California-Ontario-Québec Harmonized Cap-and-Trade Program - Compliance Digest

December 08, 2017

In this edition of the Compliance Digest, we cover the linkage of the California, Ontario, and Québec cap-and-trade programs that takes effect on January 1, 2018.

Agreement on the Harmonization and Integration of Cap-and-Trade Programs for Reducing Greenhouse Gas Emissions

What is it?

On January 1, 2018, the cap-and-trade programs of California and the Canadian provinces of Ontario and Québec will be linked, following an agreement reached on September 22, 2017. The linkage will create the largest carbon allowance market in North America.

Ontario and Québec together include approximately 62% of the Canadian population, and account for roughly 58% of Canada’s GDP. California includes approximately 12% of the U.S. population and accounts for roughly 14% of the country’s GDP. Ontario’s carbon market is about 40%-50% the size of California’s market, while Québec’s is 15% of California’s.

The California and Québec cap-and-trade programs have been linked since January 1, 2014, and Ontario will be added to the harmonized program on January 1, 2018. Covered entities include oil refineries, power plants, natural gas and transportation fuel distributors, and other large sources of emissions.

The other cap-and-trade program in North America is the Regional Greenhouse Gas Initiative (RGGI) that includes Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont. New Jersey and Virginia are also taking steps to join RGGI.

What are the main provisions of the linkage?

  • All allowances issued by the California, Québec and Ontario programs before the linkage will be recognized by all three programs. Each California allowance, Québec emission unit, and Ontario allowance represents one metric ton of carbon dioxide equivalent and can be used for compliance in each program.
  • The allowances issued by California, Québec and Ontario before and after linkage will be indistinguishable from one another. All allowances can be used for compliance interchangeably across jurisdictions.
  • As of January 1, 2018, an entity in any one of the three jurisdictions will be able to purchase allowances issued in a linked jurisdiction on the secondary market, for example through bilateral transactions.
  • The first Joint Auction with all three jurisdictions is scheduled for February 21, 2018.

More Information

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