North American Carbon Markets Making Headway

Air Pollution

By Maura Forrest

September 11, 2014

Quebec and California will hold their first joint auction of greenhouse gas emission permits this fall, marking the latest milestone in North America’s first cross-border cap-and-trade system.

The two jurisdictions formally linked their carbon markets in January. A practice auction in mid-August to test the joint process yielded mainly positive reactions from participants.

Alex Wood, senior director of policy for Sustainable Prosperity, a green economy think tank, said the linkage is an important step for the United States and Canada.

“Cap and trade is alive and well, and its days are looking pretty bright,” he said in a phone interview.

Earlier this year, Sustainable Prosperity published a report concluding that the initiative will be “an economically efficient way to address greenhouse gas emission reduction objectives in both jurisdictions.”

Other signs point to the North American carbon market picking up steam. On September 5, the Regional Greenhouse Gas Initiative (RGGI), which represents nine northeastern U.S. states, announced that its most recent auction garnered $88 million. Likewise the California Air Resources Board generated nearly $332 million at its latest auction. That revenue will be invested in clean energy and energy efficiency projects.

In Canada, British Columbia’s $30-per-tonne carbon tax, implemented in 2008, has successfully reduced carbon emissions and helped to lower the personal income tax rate. And the Alberta government collected more than $300 million in fines between 2007 and 2012 from companies that exceeded its emissions-intensity limit.

Missing in both countries is a national carbon pricing policy. Reports from the now-defunct National Round Table on the Environment and the Economy, and the David Suzuki Foundation have advocated for a federally imposed carbon market in Canada.

In June 2014, the International Monetary Fund’s Christine Lagarde urged Canada to introduce a national carbon tax or a cap-and-trade program. But Prime Minister Stephen Harper insisted that “no country is going to take actions that are going to deliberately destroy jobs and growth in their country.”

Still, Wood believes that Canadian provincial governments are filling the void “in this absence of leadership from the feds.” Ontario is watching Quebec, he said, and will likely develop a similar cap-and-trade system.

“A national approach is preferable," he said, "but just below that would be a national approach that has basically been knitted together by the provinces."

The potential for a global carbon market, Wood said, is also rebounding after some stumbles. The European Union’s carbon trading scheme suffered a major blow from the global recession, which saw permit prices plummet to less than one euro per tonne, down from almost 30 euros in 2006. Earlier this year, the Australian government officially scrapped its unpopular carbon tax.

But China has recently announced that it will implement a national carbon market in 2018. And the U.S. Environmental Protection Agency has recently introduced tough new regulations that require carbon emissions from existing power plants to be cut to 30 percent below 2005 levels by 2030. It recommends that states look to market-based programs like cap and trade as one way to comply.

Wood said these global superpowers will likely set the agenda for the rest of the world, and will help push more jurisdictions toward a carbon market.

“I’m more optimistic than I have been in a while,” he said.