California, Quebec and Ontario push forward with cap-and-trade program

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Canadian and U.S. political leaders vowed to press ahead with a joint cap-and-trade program involving California, Quebec and Ontario despite what some fear are mounting legal and political hurdles to establishing North American carbon market.

California and Quebec already hold joint auctions for carbon allowances as part of the Western Climate Initiative. Ontario, which launched a cap-and-trade program earlier this year and held its first auction in March, has pledged to link up with California and Quebec next year. The cross-border program is also seen as a critical plank in the Canadian government's push for a national carbon-pricing plan to meet its target of reducing greenhouse gases by 30 per cent below 2005 levels by 2030.

But the program has been beset by political and financial uncertainty.

Since the start of last year, several of the quarterly California-Quebec auctions have failed to sell out, sending prices of allowances plunging and leaving an estimated $143-million (U.S.) in unsold carbon allowances.

Concerns around the future of the joint auction were fuelled partly by a legal challenge from California business groups, which accused the state's cap-and-trade system of being an illegal tax. While the state won a court victory earlier this month, opponents say they intend to appeal the decision to the state's Supreme Court.

More urgently, California Governor Jerry Brown must also win a battle with his state's legislature to extend California's cap-and-trade program beyond 2020.

Meanwhile, Ontario is heading into an election next year in which the opposition Progressive Conservatives have vowed to do away with cap-and-trade.

The election of avowed climate skeptic Donald Trump as U.S. President has only added to the uncertainty surrounding the expansion of a North American carbon market.

In a meeting of political and business leaders and climate scientists in San Francisco on Wednesday, Ontario Environment Minister Glen Murray said his government is working hard to ensure that the province's cap-and-trade system can't easily be scrapped. "I didn't get elected and appointed to cabinet [to do] something in a way that someone could undo it after," he said. "Once this is done, it's time to get on with it."

Linking Ontario and Quebec's cap-and-trade program to that of California, among the largest economies in the world, "will eventually force a market into North America," Mr. Murray said.

Mr. Brown, who needs to win two-thirds support from legislators to renew California's cap-and-trade program, vowed to continue to push an aggressive climate-change agenda in his state. "We're not waiting for congress, we're not waiting for the President, we're going to do everything we can now," he said.

Canadian Environment Minister Catherine McKenna, in town to press the case for the importance of Canada's trade relationship with the United States, met with Mr. Brown, signing onto the Governor's Under2 Coalition of governments pledging to limit the rise in the average global temperature to less than 2 C. She said she has "full confidence" that the California Governor can strike a deal to extend the state's cap-and-trade program.

"He's going to have to work hard to get the buy-in that he needs, but I think he's confident that he will," she said in an interview. "He's a very experienced politician and I think there's a really good case that working together is going to be the way we are going to tackle climate change and the cap-and-trade system is an important part of it."

Ms. McKenna played down the threat that Mr. Trump's anti-climate rhetoric could pose to Canada's ambitious carbon-reduction targets, emphasizing the growing role that provinces, states and local municipalities are playing in pushing aggressively to lower carbon emissions in their communities and across borders.

"We're willing to be partners with whoever is going to take serious action on climate change," she said. "I'm going to keep making the case that there is a real economic opportunity that climate action brings, that we are creating good jobs right now in renewable, in clean energy, innovation and that's what governments want."