Much of the debate over the formation of a cap & trade system under the Waxman-Markey bill focused on whether initial allowances should be auctioned off or merely given away and how the system would act. There was little discussion about the impact a federal cap & trade system would have on states, which have already established or at the very least have set the wheels in motion regarding a state or regional cap and trade system. Most notably, this refers to the Regional Greenhouse Gas Initiative, Western Climate Initiative, and California.
Under the Waxman-Markey Bill, holders of allowances from these state and regional programs will have to exchange their allowances (issued before December 31, 2011) for federal allowances. Essentially, all state and regional programs will be suspended. While this may provide for one national standard and an efficient mechanism (in theory), the proposed suspension of state and regional programs fails to recognize that states and regions may desire to have higher reductions of greenhouse gases and different time-frames when compared to a federal program.
When the Waxman-Markey Bill receives debate and consideration in the Senate later this summer and early fall, the Senate should consider the option for states and regions, which have as of the date of implementation of the federal program, a higher standard for the reduction of greenhouse gases, to opt out of the federal program. If such standard, whatever that may be, has not been established, then such programs must give way to the federal program. The Senate should view the federal program not as an opt-in, but rather as an opt-out if state and regional standards exceed federal standards.
While an opt-out clause may seem like it would make the national cap and trade system inefficient, consider the CAFE standard. Although California and other states must petition the EPA for a waiver, states are nevertheless permitted to establish a higher standard. Why not let a similar waiver provision apply to cap & trade for greenhouse gases?