Ontario Set to Connect Carbon Market with Québec, California Next Year

28 September 2017

The Canadian province of Ontario is set to link its carbon market with neighbouring Québec and the US state of California in January 2018, leaders of their respective governments announced last week.

Québec and California already decided four years ago to link up their carbon markets, bringing their respective cap-and-trade programmes together in 2014. The linkage of these three sub-national schemes in a few months will lead to the largest carbon market in the continent, as well as one of the biggest in the world.

Climate change, if left unchecked, will profoundly disrupt the economies of the world and cause untold human suffering. That's the reason why California and Québec are joining with Ontario to create an expanded and dynamic carbon market, which will drive down greenhouse gas emissions,” said California Governor Jerry Brown last week.

Along with announcing the timeframe of the market linkages, the three sub-national governments also released the text of their deal, entitled “Agreement on the Harmonisation and Integration of Cap-and-Trade Programmes for Reducing Greenhouse Gas Emissions.”

The text outlines across 23 articles how such a system will work, including regulatory harmonisation; offset protocols; mutual recognition of “compliance instruments,” specifically carbon allowances; permit trading; accounting; joint auctions; enforcement; addressing differences; and bringing on new partners.

The move was welcomed by carbon market advocates such as the International Emissions Trading Association (IETA), a non-profit business coalition.

“Sub-national climate change action continues to go from strength to strength across North America,” said IETA CEO and President Dirk Forrister in an official statement.

Carbon pricing in Canada, region

All three partners are already part of the Western Climate Initiative (WCI), a coalition of Canadian provinces and the US state of California aimed at taking steps towards reducing emissions, including through potential emissions trading.

British Columbia and Manitoba, while also part of the WCI, are not yet part of the interlinked market announced last week. The WCI also included some other US states, which are no longer in the grouping.

The agreement announced by California, Ontario, and Québec does refer to the prospect of bringing on new partners to their scheme. Their article on accession outlines how a prospective member could join. Namely, that “candidate party” would need to have “a programme that is harmonised and can be integrated with each of the parties’ programmes.”

Accession would also require the sign-off of existing members of that carbon market.

Ontario and Québec are also two of the eight Canadian provinces that have committed to meeting a minimum national carbon price next year, via carbon taxes or trading schemes, in line with a federal government target of putting in place a progressively increasing minimum price on carbon that would hit C$50 (US$40) by 2022. Two provinces, Manitoba and Saskatchewan, have not signed onto this pledge. (See Bridges Weekly, 15 December 2016)

Carbon markets at the international level

A series of other developments could be seen on the carbon market front before the year draws to a close. With the proliferation of carbon pricing schemes growing around the world, some experts note that the potential linking of these systems into carbon market “clubs” could help climate mitigation efforts, along with addressing concerns over potential losses in competitiveness, among others.

“With this increased activity, we are seeing more interest in linking markets, as policymakers recognise the benefits of a wider and deeper marketplace,” said Katie Sullivan, IETA Managing Director.

China’s national carbon market is expected to kick off later this year, with media reports suggesting that it could begin operating by early November, though that date has not been officially confirmed. The Asian economic giant currently has in place various pilot schemes at the sub-national level, and confirmed just over two years ago its plans to enact a carbon market at the national level. (See Bridges Weekly, 18 September 2014)

Meanwhile, efforts continue to reform the EU’s Emissions Trading System (ETS), currently the world’s largest. Negotiations are now taking place between the EU institutions in the “trilogue” format for the next phase of the scheme, from 2021-2030. In related news, the bloc is in the final stages of preparations to link its ETS with Switzerland, though officials confirmed this month that this would take effect from 2019 at the earliest. (See Bridges Weekly, 16 February 2017)

The EU’s flagship carbon market has long struggled with a surplus of permits, as well as permit prices that are well below the levels that experts recommend for motivating a transition to investing in low-carbon technologies.

In a wide-ranging speech on Europe, French President Emmanuel Macron said on Tuesday 26 September that the 28-nation bloc must do more to address climate change, including low permit prices, in order to remain a world leader in this field.

“Europe needs to be the spearhead of an efficient and equitable ecological transition. It needs to foster investment in this transition (transport, housing, industry, agriculture, etc.) by fixing a fair price for carbon: through a significant minimum price within its borders; and through a European carbon tax at its borders to ensure a level playing field between its producers and their competitors,” the French leader said in a press release outlining his “initiative” for the future of Europe.

Earlier this month, French officials announced that they had agreed with their German counterparts to lend their backing towards finishing the EU ETS reform talks by November as well. UN negotiators are due to meet in Bonn, Germany, from 6-17 November for the annual UN Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP).

ICTSD reporting; “Xi Jinping Is Set for a Big Gamble With China’s Carbon Trading Market,” THE NEW YORK TIMES, 23 June 2017; “China Recalibrates Carbon-Trading Plan,” RADIO FREE ASIA, 5 September 2017; “France and Germany seek agreement on EU carbon market reform by November,” REUTERS, 4 September 2017.  

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