California carbon market moves to link with Canada

In the most recent draft of its carbon market rules, the California Air Resources Board (ARB) included language identifying its intention to link with Quebec’s market.

Quebec has been diligently working on the design and of its carbon market in hopes of joining California in time to launch by January 2013.

In anticipation of Quebec’s participation, the ARB specified acceptance of carbon allowances and offsets between the two countries. In order for these compliance instruments to be interchangeable, the ARB and Quebec officials have been working to ensure their respective markets are very similar in nature regarding strict carbon project protocol adherence and carbon offset credit tracking.

ARB Chair Mary Nichols is pleased with the progress to date, noting that international involvement outside of the US will serve to generate more interest in a regional carbon market. The Western Climate Initiative is a group of US and Canadian territories that have pledged to address climate change, and despite the lack of participation by many US states, Nichols expects this announcement to bolster enthusiasm for new environmental and energy markets.

According to a Barclays Capital market analysis released earlier this year, linking the California carbon market with Quebec’s will increase the cost of California carbon allowances (CCAs), since there will be additional regulated emitters demanding CCAs.

The supply of California carbon offsets (CCOs) may also be strained following a link with Quebec, since there is already a projected shortage of CCOs for the first market compliance period which runs from 2013-2015. Regulated emitters will be able to purchase CCOs to meet up to 8% of their compliance obligation, which totals over 200 million offsets through 2020.

There will be a public comment period until June 15, when the ARB will hold a final vote on California carbon market rules.