California, Quebec Teaming Up on Climate Change

California raised $630 million by selling pollution allowances one Wednesday last month, each of them entitling the buyer to harm the climate with a ton of carbon dioxide.  Most of the money that was raised during the quarterly allowance auction will be used to reduce customers’ electricity bills; the rest will go to environmental projects.  That same Wednesday, the Canadian province of Quebec raised $150 million doing the exact same thing.

The timing was no coincidence.  The auction was held jointly.  It was the result of the historic linking of two cap-and-trade programs operating in different nations, thousands of miles apart. A refinery in Richmond, Calif., can now buy its pollution allowances from Quebec.  In lieu of buying an allowance needed to release a ton of carbon dioxide, a power plant operating on the banks of Quebec's Saint Lawrence River could buy an offset from a Central Valley dairy farm that kept an equivalent amount of methane out of the atmosphere.

Experts say fresh linkages between the two cap-and-trade programs — one of them among the biggest, the other on the small side — may serve as a template for the gradual emergence of what could eventually become a global carbon market.  That market could be formed by linking together the dozens of smaller markets being established worldwide, from Kazakhstan to Tokyo to Mexico.

Such a global market could help humanity ratchet down its annual levels of climate pollution, by aggressively dialing back the overall pollution cap over time, and pushing up the price of fossil fuels as the costs of renewables tumble.  That would help nations deliver on ambitious pledges that could be made during upcoming U.N. climate talks, including in Paris in December.

“Linkage is going to be a very important element of implementing the 2015 Paris agreement,” Harvard University economics professor Robert Stavins, an expert on carbon markets and international climate talks, said.  “California is going to be an important model.”

The full results of the February joint auction were published Tuesday, showing 84 million allowances were sold for a little over $12 apiece, with about 20 million of those sold by utilities. It was the second auction to be held jointly by the two cap-and-trade programs, and the first to be held without any mid-auction software-related technical glitches.  Both cap-and-trade programs began operating in 2013, and they were linked last year, following years of planning.

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