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California and Quebec announce first joint cap-and-trade auction

September 21, 2014 by Rahul Rana

CaliforniaCarbon.info, September 21, 2014: The California Air Resources Board (ARB) and the Québec Ministry of Sustainable Development, Environment and the Fight against Climate Change (MDDLECC) have announced that their first joint cap-and-trade auction will take place on November 19, 2014.

23,070,987 allowances will be offered for the current auction and 10,787,000 allowances for the advance auction, both auctions will have a reserve price of USD 11.34 or CAD 11.39.

All participants must be registered in the Compliance Instrument Tracking System Service (CITSS) and the auction platform to participate in the auction. Quebec entities will be allowed the option of participating in Canadian dollars. To manage multiple currencies, an Auction Exchange Rate is determined prior to each joint auction. The Auction Exchange Rate (USD to CAD) in effect the day of the joint auction and for financial settlement by auction participants will be determined the business day prior to the joint auction and will be displayed in the Auction Platform. The Auction Exchange Rate (USD to CAD) in effect for the joint auction will be set as the most recently available noon daily buying rate for U.S. and Canadian dollars as published by the Bank of Canada.

There will be two (2) auction participant training webinars presenting the same auction related information, one presented by ARB staff in English and another presented by MDDELCC staff in French, in 1 and 2 October For more details about the Joint Auctions and training webinar click here.

The two jurisdictions officially linked their cap-and-trade systems on 1 January of this year, which allows Californian and Quebec carbon allowances to be used for compliance by entities in either jurisdiction. A linked market provides many benefits, including amongst others a reduced susceptibility to price spikes, lessened avenues for the ‘leakage’ of emissions, increased cost effectiveness, and a commitment to fighting climate change together.

Recent auctions in California and Quebec have stood in stark contrast to each other as current auctions in California have consistently seen bid volumes exceed auctioned totals, whereas in Quebec only one of the four current auctions held to date has cleared, with prices failing to rise above the floor for current vintages. With no immediate compliance surrender deadlines for Quebec entities and a significantly smaller market size, the November auction could present a chance for Californian entities to stock up V2014s before the triennial surrender in November 2015.

However, in the long run Quebec is expected to be a net buyer due to its smaller size (a sixth of California in terms of emissions), steeper targets (aiming for 20 percent below 1990 levels in 2020, versus California’s target of parity), and fewer low-hanging fruit in terms of emission reduction opportunities (95 percent of Quebec’s electricity is generated from hydro). In 2015, after the inclusion of new sectors including transportation fuel distributors, California’s cap rises to 394.5 million MtCO2e, while Quebec’s stands at 65.3 million. With Quebec entities not required to surrender allowances before November 2018 for the second compliance period, it may also be the case that Quebec’s market has yet not revealed its real demand in the current auctions.

For more information regarding this article, please write to contact@californiacarbon.info.

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