools are simultaneously pushing down from the top and floating up from the bottom. To this point, the absence of strong federal leadership, divided federal/subfederal jurisdiction over key climate-related policy areas (particularly in Canada and the United States), and the lack of strong institutions has limited the ability of top-down, global goals and tools to penetrate very far into the state. As a result, in areas where the global goals are prescriptive, a tension arises or potentially arises where the more unified top-down arrangements come up against the numerous and varying bottom-up arrangements. A reconciliation between the two may be required in some instances but is challenging as a result of fragmentation on the ground. While interactions are most often considered in either spatial or scalar configurations,4 it is also evident in most chapters in this volume that important interactions have arisen, first, across different policy areas within the broader climate change governance sphere and, second, between the climate change governance sphere and other major policy areas, such as trade or energy policy.5 Consequently, a second feature that emerges across the chapters in this volume is the contingent and often ancillary linkage of climate goals with a range of other environmental and social goals, particularly energy policy. Both Studer and Etcheverry note that a primary motivation for the Mexican government’s engagement in global climate policy is its energy supply crisis and the need for capital to develop alternative energy sources; this is a process aided by climate finance mechanisms but shaped by energy security concerns. And the cooperative efforts around the smart grid are described by Rowlands as being driven by climate goals but also by economic and reliability concerns. The ancillary nature of climate policies creates a much more complicated policy environment, as linkages draw more and more government agencies and private actors into the climate governance fold, with multiple and potentially divergent agendas. Young and Abbott make this point in relation to GHG accounting tools, which may be used for national GHG accounting, direct regulation, underlying market

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instruments, corporate risk assessment, or management of internal emission-related operations. Each of these purposes attracts its own set of supporters, who will seek to shape GHG accounting tools to serve their particular interests. Rowlands also makes this point quite explicitly in relation to smart grid cooperation, noting three communities of interest around smart grids: “What is emerging – and what may be one defining characteristic of future efforts to shape and to utilize this infrastructure to achieve mutually acceptable (and thus effective) integration – is a set of tensions: governments want cost-effective results on a variety of fronts, and business want access (and sales) as quickly as possible. The managers of the existing infrastructure … are thus caught in the middle: they need to balance these players’ potentially competing interests while also continuing to meet society’s expectations for the established electricity grid.”6 Also prominent among the chapters in this volume are private governance arrangements that interact across multiple spaces and scales. The range of private actors engaged in governance is diverse, including private firms, industry groups, and not-for-profit groups. Such forms of cooperation are described by Rowlands in relation to smart grids, and Etcheverry in relation to renewable energy collaboration. Young and Abbott’s description of GHG accounting arrangements also includes private sector initiated accounting schemes, such as the Carbon Disclosure Project or the Greenhouse Gas Initiative. These arrangements may involve standard setting but also the exchange of information on best practices and capacity building. Instead of being structured around formal instruments, such as treaties, these arrangements tend to be looser and transnational. In the same way that sub-national initiatives are partially motivated to generate their own governance arrangements by a desire to exert influence over national policy processes or capture first-mover advantages, private governance arrangements are likely to seek to entrench standards or practices that serve their private interests. Clearly, then, the proliferation of such arrangements is made possible by the polycentricity of climate governance in North America and also reinforces it. Regional Climate Integration: Efficiency, Reciprocity, and Coherence The primary task in effecting integration, then, is to address the divergent interests that underlie interactions – across spatial and scalar

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configurations and across state-dominated and private governance arrangements. Hierarchical systems allow centralized actors, such as international organizations or national governments, to determine optimal policy approaches (in theory) and require implementation at lower levels, even where the policy choices may not be preferred at local levels. In polycentric systems, however, because diverse policy preferences – embodying diverse interests – tend to be formulated at lower levels and pushed upwards, integration requires local actors to carefully assess the trade-offs between securing local benefits and achieving collective goals. This is particularly important because the aggregation of interests at higher levels will yield different preferences. Thus, the incentive systems around climate issues become critically important. Also significant in a polycentric system, which relies on more informal modes of cooperation, are the social dimensions of integration. Here the focus is less on the specific interests of actors and more on the background conditions of cooperation, which require communication, learning, and, ultimately, trust building. In chapter 1 it is noted with reference to previous work by Bodansky and Diringer that the processes associated with achieving efficiency, reciprocity, and coherence can affect the manner in which policy tools and governance sub-systems are integrated regionally.7 In light of the contributions in this volume, it is useful to revisit these policy objectives in order to identify and assess the manner in which integration occurs. Efficiency Among jurisdictions and actors that have committed themselves to GHG emission reductions, or are considering such commitments, a principal concern is being able to implement those policies as efficiently as possible. Efficiency concerns animate, for example, the policy decisions surrounding standards harmonization and cap-and-trade market linkage, as well as the desire to integrate and expand GHG markets in order to capture least-cost emission reduction opportunities. From an economic standpoint, the desirability of integrated markets is axiomatic. The challenge in decentralized policy environments, however, is that efficiency gains often come at the expense of flexibility and policy autonomy. From a cooperation standpoint, efficiency is not an end in itself but is important, because it can alter the incentive structure around climate governance.

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Rabe’s description of the evolution of the three sub-national capand-trade programs demonstrates both the attractiveness and the limitations of integrating markets. In each case, the cooperating parties recognized that larger markets would be more cost-effective and sought to create regional markets, which were preferred over internal markets. However, each market developed quite distinct arrangements in coverage, stringency, and market rules. The separate market structures reflect the constellation of interests and particular pathways of cooperation in each market. The fragmentation of carbon markets into separate structures that serve the unique interests and historical patterns of cooperation illustrates that the efficiency gains from unified markets need to be significant to overcome parochial interests. It is noteworthy that despite the potential for significant market coverage (in Canada and the United States, sub-national market participants at one time represented over three-quarters and one-half of the national population, respectively)8 and the preferability of larger markets to reduce leakage and increase efficiency, sub-national support did not translate into momentum for a single integrated market. A national market would have needed to overcome the objections of powerful nonparticipating jurisdictions and the interests of those actors served by the specific market structures of sub-national markets (such as the many non-regulated emitters in RGGI). The interests in support of carbon pricing measures can align very differently at national and regional levels.9 Market linkage offers the opportunity for market participants operating in distinct markets to capture some of the efficiency benefits of larger markets, while maintaining differentiated policies. However, the implementation of linkage appears likely to erode some of the distinguishing features of separate markets, as policy decisions in one market carry over into another, linked market via price mechanisms; this is what Murray, Maniloff, and Monast refer to as policy “seepage.”10 For example, stringency differences (i.e., differences in the level of emission reductions required) would disappear as GHG prices equilibrate under linked conditions. The spillover effects of linking markets similarly affect other market design elements, such as banking and borrowing and price containment. The advantage of small, unlinked markets is that market conditions can be more easily tailored to the interests of the participants, but they may then become less willing to concede those advantages once established. Efficiency concerns also undergird standardization processes that seek to minimize non-tariff trade barriers and competitiveness concerns

Conclusion 341

that flow from divergent energy and emission standards. VanNijnatten describes standards harmonization in North America as being incremental and a mixture of vertical and horizontal interactions, reflecting the structure of North American climate governance described above. Successfully harmonized standards have tended to focus on vehicle emissions and energy efficiency, where there are clearly strong economic incentives to do so. Electricity emission standards and low carbon fuel standards, which focus more directly on carbon intensity and are perhaps more tightly linked to local political and economic interests, have proven less amenable to standardization. It would seem that efficiency as an incentive for cooperation is effective in coordinating the activities of similarly committed actors. Once agreed to, there are minimal reasons for jurisdictions to defect from the standards, particularly in light of the highly integrated nature of the automobile industry in North America. Where cooperating jurisdictions settle on higher standards, such as the adoption of economically powerful, first mover standards, efficiency desires can provide incentives for deeper cooperation. As a result, powerful national and sub-national jurisdictions remain lynchpins in regional climate policy. Reciprocity There is little sustained effort directed towards quantifying mitigation and formally seeking reciprocal efforts from other national or sub-national governments in North America. At present, the clearest evidence of reciprocity is the alignment by Canada of its Copenhagen pledges directly with those of the United States. Reciprocity with Mexico, at least at an interstate level, is more complicated by Mexico’s non–Annex 1 country status under the UN climate regime and the substantially differentiated role that this status entails. The absence of nationally legislated climate policies in Canada and the United States makes reciprocity among national and sub-state governments in specific policy approaches more difficult to establish, particularly in light of the variation in economic and energy compositions among states and provinces.11 However, there are various tools to promote the reciprocity of efforts among governments and firms on the continent. Bodansky and Diringer suggest that climate policies that utilize a more broadly recognized reporting scheme ought to promote deeper cooperation, as the focus is placed on jurisdictions matching reduction efforts without

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necessarily adopting a unified policy approach. And indeed the key to promoting reciprocity across multiple policy approaches, on the basis of our cross-chapter evaluation, is the development of credible and accurate measurement, reporting, and verification (MRV) standards – most prominently in relation to GHG emission reductions, but also in other policy areas such as climate finance and research and development funding. Having a common metric by which different mitigation activities can be measured allows for meaningful comparisons across activities, which in turn allows actors to assess the mitigation efforts of others, even where those efforts involve quite different reduction activities. This shared nomenclature facilitates cooperation and transactions between sub-systems by standardizing both the measurement and reporting of emissions, much like the way a system of common currency facilitates trade. Unlike monetary currencies, however, GHG accounting is subject to scale-related differences. The array of GHG accounting tools that Young and Abbott examine are proving difficult to reduce to a single standard or even a handful of standards, because they are used for different purposes; as a result, there remain significant differences across the three North American countries in their facility reporting requirements.12 Significantly, the CEC, building on its success in continent-wide toxic pollutants reporting, has identified improvements to the comparability of emissions data, methodologies, and inventories as a key building block to addressing regional climate change.13 Standards organizations are developing sets of principles to which all GHG accounting tools ought to adhere. Even where accounting methodologies and reporting practices differ, an abstracted level of reciprocity may still be possible through shared principles set by standards organizations. Further, in jurisdictions and areas not subject to some form of GHG emission regulation, public disclosure through registries, such as the Carbon Disclosure Project, provide an avenue for systematic comparisons of company GHG mitigation performance. Carbon markets also play a significant role in facilitating reciprocity among cooperating jurisdictions and firms, specifically by monetizing GHG reduction efforts. On an intra-market level, reciprocity is managed through the imposition of the cap itself and is maintained through reporting and verification. Inter-market reciprocity is limited, since different schemes will impose different levels of burden on the regulated facilities under their jurisdiction, although the transparency of markets allows efforts to be compared. Linking markets may eliminate some of

Conclusion 343

the differences between markets as prices converge but may not be able to address the competitive advantages that arise from different scopes of coverage.14 The maintenance of unreciprocated GHG mitigation burdens across North America without any plan for the imposition of burdens on unregulated jurisdictions limits the depth of commitments that cooperating jurisdictions are willing to make and points to the difficulty of decentralized climate governance. Trade rules, particularly non-discrimination norms, may also support reciprocity, not by requiring uniformity, but by placing limits on the reasons for differential treatment. Unlike many policy instruments and approaches discussed in this volume, trade rules exist in a hierarchical relationship to domestic policies and exert direct and indirect influence over policy choices. Green provides an equivocal assessment of the impact of trade rules on North American climate policy, noting that there is sufficient flexibility in trade rules to allow for the development of differentiated climate policies so long as those policies are not directed at protecting domestic industries. Trade rules properly designed can complement a decentralized climate policy system by providing mechanisms, such as border adjustment taxes, for policy leaders to protect against competitiveness impacts that arise from climate policies. States that choose to impose heavier burdens on GHG emitters can protect their economic interests by imposing similar burdens on importing firms. Green sounds a note of caution, however, as the ability of trade measures to support climate policies depends upon the clarity and predictability of those rules. In the absence of these conditions, economic power will likely influence interactions, leaving Canada and Mexico with less room to develop climate policies that are independent of the United States. This is illustrated by Canada’s decision to explicitly align its national climate targets with those of the United States, so as to avoid any argument that its climate policies were not comparable to those of the United States. An important observation that emerges across the chapters is that reciprocity is critical to social capital formation, as it provides assurances that the burdens and benefits from cooperation are being distributed equitably. Brondizio, Ostrom, and Young observe that social capital is most effective across levels where it is based on common values.15 As diverse actors within a system develop a shared understanding of the broader system goals and principles, they are better able to assess one another’s efforts to adhere to those values, notwithstanding their different approaches. As Demerse and Gúzman argue, for example, the

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governance arrangements supporting fast-start climate financing are “an important experiment in trust-building and reciprocity that is being conducted simultaneously with high-stakes international negotiations on the next climate deal. Countries that propose outdated definitions of what’s new, or pull climate pledges from shrinking aid budgets, are unlikely to increase the goodwill around the negotiation table.”16 Rabe also shows the critical role of trust-building and familiarity in the relative success of RGGI versus WCI. However, reciprocity becomes more difficult to demonstrate across different scales and from one policy area to another, as Rowlands’s chapter on smart grid integration shows, since diverse activities become more difficult to reduce to a common metric. Coherence In this context, coherence means that separate policies or activities are coordinated and consistent across jurisdictions, levels, and policy areas. In essence, climate policies taken in one sphere will be coherent if they do not limit or undermine policies applied somewhere else. One of the most deliberative cooperative exercises discussed in this volume is the activity surrounding smart grid development described by Rowlands. This activity includes identifying common standards for the development and deployment of smart grids, and research and development cooperation. The smart grid cooperation agenda is extraordinarily complex, involving not only actors at every level, but a diversity of objectives, of which GHG reduction is but one. The extent to which climate goals mutually support efficiency and reliability goals is a very live issue. Intriguingly, Rowlands notes that further issues, such as health care and security, are poised to “infringe upon the smart grid agenda.”17 The implications for coherence are important, since the very different objectives may prove less amenable to coordination than activities that are directed principally towards climate change. However, as discussed above, climate change policy in North America is increasingly tied to the achievement of other goals. One potential difficulty with this contingency, as identified by Keohane and Victor, is that the non-hierarchical relationship between the various coordinating bodies may lead to “veto points.”18 For example, system operators, whose primary concern is reliability, may resist climate policy driven by technological advancements, where the impacts on reliability are uncertain. Managing these trade-offs will be a major challenge.

Conclusion 345

Etcheverry’s chapter on the development of renewable energy sources in Mexico points to a further set of coherence challenges in the manner in which the broader continental policy environment might affect domestic policy arrangements. His chapter highlights the considerable barriers to the pursuit of renewable energies within Mexico, resulting in a lack of policy coherence within the Mexico governmental framework and critical capacity gaps. While cross-jurisdictional mechanisms hold potential for linking up mechanisms and policy tools both within Mexico and transnationally, they, too, are fragmented across levels (bilateral versus international) and across agencies operating in their policy silos. Both the smart grid and renewable energy examples underlie the importance of sharing information and policy learning to the development of policy coherence. Much of the cooperation described in those chapters involves interactions, largely mediated through policy networks, that have as their central purpose the exchange of information on current practices and developing a shared understanding of issues of common concern. In light of the potentially competing objectives of the participants, these interactions are important for the creation of conditions that facilitate cooperation. The process of standards harmonization in North America, which may also occur through diffusion of information on the policy choices of other jurisdictions, seeks coherence through the voluntary alignment of standards. The sharing of the standards themselves, their implementation in specific contexts and the outcomes (both environmental and economic) provide parties with higher degrees of certainty about their own regulatory choices. There is clearly an element of experimentation and dissemination that is occurring here, as leader jurisdictions such as California become policy laboratories and sources of learning for other jurisdictions. What is perhaps most interesting is that the policy lessons are moving out both horizontally (to other states and provinces) and vertically (to federal governments). As described by VanNijnatten, the pathways of diffusion are not uniform but respond quite specifically to institutions, such as carbon markets, and patterns of prior cooperation. The presence of multiple contexts and diversity of experience broadens the availability of capacity. For example, the experience that Canadian provinces, particularly Ontario, have had in the regulation of capital markets brought much needed expertise and capacity to the market rule formation process of the WCI, where the majority of U.S. participants had limited experience (given that capital markets in the United States are federally regulated).19

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Designing a Resilient Regional Climate Change System A key observation flowing from all of the contributions is that the policy environment surrounding climate change in North America has been highly dynamic; a number of promising collective efforts have either been abandoned or retrenched in the face of economic and political stresses. Even as these policy changes occur, there is increasing evidence of adverse environmental change as a result of climate change. The shifting political, economic, and biophysical conditions in North America underline the importance of resilience as a governance characteristic, and the chapters in this volume point to several important elements of resilience that we feel are worthy of continued examination and debate. The resilience of socio-ecological systems, particularly governance structures, differs from ecological resilience in that governance structures are purposive. Resilience is not merely about maintaining current functions (with a focus on system persistence and robustness); it is also about having the ability to adapt and develop in light of system goals.20 Oran Young frames these system dynamics in the following terms: “Instead of returning to some prior equilibrium …, institutions often develop in the sense that they move toward realizing their potential or make adjustments needed to maintain their compatibility with changing biophysical or socioeconomic circumstances.”21 Resilience, in the context of socio-ecological systems, requires that actors can learn, and more transformatively, that they have the ability to reconsider their interests in light of new information. These abilities are critical in purposive systems, since resilience requires the generation over time of shared understandings of common problems and acceptance of the collective goals of the system. Learning and the development of common understandings is possible only if the system has the capacity to create and implement new forms of cooperation. We argue, on the basis of our chapter findings, that the polycentric North American regional system provides favourable conditions for cultivating various forms of cooperation. In this sense, the system is quite robust. Interactions continue to proliferate, springing from the openness and flexibility inherent in the polycentric system, even in the face of less than favourable political and economic conditions. Interactions are dense and highly diverse – in spatial location, the range of actors and institutions involved, and the objects and means of cooperation. Trans-governmental (interagency) networks

Conclusion 347

and, to a lesser extent, private governance arrangements serve to channel interactions from the international to local levels in North America, as well as across various policy arenas, reinforcing the heterogeneity of the system and its “cooperation-creation” potential. A key feature of this interactional density is the redundancy that emerges as a function of overlapping governance sub-systems and multiple points for governance. This redundancy ought to provide a measure of resilience in the sense that, in order for the system to persist, there need to be institutional features or policy tools that spur climate policy activities, even as other institutions fail. In North America, the retreat from climate governance by the federal legislatures in Canada and the United States did not, in fact, result in a barren climate policy landscape. Agencies, other levels of government, and other actors in the system have been willing and able to create climate policies, be it sub-national cap-and-trade programs, renewable energy policies, or efficiency standards. The development of fuel efficiency standards by California, their subsequent adoption in other states, and ultimately their entrenchment in U.S. and Canadian federal legislation has been enabled by jurisdictional overlap. Such overlap has also allowed development of sub-national carbon markets and some private, voluntary markets, such as the Chicago Climate Exchange. Framed in Matthew Hoffman’s terms, redundancy provides opportunities for governance experimentation, and this dynamic is certainly evident in North America.22 However, rare are the cases in our volume where redundancy and experimentation have resulted in a broad strengthening of policy across large parts of the system. The California vehicle fuel efficiency example appears to be the exception rather than the rule. We see some further redundancy between federal and sub-national carbon markets, but in this case the interdependence between the efforts to establish sub-national markets and the possibility of national carbon markets worked against policy expansion and strengthening. Part of the original motivation for developing sub-national markets for some states was the anticipation of a federal carbon market in the United States. As it became clear that a national market would not materialize, this has actually made the continued development of sub-national markets less attractive. The success of climate policies, particularly GHG emission reduction policies, depends on broad adoption to avoid economic and emissions leakage; thus, a critical component of system resilience is the ability to

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link and tie together policy and governance efforts. Matthew Hoffman, in his analysis of systems of climate experimentation, grapples with the net effect of interactions between individual governance activities. For Hoffman, one possibility is a “division of labour” among experiments whereby the system as a whole self-organizes cooperatively as governance actors take on specialized roles within the system, thereby leading to deeper cooperation.23 However, Hoffman acknowledges another possible trajectory, whereby actors, instead of cooperating across experiments, simply seek out those governance arrangements that best suit their preferences. In line with this second scenario, much of what has been described in this volume suggests a form of thin cooperation based largely on the realization of short-term and often ancillary benefits. For example, energy efficiency standards generate economic benefits, even where other actors do not accept the same standards. Renewable energy policy has often been structured to provide local economic benefits, such as with Ontario’s policy of tying renewable energy premiums to local procurement policies.24 The RGGI carbon market was able to benefit from the broad reserve of support associated with the unexpectedly large auction revenues generated from auctioning permits, even as the system did not expand as hoped and as economic conditions worsened. The result, as Hoffman suggests, is a more atomized and fragmented system.25 The desire to provide spillover benefits from climate policy does not necessarily lead to greater policy integration, as jurisdictions are seeking to maintain benefits for themselves. The connection between climate policy and green jobs, for example, may provide a broader base of local support for renewable policy, but it may do so at the expense of broader policy coherence, as jurisdictions seek to maximize local preferences. The result in the area of renewable energy is a patchwork of definitions of what constitutes renewable energy as jurisdictions seek to privilege local sources of renewable energy and encourage local economic development. Thus, “co-benefits” may provide a source of “interest redundancy” by providing overlapping communities of interest, but they do not necessarily, or even generally, contribute to a broader sense of collective purpose. Redundancy and experimentation are thus necessary but insufficient conditions for overall system resilience, as neither guarantees the ability of the system to bring about an alignment of interests with the collective goals of the system – in other words, normative coherence. On a more abstracted level, normative coherence provides a basis by which multiple and often overlapping climate policy objectives can

Conclusion 349

be ordered; it is particularly important across policy sectors and can at times be subject to scale effects. In a more centralized system, there is likely to be a foundational institution that can ground the diverse governance activities in a common normative vision – national governments clearly possess various means of injecting normative coherence into the system. In the polycentric North American regional system, however, arrangements are structured to meet quite diverse goals, as discussed above. In the absence of such a foundational institution, how then might we pursue normative coherence, such that the current, very diverse mix of policy interests align in a supportive manner with the common goals of the climate policy system? Social and institutional learning is recognized as a critical feature of resilience in socio-ecological systems, and it allows system actors to benefit from the lessons learned through diverse governance activities. In this volume, unfortunately, the evidence of institutional learning within the North American climate governance system is equivocal. Certainly, there is evidence of learning in the shallow sense; the discussion of coherence above notes that the exchange of information on technology and best practices lies at the heart of cooperation on smart grids, renewable technologies, and standards harmonization. These areas of cooperation have a large technological component that lends itself to institutional learning. As mechanisms for the exchange of information and best practices, as well as trust-building, the many trans-governmental networks that criss-cross North America can contribute to policy learning – with respect to their own specific focus. What is much less evident are more transformative types of learning where actors appear to transform conflicting interests into collective ones – and this is clearly a task that must be undertaken in the North American case. The challenge in a decentralized system, then, is generating a collective sense of purpose. In hierarchical systems, collective goals can be formulated in a top-down fashion and implemented through ordering rules. We might also expect to see normative coherence develop from the bottom up. Here coherence is formed as a broadening consensus around the goals and principles of systems and sub-systems. Transgovernmental networks are the most likely source of this coherence, as network actors share information, develop shared framings of problems, and generate shared expectations of behaviour among themselves. The development of a common offset policy by the three sub-national cap-and-trade markets provides one illustration of a possible pathway

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towards consensus.26 Here, the three sub-national markets identified a common problem (offset quality), and the benefits of a shared solution, which would promote inter-market trading of offsets, and articulated through collaboration a shared set of principles that ought to govern their respective offset policies. The further development of the shared policy was stalled as the market structures themselves weakened, but the network-driven process remains instructive. The adoption of GHG accounting principles by the IPCC provides a further, albeit slightly different, example.27 These principles, referred to as the TCCCA Principles, identify broad objectives (transparency, consistency, comparability, completeness, accuracy) for the development of GHG accounting systems. To some degree the process looks topdown, but the principles themselves are not imposed and instead operate persuasively on both public and private entities engaged in GHG accounting. There is an element of self-selection, but as the principles gain wider adherence, there is deepening community expectation to conform to the principles. The generation of collective goals is likely to resemble the structure of the broader regional system itself, with normative influences penetrating down from above but also being subject to self-selection and reinterpretation from below. From a resiliency perspective, shared principles provide a measure of structure to the processes of self-organization. They define the boundaries and terms of interactions that lead to cooperation and trust relationships. In light of the diverse sets of interests and types of actors engaged in climate governance, a commitment to transparent and inclusive decision-making processes is critical to any social learning, since the development of shared goals is a community activity.28 One might expect from a developmental perspective that policy preferences and goals will be defined in smaller, more discrete communities of interest. This is, in fact, much of what we have seen in North America. Our central contention in this volume, however, is that these communities of interest are overlapping and capable of transformation, and it is these overlapping and changing interests that will provide the basis for broader cooperation in the future. The degree of cooperation depends upon a complex constellation of political, economic, and social conditions, many of which have been touched on in this volume, but it also depends on the conscious design of governance institutions and tools that seek to integrate governance activities.

Conclusion 351 NOTES 1 Frank Bierman, Philipp Pattberg, and Fariborz Zelli, eds., Global Climate Governance beyond 2012: Architecture, Agency and Adaptation (Cambridge, UK: Cambridge University Press, 2010). 2 U.S. Department of State, “Meeting the Fast Start Commitment: Summary of U.S. Fast Start Finance in Fiscal Years 2010–2012,” 2012, U.S. Department of State, http://www.state.gov/e/oes/climate/faststart/c48618.htm. 3 Discussed in Studer, chapter 2, this volume. 4 See, for example, Michele Betsill and Harriet Bulkeley, “Cities and the Multilevel Governance of Climate Change,” Global Governance 12 (2006): 141. 5 See also J.B. Ruhl and James Salzman, “Climate Change, Dead Zones, and Massive Problems in the Administrative State: A Guide for Whittling Away,” California Law Review 98 (2010): 59. 6 Rowlands, chapter 5, this volume. 7 Daniel Bodansky and Elliott Diringer, “Towards an Integrated Multi-track Climate Framework,” Pew Center on Global Climate Change, 2007. 8 Rabe, chapter 3, this volume. 9 See Studer, chapter 2, this volume. 10 Murray, Maniloff, and Monast, chapter 9, this volume. 11 See Studer. 12 Young and Abbott, chapter 10, this volume. 13 Craik, chapter 8, this volume. 14 Murray, Maniloff, and Monast, chapter 9, this volume. 15 Eduardo Brondizio, Elinor Ostrom, and Oran Young, “Connectivity and the Governance of Multilevel Social-Ecological Systems: The Role of Social Capital,” Annual Review of Environment and Resources 34 (2009): 253–78. 16 See Demerse and Gúzman, chapter 7, this volume. 17 Rowlands, chapter 5, this volume. 18 Robert Keohane and David Victor, “The Regime Complex for Climate Change,” Perspectives in Politics 9, no. 1 (2011): 17. 19 Murray, Maniloff, and Monast, chapter 9, this volume. 20 C. Folke, “Resilience: The Emergence of a Perspective for Social-Ecological Systems Analyses,” Global Environmental Change 16 (2006): 253. 21 Oren Young, “Institutional Dynamics: Resilience, Vulnerability and Adaptation in Environmental and Resources Regimes,” Global Environmental Change 20 (2010): 379. 22 Matthew Hoffman, Climate Governance at the Crossroads: Experimenting with a Global Response after Kyoto (New York: Oxford University Press, 2011).

352 23 24 25 26 27 28

Neil Craik and Debora VanNijnatten Ibid., 76. Described in Green, chapter 11, this volume. Ibid. See Rabe, chapter 3, this volume. See Young and Abbott, chapter 10, this volume. See, for example, Craik, chapter 8; and Green, chapter 11, this volume.

Appendix Select GHG programs, standards, and guidelines relevant to North America by domain

Domain

Administrative scope

Name

Type

Voluntary or regulated

Trading or non-trading (N)

Date in effect

Description

Corporate Corporate disclosure

International

Climate Disclosure Standards Board (CDSB)

International standard

Voluntary

N

Draft

Developing guidelines for standardized reporting on the inclusion of climate change information in mainstream reports; builds on CDP

Voluntary corporate accounting

International

ISO 14064–1

International standard

Voluntary

N

2006

Specif cation with guidance at the organization level for quantif cation and reporting of GHG emissions and removals; modelled on the GHG Protocol; used to quantify, report, and verify GHG emissions at organization and project level

Voluntary corporate accounting

National

Mexico GHG Program

Program

Voluntary

N

2006

Voluntary GHG accounting and reporting program, partnership between the Mexican environment agency (SEMARNAT) and WBCSD; based on the GHG Protocol corporate reporting standard

Voluntary National corporate accounting and offsets

Chicago Climate Exchange

Program

Voluntary

Trading

2002 to 2010

A voluntary private market, legally binding for participants; included program, private standards, and methodologies; terminated in 2010

Voluntary corporate accounting

International

GHG Protocol: Accounting and Reporting Standard

Private standard

Voluntary

N

2001

Revised in 2004; internationally recognized procedure for preparing verif able emission reports; supported by calculation tools

Corporate disclosure

International

Carbon Disclosure Project (CDP)

Program

Voluntary

N

2000

Voluntary disclosure of emissions; the CDP tabulates and publishes global results annually (Continued )

Trading or non-trading (N)

Date in effect

Name

Type

Voluntary or regulated

National

Program Section 1605(b), Energy Policy Act of 1992

Program

Voluntary

N

1992

Voluntary program established under the Energy Policy Act of 1992 to encourage companies to report GHG emissions

Facility reporting and offsets

Regional

Western Climate Initiative (WCI)

Program

Regulated

Trading

Draft

North American regional cap and trade scheme; requires state, province, or other jurisdiction to mandate WCI rules and use

Facility reporting

National

GHG Mandatory Reporting Rule (MRR) 40 CFR Section 98

Program

Regulated

N

2010

U.S. EPA federal reporting program; facility-based, includes 31 of 42 categories of stationary sources and select additional processes; expected to cover about 90% of U.S. emissions

Domain Voluntary corporate accounting

Administrative scope

Description

Facility

Facility reporting and offsets

National

Regional Greenhouse Gas Initiative (RGGI)

Program

Regulated

Trading

2009

First mandatory capand-trade scheme; covers only power plant CO2 in 10 U.S. states; includes offsets provisions

Facility reporting

Regional

The Climate Registry (TCR): General Reporting Protocol

Guideline

Voluntary

N

2008

Provides its own methodology, but also accepts any mandatory scheme methodology, and other sector- or company-specif c methodologies

Facility reporting

North America

The Climate Registry (TCR): Registry

Program

Voluntary

N

2008

An electronic registry for entities to voluntarily report GHG inventories; supported by U.S. and Canada, most states and provinces, and First Nations; also designed to support mandatory reporting from jurisdictions (e.g., Massachusetts) (Continued)

Domain

Administrative scope

Name

Type

Voluntary or regulated

Trading or non-trading (N)

Date in effect

Description

Facility reporting

Regional

Midwest Greenhouse Gas Reduction Accord (MGGRA)

Program

Regulated

Trading

Draft

Established 2007 by six states and one province to achieve regional greenhouse gas reduction targets and a cap-and-trade system

Facility reporting

National

GHG Emissions Reporting Program (GHGRP)

Program

Regulated

N

2004

Regulated by Environment Canada; before reporting year 2008 was a 100,000 t threshold

Facility reporting

National

Climate Action Reserve

Program

Voluntary

N

2001

Stationary and mobile sources of GHGs, uses The Climate Registry

Facility reporting and offsets

Province of Alberta

Alberta Specif ed Gas Emitters Regulation

Program

Regulated

Trading

1998

Includes offsets system

International standard

Voluntary

N

2006

Specif cation with guidance at the project level for quantif cation, monitoring, and reporting of GHG emission reductions or removal enhancements

Offsets (see also some programs listed above) Offsets

International

ISO 14064–2

Offsets

International

GHG Protocol for Project Accounting

Private standard

Voluntary

N

2006

Internationally recognized procedure for accounting of offset projects by the World Business Council for Sustainable Development and the World Resources Institute

Offsets

International

Verif ed Carbon Standard (VCS)

Private standard and guidelines

Voluntary

N

2005

Formally the Voluntary Carbon Standard; system of procedures and rules to measure, report, verify, and issue carbon credits to voluntary markets and linked programs

Offsets

North America

Climate Action Reserve

Standard and guidelines

Voluntary

N

20012008

CAR provides specif cations to quantify and verify offsets for the U.S. carbon market, in particular California’s mandatory program; started in 2001 as the California Registry (Continued)

Voluntary or regulated

Trading or non-trading (N)

Date in effect

International standard

Voluntary

N

2012

Carbon footprint of products

GHG Protocol: Product Lifecycle Accounting and Reporting Standard

Private standard

Voluntary

N

2012

GHGs of a product’s materials, manufacturing, use, and disposal

California Environmental Protection Agency, Air Resources Board “Low Carbon Fuel Standard Program”

Program and guidelines

Regulated

N

2011

Regulation on GHG intensity of the transportation fuels in California, pursuant to the California Global Warming Solutions Act of 2006

Administrative scope

Name

Type

Product accounting and reporting

International

ISO 14067

Product accounting and reporting

International

Product (low carbon fuel standard)

State of California

Domain

Description

Product

Product accounting and reporting

International

BSI PAS 2050: Specif cation for the Assessment of Life Cycle GHG Emissions of Goods & Services

International standard

Voluntary

N

2008

For carbon footprinting of products; consistent with life cycle assessment methods

International

GHG Protocol: Scope 3 (Corporate Value Chain) Accounting and Reporting Standard

Private standard

Voluntary

N

Draft

Accounting of activities and products by f rms across their value chain

Supply Chain Supply chain

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Contributors

Clint L. Abbott Neil Craik Clare Demerse José Etcheverry Andrew Green Sandra Guzmán Peter T. Maniloff Jonas Monast Brian C. Murray Barry G. Rabe Ian H. Rowlands Isabel Studer Debora VanNijnatten

Steven B. Young

Centre for Global Studies, University of Victoria School of Environment, Enterprise, and Development, University of Waterloo Pembina Institute, Canada Faculty of Environmental Studies, York University Faculty of Law, University of Toronto Centro Mexicano de Derecho Ambiental Nicholas School of the Environment, Duke University Nicholas Institute for Environmental Policy Solutions, Duke University Nicholas Institute for Environmental Policy Solutions, Duke University Gerald R. Ford School of Public Policy, University of Michigan Faculty of Environment, University of Waterloo Global Institute for Sustainability at Tecnológico de Monterrey Political Science and North American Studies Program, Wilfrid Laurier University School of Environment, Enterprise, and Development, University of Waterloo

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Index

Alberta Greenhouse Gas Reporting Program, 279–80 American Carbon Registry, 279–80, 297 American Clean Energy and Security Act (2009) (ACES), 39, 51, 84, 116, 199 American Legislative Exchange Council (ALEC), 58, 82, 100, 131 American Power Act (APA), 40 American Recovery and Reinvestment Act (ARRA) (2009), 44 Asia-Pacific Partnership on Clean Development and Climate (2005), 44 Bali Action Plan (2007), 44, 184 Bilateral Framework on Clean Energy and Climate Change (2009), 15, 49, 142, 229 BP-Amoco, 57 Byrd-Hagel Resolution (1997), 43, 50 California Air Resources Board (CARB), 91, 97, 112, 116 California Energy Commission, 91 California Environmental Protection Agency, 91, 95, 360

California Public Utilities Commission, 91 Canadian Environmental Protection Act, 54, 104, 111 Canadian International Development Agency (CIDA), 193 Cancún Agreements, 11, 187, 196, 201, 253 cap-and-trade: Barack Obama’s campaign, 50–1; in the United States, 44; regimes in North America, 24, 27, 40; RGGI, 71–2, 76–8, 79–85, 88; standards for Mexico, United States, and Canada cooperation, 53, 77–9; WCI, 71–2, 76–8, 90–9 carbon capture and storage (CCS): agreement between United States and Canada, 16; Declaration on Climate Change and Clean Energy, 140; in Canada, 43; research by Patadia and Kammen, 159–60; U.S.-Canada Clean Energy Dialogue, 47; where preferred, 19 Carbon Disclosure Project, 57, 284, 290, 292, 338, 342

366

Index

Carbon Limits and Energy for America’s Renewal (CLEAR) Act, 271n35 Carbon Sequestration Leadership Forum, 44 CEC Comprehensive Assessment of North American Air Emissions Inventories and Ambient Air Monitoring Networks, 231 CEC’s North American Environmental Atlas, 222 Certified Emission Reductions (CERs) under the CDM 251–2; and Kyoto Protocol, 255; and the EU, 255; projects in Mexico, 253 Chicago Climate Exchange (CCX), 57, 248, 279, 283, 347 Clean Air Act (CAA), 45, 52, 78, 103, 104, 111, 118, 247 Clean Development Mechanism (CDM), 13, 27, 49, 189, 248, 251, 285, 336 Clean Energy Dialogue (CED), 15, 47, 125, 141, 229 Clean Energy Fund, 47 Climate Action Reserve and American National Standards Institute (ANSI), 280 Climate Registry (TCR), 231, 232, 278, 281 Climate Registry General Reporting Protocol, 281 Climate Security Act (2008) (United States), 116–17, 261 Comisión Federal de Electricidad (CFE), 54–5, 134, 161, 166, 167, 171 Commodity Futures Act (CFA) (Ontario), 265 Commodity Futures Trading Commission (CFTC), 260, 263, 266

Commonwealth heads of government, 231 company average fuel consumption (CAFC), 113 Competitive Enterprise Institute, 58 Copenhagen Accord, 11, 12, 20, 46, 183, 184–6, 191–2, 195, 199, 201, 230 Corporate Average Fuel Standards (CAFE), 44, 112 Daimler-Chrysler, 57 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), 262–3, 265 ecoENERGY, 47 emissions performance standards (EPS), 110, 118 energy efficiency resource standards (EERS), 110, 120–1, 123 Energy Independence and Security Act (EISA) (2007), 112 Environmental Careers Organization Canada, 294 Environmental Defense Fund, 52, 57 Environmental Improvement Board, 93 Environmental Protection Agency (EPA); and California, 44, 54, 113; and U.S. GHG regulations, 17, 45, 52, 72, 103, 109, 111, 114, 119, 277–8, 282–3, 292; the National Highway Traffic Safety Administration, 44, 113 EU allowances (EUAs), 251 European renewable energy research centres agency (EUREC), 169

Index European Union (EU), 78, 81, 168, 307 European Union Emissions Trading Scheme, 27, 246–7, 304 Federal Electricity Commission (CFE), 54–5, 134, 161, 166, 167, 171 Federal Energy Regulatory Commission (FERC), 262–3 feed-in-tariffs (FITs), 165 G20, 49, 191, 192, 201 G77, 11, 48, 196 General Agreement on Tariffs and Trade (GATT), 311, 318 General Climate Change Law (Mexico) (2012), 47–8 Green Climate Fund, 12, 184–5, 187–9, 192, 196–7 Green Energy and Green Economy Act (Ontario) (2009), 121 Greenhouse Gas Protocol Initiative, 284 Greenhouse Gas Reduction (vehicle emissions standards) Act – (British Columbia), 124 Green Infrastructure Fund, 47 GridWise Alliance (GA), 145 gross domestic product (GDP), 195 Group of Eight (G8), 138

367

International Energy Agency (IEA), 39, 120, 133, 138 International Joint Commission (IJC), 233 International Organization for Standardisation (ISO), 143–4, 231–2, 279–89, 293 International Partnership for the Hydrogen Economy, 44 International Renewable Energy Agency (IRENA), 169, 173 International Smart Grid Action Network (ISGAN), 139 Inter-Secretarial Commission on Climate Change, 196 Investing in Climate Action and Protection Act (Markey bill), 262 Investment Industry Regulatory Organization of Canada (IIROC), 266 ISO/RTO Council (IRC), 143–4 Joint Public Advisory Committee (JPAC), 170, 216–18, 223–4, 229, 236–7 Kyoto Protocol, 12–13, 39, 43, 46–8, 54, 57, 158, 171, 184, 193, 226–7, 247–8, 251, 252, 283, 285 Kyoto Protocol’s Adaptation Fund, 193

Hydro-Québec, 57 Inter-American Development Bank, 189, 195 Intergovernmental Panel on Climate Change, 52 International Electrotechnical Commission (IEC), 137–8, 140, 148

Law for the Sustainable Use of Energy (Mexico), 48 Ley para el Aprovechamiento de Energias Renovables y el Financiamiento de la Transicion Energetica (LEARFTE), 164 low carbon fuel standards (LCFS), 42, 110, 115–18, 286, 304, 341

368

Index

Major Economies Forum on Energy and Climate (MEF), 139 Massachusetts vs EPA, 45 Methane to Markets Partnership, 44 Mexican Pollutant Release and Transfer Registry (RETC), 231 Midwest Greenhouse Gas Reduction Accord (MGGRA), 17, 24–5, 71–2, 76–9, 86, 96–7, 99–102, 116–17, 125, 283, 293 National Appliance Energy Conservation Act, 121 National Commission for the Efficient Use of Energy (CONUEE), 111, 115, 166, 174 National Development Plan (PND), 195 National Highway Traffic Safety Administration (NHTSA), 45, 113 National Institute of Standards and Technology (NIST), 138–41, 149 National Round Table on Environment and the Economy (NRTREE), 41 National Strategy on Climate Change (2007) (Mexico), 196 Natural Resources Defence Council, 52 New Jersey Global Warming Solutions Fund, 89 New Mexico Environment Department, 93 New York Environmental Protection Fund, 89 North American Agreement for Environmental Cooperation (NAAEC), 213, 215–19, 222, 224, 235 North American Commission for Environmental Cooperation

(CEC), 15–16, 27, 139–40, 170, 213–39, 337, 342 North American Electric Reliability Corporation (NERC), 143–4 North American Energy Working Group (NAEWG), 125–6, 234 North American Free Trade Agreement (NAFTA), 8, 15, 21, 23, 36–8, 52, 140, 173, 188, 199, 213, 215, 226, 302–7, 310–23 North American Leaders’ Declaration on Climate Change and Clean Energy, 5, 187, 200, 229 North American Synchrophasor Initiative, 140 Northeast States for Coordinated Air Use Management, 81 Official Development Assistance (ODA), 184, 198 Ontario Securities Commission (OSC), 265, 284 Oregon Mandatory Reporting Rule, 283 Organization for Economic Cooperation and Development (OECD), 11, 48, 186, 194 Petroleos Mexicanos (PEMEX) (Mexico), 54, 161 Pew Center for Global Climate Change, 50, 57, 110–11, 117 Pollutant Release and Transfer Registry (PRTR), 222, 231 Programa Especial de Cambio Climatico (PECC) (Mexico), 47, 56, 196 Project Catalyst, 186, 194 Quebec Derivatives Act (QDA), 265

Index REDD, 19, 197, 199; REDD-plus, 184 Regional Greenhouse Gas Initiative (RGGI), 16, 58, 71, 76–7, 79, 101, 125, 246, 248, 251 Regulatory Framework for Air Emissions, 119 RETSCREEN, 172 Secretaria de Energia SENER, 162, 164 Securities Act (OSA), 172 Security and Prosperity Partnership of North America (SPP), 38, 126 Shell Canada, 57 Sierra Club, 52, 89 Sound Management of Chemicals (SMOC), 221–3, 228–9, 233 Special Climate Change Program, 196 Stockholm Convention on Persistent Organic Pollutants, 233 Tailoring Rule, 45 Trust Fund for Electricity Savings (FIDE) (Mexico) (1990), 167–8 United Nations Environment Program, 194, 225, 233 United Nations Framework Convention on Climate Change (UNFCCC), 10–11, 43–4, 169, 182–3, 185, 192, 226–35, 247–8, 276, 283–5, 291–2, 309 United Nations Global Environment Facility, 184 U.S. Agency for International Development (USAID), 171, 192, 198–9 U.S. Commodity Exchange Act, 262, 266

369

U.S. Congress, 10, 23, 35, 50–2, 59, 200, 261–2, 334 U.S. Department of Energy (DOE), 121, 134 U.S. EPA Mandatory Reporting Rule (MRR), 277–8, 282–3, 287–8, 292, 294 U.S. Federal Fuel Economy Standards (FES), 110, 115, 123–6, 165 U.S. Governmental Advisory Committee, 216, 234 U.S. Initiative on Joint Implementation (USIJI), 171 U.S. Senate, 40, 83, 200. See also U.S. Congress Verified Carbon Standard (VCS), 359 Voluntary Carbon Standard, 279–80 Western Climate Initiative (WCI), 16, 24–5, 71–2, 76–9, 84, 86, 90–102, 116, 125, 143, 199, 234, 248, 250, 255, 258, 264, 265–6, 278, 282, 286, 289, 292–3, 294, 336, 344–5 World Bank (WB), 39, 57, 172, 185, 189, 192–3, 197 World Bank Prototype Carbon Fund, 57 World Energy Outlook (2008), 120 World Health Organization (WHO), 233 World Resources Institute (WRI), 57, 186, 303 World Trade Organization (WTO), 292, 302, 306–7, 309, 311, 313, 317–19, 321–2 ZigBee Alliance, 145