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California Cap and Trade Goes International

New pact with Quebec means credits can be traded between the two regions.

by Brian Leubitz

California's cap and trade system is still in its big growth phrase after its relatively recent launch. Now the CA Air Resources Board (CARB) is looking to extend the reach of the market with a new deal with the Canadian province of Quebec.

With California Air Resources Board (CARB) approving linkage between California and Quebec's cap-and-trade programs today, these two programs will now be able to trade emissions allowances across borders starting in 2014.  CARB's action comes on the heels of Governor Brown's recent decision to approve the linkage, which will increase the size of California's cap-and-trade market by 20 percent. More importantly, linkage will boost California's clean energy economy by creating a broader market for innovative, low-carbon technologies.  The linkage is also a shot in the arm for global efforts to cut greenhouse gas emissions, and it sends a positive signal to other jurisdictions that are working on building their own carbon markets and might ultimately seek to join with California and Quebec. (EDFBlog)

While California's economy is obviously much larger than Quebec's this deal could be the start of something much bigger. If successful, the market expansion could continue by adding additional states to the system. Former Gov. Gray Davis and Former Quebec Prime Minister had some thoughts on the linkage deal as well:

The strength of this partnership is not limited to the two jurisdictions alone, however. Its real strength is that the partnership creates a path for future partners to follow. Already, other U.S. states and Canadian provinces are watching carefully and beginning to talk about joining this movement. In addition, there are now discussions with Australia, the cap-and-trade program in the Northeast U.S., and the European Union.(Globe & Mail)

Now, the viability of the carbon market at all is still an unsettled question. A carbon tax would still probably be a more efficient mechanism while reducing speculative profits. However, cap and trade is what we have right now, and further growth and linkage of the markets will undoubtedly make the program more effective.