California, Quebec to trial joint auction of cap-and-trade allowances

June 3, 2014 by CaliforniaCarbon.info

CaliforniaCarbon.info, June 3, 2014: California’s Air Resources Board (ARB) and its Quebec counterpart, the ministère du Développement durable, de l’Environnement et de la Lutte contre les changements climatiques (Ministry of Sustainable Development, Environment and the Fight against Climate Change – MDDELCC), today announced that the joint auction for the California and Québec cap-and-trade programs will go on trial this August. If successful, the first official joint auction could take place in November 2014, and would mark the final step in the linkage of the two programs.

Participants in either cap-and-trade program may register and take part in the practice auction. Registrations begin in the last week of July, with the bidding window open one day during the first week of August. The practice auction will let participants ‘test the updated auction platform and become familiar with the new features that support a joint auction, such as the handling of both Canadian and U.S. currency’, read the ARB press release, ‘California and Québec officials will monitor the practice auction simultaneously, testing and verifying joint oversight and communication procedures. Following the practice auction, the ARB and the MDDELCC will evaluate its performance to confirm that all systems and procedures work properly.’

California and Quebec officially began the linkage of their cap-and-trade systems on Jan 1 of this year, which would allow Californian and Quebec carbon allowances to be used for compliance with obligations accrued in either jurisdiction. A linked market has several widely-recognised benefits, including amongst others a reduced susceptibility to price spikes, lessened avenues for the ‘leakage’ of emissions, increased c0st effectiveness, and the symbolic value of a partner with whom to fighting climate change (which could help refute the argument made by some politicians that California is alone in taking on the costs of emission reduction, if the linked program grows sufficiently large).

California’s program is roughly six times the size of Quebec’s, by absolute capped emissions value. In 2015, after the inclusion of new sectors including transportation fuel distributors, California’s cap rises to 394.5 million MtCO2e, while Quebec’s stands at 65.3 million. The relative sizes of the two programs means that even though Quebec’s targets are steeper (aiming for 20 percent under 1990 levels in 2020, versus California’s target of parity) and the Canadian province will therefore be a net buyer of compliance instruments, any upward market effect is expected to be small.

With both this positive announcement as well as the proposal of EPA power plant regulations that allow the possibility of cap-and-trade systems as a compliance option for states, it will be worth watching the secondary market in the coming weeks for strong price signals. California’s last auction (Feb 16) cleared at USD11.50, and the secondary market has since realigned to trade closer to USD12. Quebec’s auction, however, while selling out for the first time, did so at the floor of CAD11.39 (USD10.48).

Further extracts from the press release, including communication information

A notice for the practice auction will be published on the ARB and MDDELCC websites in mid-July, and will include instructions
for how to apply for the practice auction. The notice for the November auction will be provided 60 days prior to the auction, as called for in the California and Québec program regulations.


Marie-Catherine Leduc
Attachée de presse par intérim
Ministère du Développement durable, de l’Environnement et de la
Lutte contre les changements climatiques
Tél. : 418 521-3911

Relations médias
Ministère du Développement durable,
de l’Environnement et de la Lutte contre
les changements climatiques
Tél. : 418 521-3991


Dave Clegern
California Air Resources Board
(916) 322-2990

For further information regarding this article, please write to contact@californiacarbon.info.

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