A key potential driver in the transition to a zero-carbon world is the carbon trading market. Despite concerns over the efficiency and net emissions reductions generated by the so-called cap-and-trade (C&T) system, the Quebec government remains committed to the program.
Quebec launched its C&T market for greenhouse gas (GHG) emissions in 2013 and then formed a landmark partnership with the state of California in 2014 which effectively linked their trading programs.
The system covers fossil fuel combustion and industrial emissions in power, buildings, transport and industry. The resulting carbon trading market is now the largest in North America, and has generated revenue of over $7.3 billion in revenue for Québec. These proceeds are then reinvested into the provincial economy through financial support to Quebec companies, municipalities, institutions and citizens in their transitions to a low-carbon world.
Today, Quebec, under the auspices of its Carbon Market Division, is undertaking an extensive reevaluation of its existing program. The process involves a series of government-sponsored workshops to solicit input from interested parties as well as the public at large.
Quebec seeks to further harmonize program with California
On June 14, the province's Environment Ministry hosted a joint webinar with the California Air Resources Board (CARB), its California carbon trading partner. During the session, Quebec announced new public consultations to further improve, upgrade and harmonize its trading system together with California's.
Over the next several months, the two governments intend to step up their cooperation by holding a series of public workshops.
Interested parties will be able to offer input into the trading system with the goal of publishing a new draft series of regulations, or legislation, for eventual adoption by the Quebec government by the summer of 2024. The Environment Ministry intends to publish a more detailed calendar of events later this summer.
During the June 14 workshop, Jean-Yves Benoit, director, carbon market division for the Government of Quebec and long-time leader of the province's C&T program, expressed his confidence the current system is achieving its goals and will "remain in force until 2030" and beyond.
"As much as Quebec and California have adopted our own emission reduction targets, the respective trading caps we have set are based on our own emission reduction targets and we can see that for the foreseeable future these (trading caps) will essentially remain the same.
"It all depends on our individual goals . . . and approach we are going to undertake is to ensure that the market remains a tool that allows us to achieve our objectives.
"Our objective is to continue to consult on the different elements (of the C&T program). We are going to hold another webinar that will deal with the issue of offset credits during the autumn to get additional feedback."
C&T seen as effective means of reducing carbon emissions
For Quebec, the establishment of a pricing framework for carbon is considered an essential element in its stated objective of lowering GHG emissions.
The Quebec-California carbon trading market is the largest in North America and represents a joint effort to incentivize corporations to adopt new technologies and encourage consumers to change their behaviour to decarbonize the environment.
Quebec has been a prime mover in Canada in the fight against global warming, which it regards as a both a legislative priority and a duty. Revenue generated by its carbon program is deposited into the Electrification and Climate Change Fund. This revenue is then reinvested back into the industrial and corporate infrastructure to accelerate the transition to a low-carbon economy.
Quebec adopted a GHG emission reduction target below 1990 levels of 37.5 per cent by 2030. As announced in its 2030 Plan for a Green Economy, the government has made a commitment to achieve carbon neutrality by 2050.
California system running in parallel
California has deployed a C&T system similar to Quebec's. The basic trading mechanism is "standard auction economics," consisting of a price floor, different pricing tiers, and a safety ceiling in the event the market starts overheating, especially in the event of price manipulation. Thus far, the state has not needed to intervene due to market rigging.
Due to the increased volumes and clearing prices, California has seen a steady increase in the total intake of its Greenhouse Gas Reduction Fund, which has passed the $20 billion mark.
The California fund, like Quebec's, disburses its carbon market process towards local economic development and environmental protection. To date, it has supported over half-a-million individual projects across the state which have demonstrated a measured reduction in GHGs. Many of these projects are deployed at the small business and household levels.
The greenhouse gas accounting metric also provides a transparent method of calculating dollars-per-ton reductions due to various measures in which the state has invested.
This accounting step has been a tremendously valuable asset in creating political support and economic activity within the context of California's greenhouse gas reduction strategy, which has enabled the state to link the compliance obligation to an investment opportunity public policy can help direct.
Preventing carbon trading market manipulation
One controversial topic during the June 14 workshop was the issue of preventing companies from using credit allowances to manipulate pricing. Mark Sippola, who oversees the implementation of the California Cap-and-Trade Program, was quick to stress his department is actively monitoring this possible market distortion.
"We do have some existing measures in the joint market that are there to protect the market from manipulation," he said. "These mechanisms exist so we know who's operating in the market, we know who's holding allowances, and we know who's making decisions regarding the holding and trading of allowances to protect against manipulation.
"As we see the market evolve, we just need to make sure that we have the right tools and that these tools are strong enough to adequately monitor and protect the market from any manipulation. We have teams in both jurisdictions, in California and Quebec, working together to assess the market because it's important that the markets are co-ordinated and that all participants are playing by common rules in both jurisdictions."
One of the principal areas of convergence between Quebec and California lies in the commitment to ensuring the carbon trading market continues to grow and generate measurable reductions in carbon emissions.
"The review that we (Quebec and California) are conducting at present is to make our market more efficient, creating a well-functioning market that will attract new partners," Sippola concluded. "This will be an important step in the fight against climate change."