Linking emissions trading systems

– some basic notions

Constanze Haug, Head of ICAP Secretariat

Workshop “Transparency and Linking in a New Climate Regime”

Zürich, 9 March 2016

Why link?

• Political benefits: common effort signal to

address climate change

• Economic benefits:

• increased market liquidity

• increased efficiency through a larger

number of abatement options

• reduction in competitiveness distortions

• Issues to consider: maintaining

environmental integrity in a linked market,

close regulatory coordination, resource flows

International Carbon Action Partnership 2

Types of linking (1) – direct linking

International Carbon Action Partnership 3

Intended EU-Australia link

(first phase)

California-Québec, EU-

Switzerland (planned)

(RGGI)

California-Québec-Ontario

(planned from 2020)

Types of linking (2) – indirect linking

International Carbon Action Partnership 4

EU-New Zealand (through

CDM/JI)

Full vs. restricted linking

-> Restricted linking reduces potential pitfalls, but also benefits

compared to full linking

-> needs less design harmonization

-> provides adjustment levers and off-ramps should linking

concerns prove significant (“moving in” rather than “getting

married”)

-> may have merit as a transitional approach to full linking

International Carbon Action Partnership 5

see Lazarus et al. (2015)

Full linking

Unrestricted mutual

unit recognition &

fungibility

Restricted linking

Partial or conditional unit

recognition: quotas,

exchange rates, discount

rates)

Building a global carbon market from

the bottom up

• First practical linking experiences gained

• So far only ‚full‘ links between systems, but alternatives are

imaginable

• What may facilitate linking

International Carbon Action Partnership 6

• Long-standing cooperation, intense

dialogue and trust between systems

• A robust international accounting

framework

• Work on standard-setting, ‚model rules‘

for future linkages

• ICAP sees linking primarily as a matter of

negotiation between ‚sovereigns‘

Resources on linking ETS

International Carbon Action Partnership 7

Linking as ongoing theme in

ICAP technical dialogue: 2

workshops to date, working

group on linking ETS

International Carbon Action Partnership 8

Thank you for your attention!

www.icapcarbonaction.com

constanze.haug@icapcarbonaction.com

@ICAPSecretariat

Linking Quebec and

California C&T Programs :

the WCI Regional Carbon

Market

Transparency and Linking in a

New Paris Regime

World Bank’s Networked Carbon

Market

March 9, 2016

The Western Climate Initiative

Partners

• California

• British Columbia

• Manitoba

• Ontario

• Québec

WCI Objective

Comprehensive approach to address

climate change and reduce regional

GHG emissions: C&T program and

complementary policies

The Western Climate Initiative

WCI provides a common set of rules:• Draft Design Recommendations (2008): Scope, cap setting, ...

• Reporting Guidelines and Protocols (2008, 2009, 2010)

• Detailed Program Design (2010): Model Rule

• Offset System Essential Elements (2010): Recommendation paper on Offset Criteria

• All decisions were made by concensus : flexible design

WCI Inc. provides common infrastructure:• Registry (Tracking System)

• Auction Platform

• Market Monitoring Services

• Help Desk

• Etc.

QC’s Implementation Schedule

• Québec joins the Western Climate Initiative (April 2008)

• Cap-and (Bill 42, 2009)

– Environmental Quality Act, section VI, paragraphs 46.1 to 46.18

• 2020 Mitigation goal (Executive Order no1187-2009)

• Regulation respecting a cap-and-trade system for greenhouse gas emission allowances (2011, 2012, 2013)

• Regulation respecting mandatory reporting of certain emissions of contaminants into the atmosphere (2011, 2012, 2013)

• Linking Québec and California markets : January 1st, 2014

• WCI makes linking easier…Common set of rules

– Draft Design Recommendations (2008) : Scope, Cap Setting, ...

– Reporting Guidelines and Protocols (2008, 2009, 2010)

– Detailed Program Design (2010): Model Rule

– Offset System Essential Elements (2010): Common Criteria

• … but not that easy!

Review and harmonize regulations

– Compare regulation “section by section” and “line-by-line” : what has to be identical, what needs the same outcome, what can be different

– Amend existing regulations based on findings

Linking QC-CA carbon markets

• WCI Inc makes linking easier…Common infrastructures and service providers

– Tracking System (SRA)

– Auction Platform (Markit)

– Financial Service Administrator (Deutsche Bank)

– Help Desk (ICF International)

– Market Monitor (Monitoring Analytics)

• … but again not that easy!

– Compare Procedures “Step-by-Step”

– Develop New Common Procedures

– Update/Modify infrastructures to support linking

Linking QC-CA carbon markets

Expanding the WCI Carbon Market

• Ontario– Summer 2015: Announcement and signing of a MOU between QC and ON

– Draft Regulation and Legislation: February 2016

– Final Regulation and Legislation: Expected Summer/Fall 2016

• Manitoba– Fall 2015: Announcement in Paris and signing of a MOU between QC, ON and MB

• Washington State – Draft Regulation published in January 2016 (removes early March, to be

reintroduced in the summer of 2016)

– « Direct Cap and Partial Trade » program

– One way, partial linking: Recognize, for compliance in Washington State, the retirement of RGGI and WCI compliance units.

Québec-California Carbon Market

Some Results

Comprehensive and Flexible Approach

To Address Climate Change

• WCI Cap-and-Trade Program: Flexibility for Governments and

Covered Entities

– Price signal: Allows for covered entities to choose how and when to

invest and/or innovate

– Allocation to address competitiveness and economic impacts

• In Québec: All revenues go to the Green Fund and are dedicated

to fight climate change

• 2020 Climate Action Plan: 3.3 billion dollars over 8 years

Scope of the Cap-and-Trade Program

• All six GHG covered under the Kyoto Protocol plus NF3

• Since January 1st, 2013– Electricity generation, including that produced outside QC and CA

– Emissions from combustion and industrial processes

– Threshold: 25,000 tonnes of CO2eq. per year

• From January 1st, 2015– Electricity generation, including the one produced outside QC and CA

– Emissions from combustion and industrial processes

– Fuel distribution

– Threshold: 25,000 tonnes of CO2eq. per year

• Broad scope: covers about 85% of total GHG emissions

• Price containment mechanisms (minimum auction price, etc.)

• Prevent market manipulations (holding limit, purchase limit, etc.)

Successfull 1st Compliance Period

Québec California

Covered entities 55 263

GHG emissions to cover (MMT) 36 664 703 291 211 108

Surrrended compliance

instruments 36 664 703 290 708 577

Percent surrendered 100% 99,8%

First Compliance Period (2013-2014)

Auction Revenues

Auction Date Quebec (M$CAD) California (M$USD)

1 Q4-2012 - 55,76

2 Q1-2013 - 83,92

3 Q2-2013 - 117,58

4 Q3-2013 - 138,49

5 Q4-2013 29,38 136,80

6 Q1-2014 26,42 130,71

7 Q2-2014 26,78 71,14

8 Q3-2014 24,48 98,74

J1 Q4-2014 34,69 135,98

J2 Q1-2015 191,24 629,52

J3 Q2-2015 217,31 626,53

J4 Q3-2015 207,02 645,33

J5 Q4-2015 214,62 656,78

J6 Q1-2016 Results Tomorrow Results Tomorrow

Total: 971,94 3 527,28

Auction Revenues

Derivatives and Auction Prices

Thanks!

More info : www.westernclimateinitiative.orgwww.wci-inc.orgwww.mddefp.gouv.qc.ca/changements/carbone/index.asp