Companies regulated by Quebec’s carbon cap-and-trade program are starting to eye California’s carbon market to hedge their environmental costs as the two governments plan to link systems on Jan. 1.
Quebec companies are starting “to engage the marketplace” as they look to price carbon permits traded as part of the Canadian province’s cap-and-trade system against those in California’s market, Samantha Katz, head of New York-based BGC Environmental Brokerage Services, said. Quebec permits are trading at a “slight” discount to California ones as “regulatory uncertainty” persists before the markets merge next year, she said.
Quebec will become the first to unite carbon markets with California, which started the nation’s first-ever economy-wide cap-and-trade program last year with the intention of opening it up to other jurisdictions to join. The two governments have said the link will accelerate investments in low-carbon technologies and improve liquidity in both markets.
“We’re inside 60 days until Quebec allowances should be equivalent to California carbon allowances,” Katz said at the Platts California Power and Gas conference in San Francisco today. “But there’s still a month and a half remaining of whether or not any roadblock comes into that.”
Some companies regulated by Quebec’s carbon program are already hedging in the California market, Anthony D’Agostino, Royal Bank of Canada’s director of emissions markets in Cincinnati, said by telephone today.
“Some are taking a wait-and-see approach, and some are hedging with California,” D’Agostino said. “The trading is all California. Until they’re fully fungible, until they’re fully linked, there’s not going to be a lot of anything” in the Quebec market, he said.
Futures based on California carbon allowances, each allowing the release of a metric ton of carbon as early as this year, slipped 10 cents to $12, a five-day low, data compiled by CME Group Inc. show. Prices have declined 21 percent this year.
Under the governments’ cap-and-trade programs, a set number of allowances is issued through free allocations and auctions. That pool of permits shrinks over time to reduce emissions, and polluters with more allowances than they need can sell them.
California and Quebec are still testing systems and finalizing procedures before scheduling their first joint auction of carbon allowances, the California Air Resources Board said in an update on the linkage posted on its website Nov. 5.
The two governments are resolving technical issues so they can feed data into a shared system, Mary Nichols, the air board’s chairman, said at the conference in San Francisco.