As California plans for the future of its carbon cap-and-trade market after the current system expires at the end of 2020, other jurisdictions that have joined the market will have to adjust—or drop out.
Quebec and Ontario have joined the Western Climate Initiative, Manitoba and Mexico may follow suit—and for the Canadian participants in the permit-trading pool, a departure looks unlikely. California’s population of 39 million is half again the size of the three Canadian provinces combined—implying a greatly impoverished carbon market without it.
That means Ontario and Quebec, at minimum, will need to bring their permitting and trading rules in line with California’s new ones. “It’s a decisive statement,” said New York University climate policy professor Jessica Green. “[California is] saying: ‘If you want to play with us, you have to play by our rules, and those rules are getting stronger all the time.’”
Draft legislation would immediately increase California’s floor price for a carbon permit from around US$13.50 to $20 per ton—with a $30 ceiling in the first year of operation. Every year thereafter, the Globe reports, “the minimum price would increase by $5 and the ceiling by $10,” with no planned end date for the escalation. Permits, good for only a year, would be released at auction, and no industries would receive permits for free.
One key factor in aligning the Canadian segments of the market with California will be a matching carbon floor price, predicted Danny Cullenward, a lawyer who advised the California Senate on the bill. “If somebody wants to link to this new market, they have to have a comparable minimum carbon price. It would be a terrible idea if we set up an ambitious climate plan and we linked to a partner that was not all that ambitious.”
If the new market plan passes as drafted—not a sure thing—Ontario, Quebec, and Manitoba will need minimum carbon prices of at least US$20 (about C$27) in 2021. That should not be a heavy lift, since the pan-Canadian climate framework already sets a floor price of $40 in 2021, en route to $50 the following year.
Ontario earned $472 million in its first auction of emission permits earlier this year. Last fall, the Mexican government committed to aligning a nascent cap and trade market with the jurisdictions to the north—a goal that may be complicated by new tensions provoked by the Trump administration in the United States.