Quebec’s Carbon Market Rebounds After California Hook Up

Gloria Gonzalez

Quebec’s first auction of carbon allowances last year was deemed a bit of a snooze-fest as buyers only snapped up about a third of available allowances, but demand soared in last week’s provincial auction following its linkage to California’s cap-and-trade system.

10 March 2014 | After a relatively silent auction of carbon allowances in December 2013, demand for carbon allowances in Quebec soared in the first auction after it officially linked its cap-and-trade program to California’s system.

Quebec sold 98.7% of the more than one million 2014 vintage allowances available for sale in the March 4 auction, with allowances clearing at the CAN$11.39 per metric ton floor price. In addition, 84.2% of the 1.5 million 2017 vintage allowances also sold at the floor price.

This represents a significant increase from Quebec’s first auction in December when only 34% of the current vintages and 27% of the future vintages available sold at the then-price floor of CAN$10.75/t.

“These results reflect growing interest and demand in this burgeoning carbon market after it officially linked with California’s program at the beginning of 2014,” said Erica Morehouse, an Environmental Defense Fund attorney who focuses on the policy and legal aspects of implementing AB 32, the legislation underpinning the state’s cap-and-trade program.

The first cross-border compliance trading program to reduce greenhouse gas (GHG) emissions in North America officially took off on January 1 when California and Quebec joined their carbon trading programs. The linkage between California and Quebec’s carbon markets is the first tangible fruit of the Western Climate Initiative (WCI), formed in 2007 to design a regional cap-and-trade program to limit carbon pollution and curb climate change. At one point, the WCI counted seven US states and four Canadian provinces as members, but only California and Quebec have put a trading program in place.

The two jurisdictions are not holding joint auctions yet, but are planning to do so later this year, meaning the two markets will completely align with a uniform price for both sets of allowances, she said.

“Until then, given that Quebec’s program is much smaller and has had less time to develop, the California auction prices and market conditions are more predictive of what the linked program will look like once joint auctions begin,” Morehouse said.

Prices and demand are lower in Quebec than California in part because companies regulated by the US state that do not have a Canadian presence have to wait until the joint auctions to buy allowances directly from Quebec’s environment ministry, she said. In addition, there were just 16 participants in the Quebec auction compared to 71 participants in the last California auction.

Unlike California entities that must turn in allowances to cover a portion of their compliance obligations at the end of this year, covered entities in Quebec do not have to turn in their first batch of allowances until 2015 – one of the few small differences between the programs.

“These entities aren’t feeling the same sense of urgency to acquire allowances as California entities,” Morehouse said.


Gloria Gonzalez is a Senior Associate in Ecosystem Marketplace’s Carbon Program. She can be reached at [email protected].

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