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California and Quebec carbon dioxide emissions

Hydrocarbon Engineering,


California and Quebec have announced the completion of a second joint CO2 allowance auction through the cap and trade system. The completion, despite distance and economic differences has worked to align the CO2 emissions markets and polices of the two regions. Previous auctions sold emissions allowances for electric generators and large industrial sources. The most recent auction was held last month and includes allowances for the transportation sector, covering wholesale gasoline suppliers.

The program

The California and Quebec program is the first international carbon allowance program to be enacted at a subnational level. Similar programs in Europe were the first to establish markets across several countries and were also the first to cover certain transportation components. Three factors widely cited as driving expectations among participants in the joint auction are:

  • Persistent carbon allowance surpluses in both the California and Quebec markets.
  • The likelihood that, given the divergence between the two economies, Quebec will be a perennial buyer from California.
  • Coverage of both programs widens in 2015 to include the transport fuels under the cap, creating additional uncertainty as to which way falling oil prices will affect carbon demand.

The results from last year’s auctions suggest how perceptions of linked markets have converged in the most recent auction.

CO2 levels

In 2013, California had established an emissions cap of 162.8 million t of CO2, but ultimately emitted approximately 11% less, leading to a surplus of 17.8 million t in allowances. Another 1.7 million offsets were certified, potentially expanding the surplus. Final data for 2014 is not yet available, however leading indicators suggest another year of surplus. In order to reduce emissions, California’s cap declines by 2%, but based on data from the EIA, total retail electricity sales fell over 3% on a year to date basis through November 2013. Similarly, Quebec reported CO2 emissions from affected sources of 17.7 million t for 2013, approximately 6% lower than the usual annual 18.9 million t budget, netting a 1.2 million allowance surplus.

The EIA has said that California is likely to have more low cost CO2 reduction opportunities than Quebec. In the electric power sector, nearly 95% of Quebec’s generation is from non-emitting sources, while only 39% of California’s generation is from non-emitting sources. Both programs have similar targets, but California is seeking just one third of that total from its cap and trade program, with the remainder from complementary measures such as the renewables portfolio and low carbon fuel standards, Quebec reportedly intends to meet its goals relying purely on the cap and trade program.

Cap and trade

Setting the cap and trade program with gradual reduction requirements needs the maintenance of a delicate balance. The EIA has said that if economic conditions vary markedly from expectations, prices can fluctuate significantly. In order to avoid price collapse, the designers of the California/Quebec auction set a minimum bid, or reserve price, that will be accepted in each auction. Therefore, in a typical year at the outset of a new program, the total number of allowances auctioned would be set slightly below the level of actual emissions in previous years.

As an example, the allowances allocated for the fuels sector in 2015 are in the range of recent historical emissions: California reported 204 million t of transportation emissions in 2013, and the state set its 2015 emissions cap at 198 million t of CO2. Similarly, in Quebec the 2013 emissions from the transport sector were 36 million t, with 40 million t allowance allocated for this year.

The auctions

Emissions allowances in both California’s and Quebec’s auctions have often sold at or very near the reserve floor price. This was not always the case as in the first few auctions in California, below normal hydroelectric conditions and the unexpected loss of a nuclear plant helped increase demand for emissions allowances, pushing prices up to US$14/t of CO2 by the auction that was held in May 2013. However, since then, actual emissions have fallen faster than expected, decreasing the need for allowances, and allowances were sold at or just above the market reserve price.

The first Quebec auction was held in November 2013. Initially, insufficient bid interest meant that just over one third of the first allowances were sold, and the price cleared at the auction reserve floor prices. With the announcement of the joint auction schedule, bid interest increased so that in all but one instance, all of the allowances were sold, clearing at the reserve floor price.


Edited from press release by Claira Lloyd

Read the article online at: https://www.hydrocarbonengineering.com/the-environment/12032015/quebec-california-emissions-auctions/

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