Don’t look now, but California’s cap-and-trade program is going global.

With California Air Resources Board (CARB) approving linkage between California and Quebec’s cap-and-trade programs today, these two programs will now be able to trade emissions allowances across borders starting in 2014.  CARB’s action comes on the heels of Governor Brown’s recent decision to approve the linkage, which will increase the size of California’s cap-and-trade market by 20 percent. More importantly, linkage will boost California’s clean energy economy by creating a broader market for innovative, low-carbon technologies.  The linkage is also a shot in the arm for global efforts to cut greenhouse gas emissions, and it sends a positive signal to other jurisdictions that are working on building their own carbon markets and might ultimately seek to join with California and Quebec.

This linkage comes at a moment when momentum for carbon market development has been building around the world. Many other regions, including Europe, Australia, South Korea, and the Northeastern U.S., have instituted or are currently developing carbon markets. Australia also announced plans last August to phase-in a linkage with the EU system starting in 2015.

Governor Brown also recently returned from a trip to China where he signed an agreement with their Minister of Environmental Projection to help reduce air pollution and an agreement with Guangdong Province to share best practices related to cap-and-trade, clear evidence that if we want to get serious about climate change, California or one region can’t do it alone.

Before full linkage is possible, it’s often helpful for governments to develop ‘unofficial links’ in the form of partnerships to share policies, best practices, and goals. This cooperation – which California and Quebec have had since 2007 – is important and beneficial for the overall growth, rigor and integrity of carbon markets. The California cap-and-trade system uses a similar platform to the RGGI system in the Northeastern U.S., and the California system has been carefully crafted based on lessons learned from the EU ETS.

It took many steps to get to this point, but with a first joint cap-and-trade auction now scheduled for early 2014, California and Quebec are finally there. CARB’s approval of linkage is a big milestone for California and the nation, and another strong signal of California’s leadership in fighting climate change, while moving further down the path to a clean energy economy.

In the past two weeks, California’s California Low Carbon Fuel Standard (LCFS) received a heavy dose of positive news: strong support from major companies to develop cleaner transportation fuel options and solid evidence to prove the standard is working.

On April 2^nd, major business interests and non-profit organizations across the state filed four separate briefs supporting the LCFS in the state Appeals Court in Fresno. The briefs, filed in response to a letter from the court in February, say definitively that the LCFS is a necessary program for California because it creates a market signal for new, cleaner fuels and solutions that can grow California’s economy and improve air quality.

The impressive diversity of interests weighing in is a who’s-who list of energy giants, including the nation’s largest supplier of natural gas for vehicles (Clean Energy), a 108-year old utility with 15 million customers (Pacific Gas & Electric), a consortium of alternative diesel companies (National Biodiesel Board and the California Biodiesel Alliance), and a coalition of five environmental organizations.

Notable excerpts from the briefs include:

 With the impetus of the LCFS, the biodiesel industry in California is poised to triple in the next few years with substantial investments and new jobs in many of California’s most economically disadvantaged areas.

-          The National Biodiesel Board/California Biodiesel Alliance

Companies with the potential to exceed this target… can sell credits to regulated entities who can’t…creating a strong financial incentive for lower-carbon fuel innovation.

This is why the LCFS is so important- it provides a long term investment signal to create a robust alternative fuel market in a reasonable timeframe.

-           Clean Energy

 PG&E supports the California Air Resources Board (CARB) in its efforts to preserve the LCFS…the LCFS is an important part of the overall California strategy to reduce greenhouse gas emissions, contributing 16 million metric tons of reductions…with a significant disruption to the LCFS program, it will make it less likely that California will reach its GHG emission reductions goals.

-           Pacific Gas & Electric

The LCFS encourages companies to invest in low-carbon fuels to meet increasingly stringent performance targets.  Based on statements from alternative fueling industries and the CARB LCFS Fourth Quarterly 2012 Update, even at this early stage of implementation, the LCFS has resulted in rising quantities of lower carbon fuels being consumed in California and the market is rewarding investments in cutting edge, low-carbon fuels.

-          NGO Coalition that includes American Lung Association, Coalition for Clean Air, Conservation Law Foundation, EDF, and the Sierra Club

In addition to the legal filings, California also released its latest progress report on LCFS implementationin March showing growth in low carbon fuel deliveries to the state. Credits from the cleanest biofuels have grown by 300% in just nine months, and the data shows that regulated companies have over-complied with the standard by 45% — that’s more than a million tons over the past two years.

Reports have also begun surfacing that major deals for bulk volumes of low carbon fuels are on the horizon.  For example, Neste Oil submitted a letter to the California State Senate stating they have already delivered commercial volumes of renewable diesel from tallow (an ultra-low carbon fuel) to California and “expects to deliver approximately a hundred million gallons of NExBTL renewable diesel fuel into California this year.”

In a similar story, San Diego-based Sapphire Energy recently entered into its first commercial agreement for “green crude” (made from algae) sales – an agreement with oil giant Tesoro. According to Sapphire’s president, “This moment is enormously important for the industry as it validates the benefits and advantages of [our] crude, and confirms its place as a market-viable, refiner-ready, renewable crude oil solution.”  In a story on Sapphire’s website, the new partnership with Tesoro was described as potentially helping supply clean energy to meet the demand created by new fuel standards, including California’s Low Carbon Fuel Standard.

Implementation of the LCFS is still in the early stages, but in just over two years the standard has started to deliver tangible economic and environmental benefits.  The regulation is poised to change a fossil-fuel dependent transportation system that has been developed over the last one hundred years and that costs California drivers almost one hundred billion dollars every year – most of which leaves our state (and nation) the moment it’s spent.

Using Californian ingenuity and the American entrepreneurial engine, we can change the status quo – toward a more sustainable system that doesn’t poison the air and pinch our pocketbooks.

This article was originally posted at Market Forces.

One of the goals of EDF’s Ecosystems work is to provide farmers with revenue opportunities in reducing their greenhouse gas (GHG) footprint. Under AB 32, California’s landmark legislation aimed at reducing GHG emissions, regulated entities may purchase carbon offsets to meet up to 8% of their obligations. Over the past six years, EDF has worked closely with growers to capitalize on the anticipated demand for these offsets, by developing protocols that will allow landowners to generate and sell agricultural offsets. On March 28, we reach a milestone in these efforts: the California Air Resources Board will host a workshop to begin a rulemaking process to consider the adoption of an offset protocol EDF has developed with the American Carbon Registry, crediting rice producers for GHG abatement practices.

We’ve put a great deal of work into understanding and piloting a myriad of rice farming techniques, while studying their implications for GHG emissions. A major conclusion from our analysis is that there exists a subset of viable alternative practices for rice producers in California with potential agronomic, economic and environmental benefits. The ones we’ve decided to focus on for our offset protocol are: baling, dry seeding, and early drainage of fields before harvest.

Agricultural activities account for an estimated 12% of global GHG emissions – the majority of these arise from sources of nitrous oxide and methane gases, composing ~60% and ~50% of the global total, respectively (as of IPCC AR4). Rice cultivation accounts for 5-20% of worldwide methane emissions; much of it is emitted as a byproduct of organic decomposition under flooded paddies. California’s goal to reduce its emissions to 1990 levels by 2020 through its cap-and-trade program (AB 32) provides an opportunity for rice farmers to help the state meet its reduction goal.

There are multiple approaches for rice farmers to reduce GHG emissions. Some of these practices can be carried out before the harvest and others post-harvest. We’ve carried out some in-depth analysis on the various options, to better understand the incentives and revenue possibilities we will be encouraging through our policy work – we have found that there are a handful of ways that farmers can reduce GHG emissions while maintaining yields, earning some revenue for their efforts, and potentially save on costs in some circumstances.

Our analysis builds on a prior study by our partners Applied Geosolutions, UC Davis and the California Rice Commission that estimates GHG emissions and yields for the majority of rice producing acreage in the state. They use the DeNitrification-DeComposition (DNDC) model, simulating 6,316 rice fields for 16 farming practices. In our analysis, we first estimate the potential greenhouse gas abatement of a suite of specific practices: dry seeding the rice fields, baling harvest residue, and hydroperiod adjustments (draining of fields in midseason, before harvest and/or reducing winter flooding).

We then tabulate the cost of each management practice through a combination of literature, farmer and farm advisor consultation and combine these with abatement estimates to generate marginal abatement cost curves for each practice. Our preliminary results indicate a wide variability in abatement costs, depending on farming conditions. Of course, this is before factoring in the role of a carbon credit.

Unfortunately, not all of the practices we’ve studied are tenable in the Californian setting. One practice (midseason drainage of the fields) is accompanied with a significant decrease in yield and therefore does not lend itself well to the Sacramento Valley climate. In the case of stopping winter flooding, there could be negative habitat impacts for waterfowl that use this ecosystem as a feeding ground. Striving to understand such risks has been crucial in determining the extent to which producers will consider the new incentives created through the market.

Because the practices listed above have not been widely adopted, they are key opportunities for the generation of offsets.  To better understand adoption rates, EDF is conducting further research in determining the quantitative and qualitative barriers that are limiting farmers from adopting such farming methods.

California will be one of the first rice producing regions in the U.S. to present abatement opportunities in conjunction with a carbon market. Combining economic principles such as abatement cost curves with biogeochemical models (e.g. DNDC) is useful in studying such opportunities. Further, the ability to simulate practices at the field level is central to understanding the economic potential of offset protocols granting agricultural producers access to carbon markets. In turn, this can create new incentives to abate GHG emissions from agriculture while potentially providing new sources of revenue to landowners – potentially a win-win situation.

We are excited that Thursday’s California Air Resources Board workshop will kick off the rulemaking process and that farmers can soon benefit from these interesting prospects.

Good news for people who dislike climate change.

California just took the next major step towards strengthening the fight against climate change.  Last week, the State’s Air Resources Board released some long anticipated regulatory text that will allow (if adopted) the state to “link” its program with Quebec – making either state’s carbon allowances interchangeable.  This link not only expands the carbon reduction possibility for both jurisdictions, it mightily strengthens the carbon reduction effort sweeping across the rest of the world.

The potential benefits of this important step are huge and provide a win-win scenario for both states.  Quebec will likely buy allowances from California businesses, providing more opportunities for the Golden State to invest in clean technologies that bolster our health, spur job growth, and improve our economy.

For Quebec — at 1/6 the size of California’s economy–they need a larger partner to create an effective market to successfully reduce carbon and boost the economy in their region. In essence, the link ensures that California and Quebec are working together to make sure both carbon reduction targets will be met, meaning more guaranteed reductions of global warming gases across the board.

Most importantly, this linkage will undoubtedly cause other states and provinces to take notice that it is time to get serious about regional efforts to reduce pollution. Oregon and Washington have already agreed to work with California on regional efforts to cut carbon – and this link gives them a clear goalpost to move towards.  Similarly, Ontario and Alberta have put their toe in the water on cross border efforts to fight climate change – now it’s time to jump in.

So, how did we get here?  In 2007, California, Quebec and other members of the Western Climate Initiative (WCI) set out to identify, what an ideal regional cap-and-trade program to tackle climate change might look like.  In short order, they identified what a program should look like and how to deal with logistical issues to hold joint auctions.  Now, the hard work is paying off.

As for the final steps in the process, last Friday’s release by the Air Board was text that would amend California’s cap-and-trade program to allow California and Quebec to link.  The Board must now vote to approve the linkage, and the Governor has to approve it as well.  Quebec and California will also likely conduct a practice auction to road test the link before it goes live in 2014.

Make no mistake, the link is not a done deal (yet) – but Friday’s notice gives every indication we can expect good news for California, Quebec, and the future of cap and trade in North America.

Steps for creating a linked North American Carbon Market to fight climate change: