California and Quebec near Agreement trading Carbon Permits

California and Quebec Near an Agreement for Trading of Carbon Permits

By FELICITY BARRINGER

Published: May 9, 2012

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SAN FRANCISCO — California and Quebec moved to knit together their fledgling carbon markets on Wednesday as California proposed a new regulation allowing cross-border trading of the permits that industries must acquire to cover their emissions of greenhouse gases.

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It is the first cross-border carbon trading system created since 2005, when the European Union introduced such a trading network to help it meet emissions limits set by the Kyoto Protocol, a treaty that went into effect that year.

For advocates of market-based systems, the linking of the two systems is a significant step forward. But the move, involving just one state and one province, underscores the incremental and scattershot way that governments are generally adopting regulations to slow climate change.

A cap and trade system sets an overall ceiling on the emissions and issues pollution allowances to industries. Companies that do not use all their allowances can sell their surplus to companies that need allowances. That gives flexibility to high-emitting industries like steel and cement manufacturers as they make the transition.

Financial services companies like Goldman Sachs are also poised to take part in the new markets.

Other existing carbon markets are not thriving at the moment. The prices for permits on the European carbon market, which had long hovered around 15 euros (nearly $20) a ton, dropped to about 7 euros a ton late last year and have remained in that range.

Two economists at the German Institute for Economic Research argued recently that the low prices reflect the stockpiling of permits by industry with the expectation that they will be worth more later.

In the most recent permit auction by the Regional Greenhouse Gas Initiative, a consortium of Northeast and mid-Atlantic states, 63 percent of available allowances sold for only $1.93 a ton.

Yet Mary D. Nichols, the chairman of the California Air Resources Board, said in an interview that the pending alliance with Quebec represented “a major expansion” of the state’s program.

The board has spent nearly six years drafting and tweaking the rules for California’s pathbreaking carbon market. “We now will be able to show how it is truly possible to do linkage” with other markets, she said.

The Western Climate Initiative, whose members include Quebec and California, was created to pave the way for this kind of partnership. British Columbia, also a member, is expected to become a formal part of the trading system in a few months. Ms. Nichols said she was also planning a trip to Australia to discuss whether its new emissions trading program could be compatible with California’s.

South Korea and Mexico have also passed laws creating similar markets.

There is no immediate sign that other states want to join the California-Quebec system, but Ms. Nichols suggested that such linkages would continue to spread. Even if no national program in the United States allowing such trading emerges in the next five years, she predicted, “we will have a much larger fabric of states and provinces working together.”

Quebec’s minister for sustainable development, Pierre Arcand, also predicted that the program would grow. “The cap and trade system is acknowledged as one of the most efficient and least costly economic tools available to reduce GHG emissions,” he said in reference to greenhouse gases.

While California’s program officially took effect in January, emissions limits will not be enforced until 2013.

This article has been revised to reflect the following correction:
Correction: May 10, 2012

An earlier version of this article, as well as its headline and summary, suggested that the trading system had been established, rather than proposed. end quote from:
http://www.nytimes.com/2012/05/10/business/energy-environment/california-and-quebec-to-allow-cross-border-trading-of-emissions-permits.html

It looks like states  Quebec in Canada and the U.S. through California and other progressive states throughout the world are setting up their own carbon trading systems. This can only help the world in regard to cleaner air, cleaner water etc.