The holiday season is often considered a time to stop and take stock of the things that we are thankful for, and to celebrate the accomplishments of the past year. Today, California and Quebec have one more thing to celebrate: the successful completion of their first-ever joint cap-and-trade auction, which marks the last of many steps to fully harmonize the two carbon markets. Auctions are held quarterly and are opportunities for companies regulated by cap-and-trade and others to electronically bid on and purchase carbon allowances (permits to emit one metric ton of greenhouse gas emissions).
California and Quebec carefully prepare for full linkage of their programs
California and Quebec worked closely to design their cap-and-trade programs to ensure that the essential mechanisms and stringent targets were in place to allow for linkage. The jurisdictions both started their cap-and-trade programs on January 1, 2013, and formally linked their carbon markets a year later. At that point, carbon allowances originating from Quebec’s program could be purchased and used by a California company and vice versa. Until the most recent auction, the two jurisdictions held separate auctions, allowing time to update the auction system to handle bidding from multiple jurisdictions with different currencies, different time zones, and different requirements for the minimum allowable bid. This process of careful preparation culminated in a practice joint auction held at the beginning of August, which went smoothly according to reports from the California Air Resources Board (CARB), the regulatory agency responsible for overseeing the implementation of California’s cap-and-trade program.
Sustained strength of linked program reflected in results of first joint auction
The first real joint auction took place last Tuesday, after a great deal of preparation and some technical difficulties that caused a few days of delay. During this auction, companies from both California and Quebec bid together on the same collective pool of allowances, aligning allowance price over the two programs. The results of this auction were released today and revealed healthy demand in the linked market for cap-and-trade allowances. 100% of the current 2014 vintage allowances for sale in this auction were purchased by bidders at a price of $12.10, while 100% of the 2017 future vintage allowances offered were purchased at a price of $11.86.