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Six US states leave the Western Climate Initiative

Six states have withdrawn from the Western Climate Initiative,leaving California and four Canadian provinces as the remaining members ofthe regional greenhouse gas reduction organization, Patrick Cummins, WCI'sproject manager, said Friday.

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Besides California, the remaining WCI members are the Canadian provincesof British Columbia, Manitoba, Ontario and Quebec.

The exit of Arizona, Montana, New Mexico, Oregon, Utah and Washingtonmostly was expected, as the states were seen as unlikely to implement acap-and-trade program, observers said.

"News about the departure of the six states comes as no real surprise,"said Jeff King, the head of environmental markets at Scotia Capital. "Therewas little to no hope that they'd get involved in a regional cap-and-tradeprogram given the current political make-up of the states."

WCI was formed in 2007 with the intent of reducing regional GHGemissions to 15% below 2005 levels by 2020. The group identifiedcap-and-trade as a means of achieving the reductions, beginning a multi-yearprocess of designing a regional system of tradable permits.

But the economic recession that ensued beginning in 2008 ultimatelysapped much of the political appetite for cap-and-trade.

Meanwhile, new governors who adamantly objected to a cap-and-tradeagenda were elected in Arizona, New Mexico and Utah, while legislatures inOregon, Washington and Montana failed to advance cap-and-trade bills.

Susan Martinez, who was elected last year as New Mexico's governor, wasa vocal opponent of the cap-and-trade policy that her predecessor, BillRichardson, supported.

"Cap-and-trade regulations passed during the Richardson administrationput the state [at] an economic disadvantage," Jim Winchester, communicationsdirector of the New Mexico Environment Department, said in a statement. "Therules create an uneven playing field for [New Mexico] businesses, which arenow subject to more stringent regulations than their competitors insurrounding states."

Another strong critic has been Arizona Governor Jan Brewer, who becamegovernor in 2009 following the Janet Napolitano's resignation to serve ashead of the US Department of Homeland Security, and was elected in her ownright in 2010.

"Arizona believes there are more effective, responsible ways to realizethe environmental and health benefits the WCI program seeks to achieve whileavoiding the economic costs to industries that are subject to cap-and-trade,"Henry Darwin, Arizona Department of Environmental Quality director, said in astatement.

Eroding support for cap-and-trade among WCI members was foreshadowedby former Utah Governor Jon Huntsman. Huntsman, speaking in 2008, said aregional approach is "probably long-term unsustainable."

Climate change policy must ultimately be coordinated on a federal level,Huntsman said.

Indeed, part of the motivation behind creating the WCI, as well as asimilar organization in the Northeast and Mid-Atlantic, was to gainexperience ahead of a national cap-and-trade program.

That justification dwindled along with the prospects of Congress passingsuch legislation anytime soon.

Still, some support for cap-and-trade remains. California plans to starta cap-and-trade program in 2013, while British Columbia, Ontario and Quebecare moving forward with programs that can be linked with California.

The six states leaving WCI have joined a new organization calledNorth America 2050, a GHG-reduction group that says it will push forcost-effective policies, including carbon capture and sequestration,developing offset projects to be used in emissions trading programs andpromoting sustainable biomass.

--Geoffrey Craig, geoffrey_craig@platts.com