Practice Makes Perfect for California and Quebec Joint Auctions

KHK pictureOver many decades, the United States and Canada have developed what is now the largest trade relationship in the world. This achievement is measured by the goods and money that cross their shared border, and does not even account for the trade of ideas and exchange of information currently underway between the two countries. The linkage of the California and Quebec carbon markets is yet another demonstration of the mutually beneficial relationship that these neighboring countries have cultivated. The two jurisdictions are taking the final steps in what started off as a virtual marketplace of ideas and best practices and has since grown into a real market for tradable carbon credits.

Last Thursday, the California Air Resources Board (CARB) and Ministry of Sustainable Development, Environment and the Fight against Climate Change (MDDELCC) of Quebec held a practice joint auction for the linked California and Quebec cap-and-trade programs. This trial was run as though it were a real quarterly auction, requiring participants to establish a Compliance Instrument TrackingSystem Service (CITSS) account if they did not already have one, submit an application to participate, and await approval from the auction administrator. CARB and MDDLECC published an auction notice and ran webinars for auction participants in the days leading up to the practice auction. The auction administrator and independent market monitor for both jurisdictions also monitored the auction while the bidding window was open and the appropriate help desks were available to take questions, just as they would have for a real auction. As such, interested parties were able to become familiar with the actual processes and materials required to participate, as well as test out and provide feedback on the updated features of the auction platform, which was refined to support bidding from both jurisdictions. The careful completion of this important exercise demonstrates CARB and MDDELCC’s dedication to thoroughness in their implementation of the cap-and-trade regulation.

Practice auction deemed a success

The two regulatory bodies released an auction summary report today that provides information on how the trial run went, as well as a summary of the responses CARB and MDDELCC received through a post-auction survey they administered to the 28 participants of the auction. Three quarters of the survey respondents rated both their experience with the auction platform and the training materials provided prior to the auction as excellent or very good. CARB and MDDELCC report that all procedures were run correctly on their end, indicating the practice auction went smoothly and that both participants and auction administrators were able to successfully prepare for the first real joint auction, scheduled for November.

This marks a huge step forward on the road to full program linkage and underscores the commitment on both sides to join in the effort to curb greenhouse gas pollution. Linkage is extremely important as it creates a larger overall market, which means more trade activity and a greater array of options for greenhouse gas pollution reductions. More options means greater compliance flexibility, which reduces the costs for companies to meet the reduction target and makes the overall program cheaper for businesses and consumers alike.

Small, yet critical changes made to support bidding from both jurisdictions

The most significant difference that participants presumably saw in this practice auction was added capabilities to handle the two different currencies used in these jurisdictions, US dollars (USD) and Canadian dollars (CAD). This included updates to how the reserve price (the minimum bid price allowable in the auction) is displayed and calculated. While California entities are only able to apply and submit bids in US dollars, Quebec entities can participate using either currency. No mention of problems regarding the added dual currency capability of the auction platform was included in the post-auction report.

auction platform

For this practice auction and future joint auctions, the reserve price will be determined and displayed in both USD and CAD based on the conversion rate on the day before the auction begins (shown in green).

While this may seem like a small change, it is critical to ensuring the successful linkage of the two programs. This partnership is setting an example that other jurisdictions can follow in expanding the scope and influence of what is already the most ambitious cap-and-trade program in the world. This is especially important as we approach the 2015 United Nations Climate Change Conference in Paris, where leaders from all over the world will meet and attempt to create a legally binding agreement to address climate change.

Before real joint auctions begin, there will be one more California-only auction and one more Quebec-only auction. California’s will take place next Monday, August 18th and the results of this auction will be posted the following Thursday. Look back here on our blog for our coverage of that auction.

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