California on Wednesday released an updated draft of its cap-and-trade regulations that for the first time includes language that would link its carbon market to a similar scheme in the Canadian province of Quebec.
The draft language called for the mutual acceptance of compliance instruments like allowances and offset credits between the two jurisdictions.
It also called for a common allowance registry and auction, and included provisions for tracking allowances which are designed to enhance market security.
California Air Resources Board (ARB) Chair Mary Nichols said California’s cap-and-trade program was always designed to link with other systems, and said a bigger market would benefit the state.
“The sheer fact that we’re adding to the number of allowances that are tradable, that there are more regulated parties to trade with, a larger pool of offsets potentially available… all of those things are benefits as far as California is concerned,” Nichols said during a phone interview on Wednesday.
She said that linking to Quebec also lays the groundwork for other regional and even national partners to join the effort to combat climate change and promote clean energy.
“This sends a strong message to two national governments that now is the time to support innovation, energy efficiency and the development of clean technologies,” she said.
PRICE IMPACT
It’s unclear what impact linking with Quebec, which has roughly one-sixth the amount of GHG emissions as California, will mean for carbon prices.
An analysis by Barclays in February found that California carbon allowance (CCA) prices would actually increase if the jurisdictions are linked since Quebec is expected to be a net buyer of allowances.
But Nichols said ARB’s own analysis showed that linking would have no discernible effect on prices so long as covered entities use all of the offsets allowed under the program.
California will allow covered entities to surrender offset credits to meet 8 percent of their compliance obligation.
Source: Reuters Point Carbon