6 successes from California and Quebec’s third year of cap and trade

Source: Flickr

Photo Source: Flickr / JoeBehr

The joint carbon market in California and Quebec holds its first carbon market allowance auction of 2016 today.

The auction offers a good opportunity to reflect on some of the notable successes of the market in 2015.

The California-Quebec market is one of the prime examples of a successful carbon market that many countries will look to as they consider how to meet the commitments made in Paris, where countries successfully negotiated an ambitious climate deal that outlines multiple pathways for nations to use markets to meet their long-term goals.

Here are the top six successes of California and Quebec’s carbon market in 2015, in no particular order.

1. After implementing the most aggressive climate program in the nation, California was rewarded with a thriving economy and significant declines in emissions regulated by the cap-and-trade program.

California saw GDP and jobs grow faster than the national average in 2015. This growth set California up as the eighth largest economy in the world, slightly smaller than Brazil. Meanwhile, as EDF reported in November, California is ahead of schedule to meet its 2020 goal, with emissions covered by cap-and-trade nine percent below required levels in 2014. Capped emissions saw a three percent decline in the 2013-2014 period although overall emissions increased slightly from 2013 to 2014. These figures suggest that California is positioned to continue demonstrating that economic growth and emissions reductions can coexist.

2. 2015 saw California’s cap-and-trade program more than double in size as transportation fuels and natural gas are now regulated under the cap.

The transportation sector contributes 38% of California’s emissions and the decision to regulate it is a pioneering move that other major trading programs like those in New England and Europe haven’t taken yet. Some oil interests had warned for years that regulating fossil fuels would be disastrous for the economy, but California saw healthy job growth that was more than double the rate in oil-friendly Texas.

3. North America, like the rest of the world, is getting serious about addressing climate change and California’s market-based system is looking like a go-to tool for action.

The link between California and Quebec’s carbon markets is now two years old and is a success by all accounts. Ontario and Manitoba have begun designing similar cap-and-trade programs with the intent to join California and Quebec by 2018. Mexico is also seriously working towards a carbon market and has an active memorandum of understanding with California to collaborate on best practices.

4. The carbon market remained strong and steady and businesses showed they were ready and able to comply with the program.

Over the life of California’s cap-and-trade program we have looked to the quarterly auctions to provide indicators on the health of California and Quebec’s overall carbon market. Strong demand for allowances and steady prices are indicators of good health, and that’s just what California and Quebec saw in 2015. Almost all businesses regulated in California and Quebec met their requirement to surrender sufficient allowances to cover their 2013 and 2014 emissions last November. The program is built on a platform of transparency and strong enforcement, and the two entities that did not meet their obligation face a steep penalty: surrendering four allowances for every allowance they failed to surrender in November.

5. California auction proceeds are now making a difference in the lives of real Californians.

In 2013-2015 cap-and-trade auctions raised just over $3.5 billion for state-run programs that further reduce carbon pollution and close to $900 million of that money is earmarked for disadvantaged communities. 2015 was the first year we saw climate investments actually enter communities through programs that provide a range of benefits—especially to low-income households—such as free solar panels or an opportunity to swap out a dirty car for an electric one. Also, approximately $2 billion in utility auction revenue has been returned to households through a progressive, on-bill climate dividend that preserves an incentive for lower energy use.

6. California played a high-profile role at the Paris climate negotiations as a proven implementer of successful climate policies, as an ambitious climate leader, and as an aggregator of subnational commitments.

In 2015, the Brown administration set a strong foundation for continuing successful programs like cap and trade by issuing an executive order that committed to reducing greenhouse gas emissions to 40% below 1990 levels by 2030. Governor Brown then parleyed California’s own ambitious commitment into an “Under2MOU” signed by well over 100 states, provinces, and cities, representing over ¼ of the globe’s GDP. Signatories committed to reducing emissions 80-95% or to less than 2 metric tons per capita by 2050, setting mid-term targets, and collaborating on a range of climate-related policies. California and other founding partners showcased their commitment at the Paris climate talks where subnationals received important recognition for being able to push the envelope on climate issues.

Tune in next Wednesday, February 24, as we report on the results from today’s auction and explore further how cap-and-trade proceeds have been invested to date.

This post originally appeared in California Dream 2.0

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