California Adopts Regulation to Link Carbon Markets With Quebec

California, the world’s ninth-largest economy, adopted rules to link carbon markets with the Canadian province of Quebec, a move that will allow companies to trade emissions allowances across the border.

The California Air Resources Board approved changes to the state’s cap-and-trade regulation that align its carbon system with that of Quebec and clears the way for links to other governments in the future. Governor Jerry Brown approved the connection with Quebec last week, saying the province’s program was aggressive enough with its emissions targets and designed similarly enough to work in tandem with California’s system.

California and Quebec are linking even as the emissions-trading system across the European Union falters. EU carbon allowance prices dropped to a record low April 17 after lawmakers voted against a plan to ease a supply glut and resuscitate the world’s biggest emissions market.

California’s approval of the link to Quebec “marks the culmination of almost five years of work and coordination between our two jurisdictions,” Mary Nichols, chairman of California’s air resources board, said in an e-mailed statement before the vote in Sacramento today. “It is a clear recognition that the danger we face in climate change -- the danger that we are even now experiencing in a multitude of ways -- rises above national, state or provincial boundaries.”

Expand Investments

The board’s staff has said a link with Quebec would expand investments in low-carbon technologies, many of which are being developed in California, and improve market liquidity for carbon allowances. The move would also achieve higher greenhouse-gas emissions cuts, the staff said in a report last year.

Futures contracts based on California carbon allowances for 2013 fell 10 cents, or 0.7 percent, yesterday to $14.50 per metric ton, according to data compiled by Chicago-based CME Group Inc. Prices reached a one-month high of $14.85 a metric ton on April 15.

Under California’s program, the state is capping emissions from power generators, oil refineries and other industrial plants and cutting that limit gradually to reduce emissions to 1990 levels by 2020. The system will eventually regulate 85 percent of the greenhouse gases released in California.

Quebec plans to reduce emissions to 20 percent below 1990 levels by 2020 with its cap-and-trade program, which applies to about 75 companies in the province.

Regulators in both jurisdictions are issuing carbon allowances, each permitting the release of 1 metric ton, through a combination of free allocations and auctions. Companies must turn in carbon permits to cover their emissions, and those with more allowances than they need can sell or trade the excess.

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