California-Quebec Carbon Market Linkage Delayed

By Published On: June 29, 2012

California will go it alone in its carbon emissions rights auction Nov. 14 instead of in concert with the Canadian province of Quebec due to budget legislation signed into law June 27. The legislation also specifies that lawmakers appropriate all money that the California Air Resources Board receives in carbon auctions to advance the purposes of the state’s climate protection law, AB 32. The state’s new financial plan sets up additional tests for linking the cap-and-trade system to similar markets in other jurisdictions, like Quebec, that can’t be met until next year. “We’re engaged,” to Quebec, said Air Board chair Mary Nichols. “But we’re not wedded yet.” The Air Board held off adopting amendments to its carbon cap-and-trade program rules to allow the state to link its carbon market to Quebec’s June 28. Instead, the Air Board directed its staff to request the governor to review the planned linkage, as specified in the budget bill, SB 1018. Under the measure, the governor has 45 days to evaluate the request. If approved, then the Air Board has to adopt the amendments to the state cap-and-trade rules to align the program with Quebec’s. To sanction the linkage, the governor and attorney general must find that: -The jurisdiction’s carbon cap-and-trade program is at least as stringent as California’s; -California can enforce its requirements against any market participant located in the linked jurisdiction; and -Linkage doesn’t expose the state to any significant liability. To make sure the Air Board’s auction system is dependable before going live in November, the board directed the staff to report at its September meeting the results of a practice auction planned late in August. Utilities pressed for extensive practice auctions. Should problems arise in that dry run, the Air Board may have to delay the planned November auction until sometime next year, Edie Chang, Air Board planning and management chief for climate change, told board members. In other action, the board adopted a number of technical amendments related to implementing its cap-and-trade program, but left major items on the table. For instance, it did not address how to deal with potential resource shuffling among power generators--in which dirtier out-of-state power could be substituted for cleaner power without offsetting the greenhouse gas emissions. It also deferred resolving how many credits companies can hold to cover uncertainties in their emissions. For instance, generators can have high emissions in low hydropower years or during hot weather. When their ability to hold credits for such contingencies is limited, they may be forced to suddenly purchase credits to cover emissions when they are high-priced. The board did not budge on the so-called “know your customer” provisions, which compel companies to require any employees who act on their behalf in emissions rights auctions to turn over their bank account information to the Air Board. Southern California Public Power Authority attorney Norman Pedersen called the requirement “onerous” because employers could be held liable if there is any breach of security.

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