California Carbon Advances After Governor Approves Quebec Link

California carbon futures rose to the highest price in almost three weeks after Governor Jerry Brown approved a proposal to link the state’s greenhouse-gas program with one in Quebec.

The regulation behind carbon markets in Quebec and California are “similar or identical” enough to be linked, Brown said in a letter posted on his website late yesterday. State law requires the governor’s approval before the state Air Resources Board links carbon systems with any jurisdiction. The board is scheduled to consider regulation April 19 to join systems with Quebec beginning Jan. 1, 2014.

Futures based on California carbon allowances for 2014 gained for the first time in three days, rising 15 cents to $14.70 a metric ton, the highest since March 21, according to data compiled by Chicago-based CME Group Inc. (CME) Prices have fallen 8.7 percent this year.

“The announcement could be mildly bullish due to the fundamental upside a linkage would provide,” Thomas Marcello, a Bloomberg New Energy Finance analyst, said in a research note today. “We do not expect speculators to take long-term positions based on the announcement. Instead, price reaction is likely to be both short-lived and limited in scale.”

The air board’s staff has said a link with Quebec would improve market liquidity for carbon allowances by increasing the pool of both permits and companies trading them. The reduction in greenhouse-gas emissions achieved by combining the two programs would also be larger than cuts through a California- only system, the agency said in a report last year.

Quebec Link

The link to Quebec may raise California carbon allowance prices from 2013 to 2020, depending on how many offset credits the Canadian province is able to generate, said Marcello, based in New York. Should Quebec supply less than 23 million tons of credits, average annual prices will probably increase by 15 percent compared with a California-only market, he said.

California’s air board is considering changes to the cap- and-trade program this year that would, among other things, clarify the type of interstate power sales banned by the program and alter the number of free carbon allowances allocated to companies such as oil and gas producers, according to a notice posted on the agency’s website today.

Senator Barbara Boxer, a California Democrat, and Representative Edward Markey of Massachusetts, the top Democrat on the House’s natural resources panel, asked the Nuclear Regulatory Commission to delay a decision on the restart of Edison International (EIX)’s San Onofre nuclear power plant in Southern California until an “expansive investigation and safety review” are complete. In a letter dated today, Boxer and Markey asked the commission to respond to their request by tomorrow.

Power grid operator California ISO has turned to more emissions-intensive, gas-fired power generation in the nuclear plant’s absence.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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