Harmonization of Québec’s and California’s proposed cap-and-trade regulations is moving forward, says Tyson Dyck in Environmental Finance

Québec Matches California's Trading Rules, But Timing Worries Market

June 13, 2012

Québec's proposed cap-and-trade regulations are consistent with California’s planned rules, the US state’s administrator said, but there are lingering concerns about the timeframe for connecting the two systems. The proposed rules out of California and Québec reflect the efforts of the two jurisdictions to harmonise their programmes ahead of the first official auction of allowances, scheduled for 14 November. Québec released rules on Friday that specify that emissions allowances issued by California are equivalent to the allowances issued by the province.

"Overall, it was a good move forward," said Tyson Dyck. "People have been waiting for the Québec equivalent to piece them together."

The regulators adjusted the floor price provisions to account for differences between the two jurisdictions. California and Québec both set a $10 per tonne minimum price, but Québec’s floor price begins rising 5% annually in 2014 while California’s minimum price remains steady that year. The jurisdictions will apply the higher of the two floor prices to the joint allowance auctions, he said.

The holding limits – the maximum number of allowances that may be held by an entity or a group of associated entities – have also been coordinated to increase proportionally, Tyson said. There were concerns that the limits would have the unintended consequence of benefitting entities with a small compliance obligation because larger entities would not be allowed to purchase as many allowances as needed at the quarterly auctions and would have limited ability to buy on the secondary market.

The thinking was that this could benefit Québec’s regulated entities because they generally have smaller compliance obligations than California emitters, Tyson said. "It will be interesting to see whether that’s a practical concern once the system is up and running," he said.

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