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Smoke rises from chemical manufacturing stacks in Hamilton, Ont., in February of 2007.

J.P. MOCZULSKI/J.P. Moczulski/Reuters

Divided by geography but bound by the goal of reducing greenhouse-gas emissions, Quebec is linking with California to set up a cap-and-trade system in the new year, changing the way governments in North America deal with climate change.

Last week the province adopted new regulations that pave the way for full harmonization and integration of the carbon-trading systems in the two jurisdictions.

Quebec becomes the only province to join California in creating a carbon market. Ontario, British Columbia and Manitoba have shown interest in the past but prefer to watch from the sidelines for now. B.C. has instituted a carbon tax.

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The two jurisdictions expect their cap-and-trade system will be harmonized by next spring after California Governor Jerry Brown signs off on Quebec's new regulations as required by state law.

The first joint auction of emission allowances is planned for August 2013. Quebec and California hope to broaden the continental scope of the cap-and-trade system once the carbon market establishes itself as an attractive and even profitable means for companies to reduce emissions.

"Quebec and California have agreed to work together closely so that Canadian provinces and U.S. states join the market. As a result of this agreement, Quebec will be in a position to achieve its emissions targets," said Quebec Environment Minister Yves-François Blanchet.

Quebec remains committed to eliminating greenhouse-gas emissions by 20 per cent below 1990 levels by 2020, a more ambitious target than the one set by California.

"Our two programs share a common objective and we look forward to co-ordinating our work in California with them," Matthew Rodriquez, Secretary for the California Environmental Protection Agency, said in a press release.

"By capping greenhouse-gas pollution and allowing for reductions through tradable allowances, Quebec is helping to create a sustainable path to economic growth," added Mary Nichols, chairperson of California Air Resources Board.

Approximately 85 industrial locations in Quebec belonging to 60 companies will be part of the new cap-and-trade system beginning in January 2013. The carbon emission limits include a combination of free carbon allocations awarded to each company and of allocations to be sold off at auction.

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In 2013 the vast majority of the allocations will be distributed free of charge as part of the phase-in period for industrial polluters. The system will be gradually extended to other sectors, such as transportation, by 2015. Each allocation will correspond to one ton of greenhouse gases. The allocations which will not have been distributed free of charge will be sold at auction at a minimum price of $10 per unit.

Companies which reduce greenhouse gases will be able to either sale their carbon emission allocations at auction or directly to polluters who need to increase their emission limits.

The cap-and-trade system in North America originated from initiatives proposed by the Western Climate Initiative, an organization which included four provinces and more than a half-dozen states sharing a common goal of reducing greenhouse gas emissions. Washington's newly elected Governor Jay Inslee is considering joining the new cap-and-trade system. Australia was also looking at ways at linking its carbon market with the yet-to-be-tested North American experiment.

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