1. Davis Wright Tremaine LLP Western Climate Initiative: What Matters for Northwest Industries Craig Gannett DAVIS WRIGHT TREMAINE LLP 1201 Third Avenue, Suite 2200 Seattle, WA 98101-3045 (206) 757-8048 craiggannett@dwt.com

2. Davis Wright Tremaine LLP OverviewOverview What matters to business How we got here Where we are in terms of market design What lies ahead

3. Davis Wright Tremaine LLP What matters to business As in all regulatory matters, businesses want: -- a single set of rules -- clarity -- predictability -- cost containment -- opportunity

4. Davis Wright Tremaine LLP How we got here Leadership vacuum at federal level, 1994-2006 Increasing scientific and public concern, 1992-Present Frustration at state and local level

5. Davis Wright Tremaine LLP How we got here State and local governments moved to fill vacuum But now the vacuum is closing (Congress plus all three Presidential candidates now on board)

6. Davis Wright Tremaine LLP Market Design Scope Allowance allocation Point of regulation Offsets Reporting

7. Davis Wright Tremaine LLP ScopeScope WCI much broader than RGGI: -- WCI includes all 6 GHGs; RGGI only regulates CO2 -- WCI includes Canadian Provinces; RGGI only states -- WCI intends to cover all sectors of economy; RGGI only electricity

8. Davis Wright Tremaine LLP Allowance allocation Unclear how many allowances Each jurisdiction: -- must auction 25-75% (TBD) -- may retire allowances -- has discretion to allocate within its jurisdiction

9. Davis Wright Tremaine LLP Point of Regulation Problem: leakage in electricity sector Plan A: all WECC jurisdictions join WCI Plan B: first jurisdictional deliverer, with exceptions

10. Davis Wright Tremaine LLP OffsetsOffsets Projects outside of regulated sectors Purposes: lowest hanging fruit first, and lower compliance costs Already a burgeoning market under Kyoto Protocol

11. Davis Wright Tremaine LLP OffsetsOffsets WCI will limit use of offsets (limit TBD) Each jurisdiction may have its own offset program Priority to projects within WCI

12. Davis Wright Tremaine LLP ReportingReporting Backbone of WCI All regulated emissions must be quantified and reported to The Climate Registry Includes sectors under consideration for later inclusion

13. Davis Wright Tremaine LLP What lies ahead Federal integration, or a race to the finish line? Lieberman-Warner allows states broad latitude CA well-positioned in Congress

14. Davis Wright Tremaine LLP What lies ahead No WCI subcommittee on integration Constitutional hurdles under Commerce Clause, Supremacy Clause, and Compact Clause

15. Davis Wright Tremaine LLP What lies ahead Single set of rules? Clarity? Predictability? Cost containment? Opportunity?

16. Davis Wright Tremaine LLP Craig Gannett Partner – Seattle, Washington Office DAVIS WRIGHT TREMAINE LLP Suite 2200 1201 Third Avenue Seattle, Washington 98101-3045 craiggannett@dwt.com (206) 622-3150 craiggannett@dwt.com Craig Gannett Partner – Seattle, Washington Office DAVIS WRIGHT TREMAINE LLP Suite 2200 1201 Third Avenue Seattle, Washington 98101-3045 craiggannett@dwt.com (206) 622-3150 craiggannett@dwt.com Craig Gannett is a partner in the Seattle office of Davis Wright Tremaine, and a member of the firm's Climate Change Practice Group. He regularly advises clients on climate-change related legislative and regulatory developments at the federal, regional, and state levels. He also teaches climate change policy at the University of Washington's Jackson School of International Studies, and is a frequent speaker on the subject. Craig is a former Senior Counsel to the U.S. Senate Committee on Energy and Natural Resources, where his responsibilities included the electric utility industry and the use of risk assessment and cost-benefit analysis regarding major environmental regulations. He is a 1979 graduate of the University of Washington Law School, and a former law clerk to U.S. District Judge Barbara J. Rothstein.