On Friday, Ontario signed an agreement with California to enter its joint carbon cap and trade market with Quebec, from 1st January 2018.
The agreement will allow the three states to use carbon allowances issued by any of the participant Governments interchangeably, and to hold joint carbon auctions.
The initiative is expected to increase liquidity, meaning that it will be easier for participants to find a trading partner to purchase or sell carbon allowances.
It will also provide access to lower cost reduction opportunities, which will lower the cost of compliance for the companies in all three states.
California has already been holding joint cap-and-trade auctions with Quebec since 2014, and Ontario’s integration is being planned for months.
Ontario has been running its own cap-and-trade since January 2017, and has already completed three sold out auctions in a row.
When Ontario launched the first auction in March 2017, it revealed that it expected that the programme could raise $1.9 billion per year.
The money raised from the cap-and-trade programme will be invested in projects that reduce carbon emissions, such as home and business energy efficiency retrofits and public transit.
Kathleen Wynne, Ontario Premier said: “I think we cannot really overstate how important it is that we, as large jurisdictions, play a leadership role and that, as we move forward, we work to bring other jurisdictions with us”.
In December 2016, the Canadian Federal Government issued the Pan-Canadian Framework on Clean Growth and Climate Change, which requires all jurisdictions to have a carbon pricing in effect by 2018, whether it is through a carbon tax or a cap-and-trade system.
According to Canadian media, Nova Scotia plans to introduce legislation for a cap-and-trade system during this autumn and the rest of the provinces are considering their options.
Philippe Couillard, Quebec Premier said on Friday: “We have joined this carbon market because we believe that this is the best plan, that it is the cheapest way to reduce greenhouse gas emissions and that it is the best way to do that”.
Jerry Brown, California Governor underlined once again the importance of climate action from subnational governments.
He said: “Currently we are not following a climate agenda in Washington and at the highest levels in America, but at the grassroots, at the state level there is a very powerful movement growing by the day to take the steps necessary to make sure that our planet, that our organized civilization endures, and not only endures, but prospers because we align ourselves with nature”.
Ontario’s Opposition Progressive Conservative leader Patrick Brown has stated that if he wins the next elections, he will dismantle the cap-and-trade programme, and he will introduce carbon taxes instead.
He said: “The cap-and-trade scheme makes Ontario less competitive and if it was really about the environment it would not be a revenue tool for government”.
The carbon tax initiative would be carbon neutral by providing rebates of some combination of income tax, sales tax, or small business taxes.
Kathleen Wynne answered that carbon taxes would cost families four times the cost for the cap-and-trade programme.
You can access the full agreement here.