Although the California cap-and-trade system has only been operational since January 2012, the state’s Air Resources Board (ARB) is already making steps toward linking it with another North American programme for carbon offsetting, namely the Quebec GHG cap-and-trade system, also launched in January 2012. Carbon Finance recently reported that there has been some progress toward the linkage of the two systems, with ARB staff expected to release a draft on mutually compatible rules in the upcoming weeks. Linkage of the two programmes should mean each can potentially deliver greater emissions reduction results at lower costs.
The California cap-and-trade system covers major greenhouse gas emitters such as power plants, refineries and transportation fuel suppliers. It was launched on 1 January 2012, with the compliance obligation beginning with 2013 carbon emissions. The California programme has ambitions emissions reduction targets, namely an 80 percent reduction below 1990 levels by the year 2050, and has the potential to turn into the world’s second largest carbon credit market after the EU Emissions Trading System.
While the California system has been receiving a lot of attention, both at home and abroad, Quebec’s domestic programme is much less known. The Government of Quebec adopted the regulatory approach in December 2011, declaring 2012 a “transition year”. On that basis, during 2012 emitters and other participants have the chance to familiarise themselves with the system by taking part in pilot auctions and exchanging emission allowances, without the requirement to reduce or cap their emissions. Then, as of 1 January 2013, operators (primarily in the industrial and electricity sectors), whose greenhouse gas emissions exceed the allowed annual limit, will be subject to obligatory emissions capping and reduction.
Since both the California and Quebec programmes function on the basis of the cap-and-trade principle, it is possible to link them and create a broader market for carbon offsetting. On 14 March 2012, Carbon Finance reported that California and Quebec were engaged in ongoing discussions about harmonising their respective systems in several key areas such as reporting and tracking requirements. Carbon Finance also reported that the California ARB would release a discussion draft on rules for linking the two systems. If the ARB signs off on the proposed regulations, all carbon offsets issued either in California or in Quebec could be traded in both jurisdictions.
The progress made with regards to the linkage of the two systems is in line with the final recommendations regarding the design of the Western Climate Initiative (WCI). The WCI is a collaborative climate action effort of several North American jurisdictions, its current members being California, Quebec, British Columbia, Ontario and Manitoba and its final recommendations on the carbon offsetting process were released at the end of February 2012. The main purpose of the final recommendations is to help the participating jurisdictions to ensure the rigour and interchangeability of carbon allowances. For that reason, the final WCI recommendations identify the critical elements of offset project approval that will lead to high-quality carbon credits that can be exchanged across the region.
But linkage of the California or the Quebec cap-and-trade system with the remaining WCI partner jurisdictions unlikely to occur any time soon. As noted by Carbon Finance, quoting an ARB official, even though British Columbia, Ontario and Manitoba seem to be “very active” within the WCI market group, they are not close to joining California and Quebec in the cap-and-trade programme.
Linking the California and Quebec programmes does not seem to be an overly difficult task considering that both systems make use of cap-and-trade. It is nevertheless important that the necessary carbon offsetting rules and requirements are in place in both systems so as to ensure that carbon credits are issued with the same level of rigour and are thus interchangeable.