California Cap-and-Trade Goes International

Photo by Mike Baird. Some rights reserved.

California’s cap-and-trade program, known as “AB32,” is moving closer to its first binding auction. Mandated as part of California’s Global Warming Solutions Act of 2006, it requires greenhouse gas emissions in California to be reduced to 1990 levels by 2020 and to 80 percent of 1990 levels by 2050.

Recently, the state modified its greenhouse gas / carbon trading market to expand the reach of the program, proposing a formal link between the AB32 cap-and-trade system and a similar program in Quebec. The link, they expect, will expand participants’ trading options and increase liquidity in carbon markets. K&L Gates has a brief analysis of the linked system here.

The programs are similar in many ways. California’s program will at first cover 360 businesses responsible for 85% of the state’s greenhouse gas emissions. In 2013, the regulations will apply to industrial polluters, and in 2015 to distributors of transportation fuels, natural gas, and other fuels. Its credits were designed to integrate with other cap-and-trade programs. Quebec’s market will include 75 companies mostly in aluminum and mining industries beginning in 2013 and include a much larger group of companies in 2015, aiming to reduce greenhouse gas emissions to 20 percent below 1990 levels by 2020.

A joint press release from California and Quebec expresses their expectation that other regions involved in the Western Climate Initiative in North America, especially Ontario and British Columbia, may soon connect their trading schemes with California and Quebec’s, possibly rivaling the European Union’s in size eventually.

The California Air and Resource Board will hold a practice auction in August 2012, and a joint auction with the Quebec market is scheduled for November 14, 2012.

The Green Mien has covered at least one interesting objection to California’s cap-and-trade system: environmental justice groups opposing its “industry-preferred” approach that does not mandate reductions, ignoring that polluters are disproportionately located in low-income, minority communities.

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