Companies that trade in California’s cap-and-trade program will also be able to trade in Quebec because they are connecting their programs.
Governor Jerry Brown approved the proposal from California’s Air Resources Board (ARB), which has been working for five years to develop compatible programs with Quebec.
The two systems are expected to link January 1, 2014. They need to test their auction platforms and trading systems to make sure they’re fully compatible.
British Columbia also plans to join soon and ARB is exploring the same with Australia. South Korea and Mexico recently passed laws to create carbon trading and have expressed interest in linking to regional programs.
So, this is a first but important step. By working together they can cut emissions more than either can do alone by increasing the size of the pool.
"Linking provides more options to California businesses and lays the groundwork for other partners to join with us," says Mary Nichols, Chair of ARB.
The broader a cap-and-trade program is, the more effective it is. One of the main sticking points for these programs is industry’s objection that it puts them at a disadvantage if competitors in other countries don’t have to follow the same rules.
In the next five years, "we will have a much larger fabric of states and provinces working together," says Nichols.
But Quebec is about two-tenths the size of California and uses mostly hydro for energy, so some question the value of the collaboration.
A committee of economics and markets experts that are advising ARB recommend waiting until 2015 when both cap-and-trade programs will be more developed, reports Bloomberg. And given the differences between the governments’ regulatory frameworks, combining them efficiently could be a huge challenge.
Quebec’s program applies to only 75 companies and has a goal of cutting carbon emissions 20% by 2020. California’s goal is reduce emissions to 1990 levels by 2020 and involves 430 companies.
Learn more about California’s cap-and-trade program.