California and Quebec: Friends in Low (Carbon) Places

KHK pictureA crucial feature of the U.S. EPA’s groundbreaking new Clean Power Plan for existing power plants is the flexibility with which states can pick and choose the emission reduction measures that work best for them. Instead of prescribing a silver bullet solution across all fifty states, the new rule allows each state to tailor its policies, resulting in the most cost-effective solution to climate change.

According to EPA Administrator Gina McCarthy, this flexibility can mean collaborating with others in joint programs: “If states don’t want to go it alone, they can hang out with other states and join up with a multi-state market based program, or make new ones.”

For states thinking about cross-border collaborations to comply with the new rule, they can find a promising example in California.

In an announcement today, the California Air Resources Board (CARB) and the Ministry of Sustainable Development, Environment and the Fight against Climate Change (MDDLECC) of Quebec revealed that the two markets are taking the final step in linking their markets with the initiation of joint auctions. The first will be held in November, following a practice auction to be held in August. The practice auction will allow the program regulators, as well as auction participants, to get comfortable with the updated joint auction platform.

Not only is the Golden State leading the way in transitioning to a low-carbon economy ahead of EPA’s recently-announced power plant standards, but California is forging ahead to show that working across state lines on climate policies is possible – and can be productive.

In the meantime, the two jurisdictions have been holding separate auctions. Just last Friday, the results of Quebec’s third auction were announced and 2014 allowances sold out for the first time.

Joining these two markets is an important step forward and the benefits for both jurisdictions are clear. Linkage creates a larger overall market, which means greater trade activity than either market would have alone, resulting in decreased price volatility. Furthermore, linkage produces more opportunities for companies to find low-cost pollution reductions. Just as the Clean Power Plan gives states flexibility in its implementation, California and Quebec’s joint cap-and-trade program gives companies investment flexibility and allows businesses to decide themselves how they will comply with the program.

With the new EPA Clean Power Plan, partnerships like California and Quebec’s may be the wave of the future.  What’s more, now that the US has taken its most significant step ever to cut climate pollution, we have upped the ante for Canada’s federal government to take action. As Bruce Heyman, the US Ambassador to Canada, said yesterday: “This is not a task that we can take on individually. It can only be successfully challenged together.”

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