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 2 International Carbon Action Partnership
Types of linking (1) – direct linking Intended EU-Australia link (first phase) (RGGI) California-Québec-Ontario (planned from 2020) California-Québec, EU- Switzerland (planned) 3 International Carbon Action Partnership
Types of linking (2) – indirect linking EU-New Zealand (through CDM/JI) 4 International Carbon Action Partnership
Full vs. restricted linking Restricted linking Full linking Partial or conditional unit Unrestricted mutual recognition: quotas, unit recognition & exchange rates, discount fungibility rates) -> 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 see Lazarus et al. (2015) 5 International Carbon Action Partnership
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 • 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 ‘ 6 International Carbon Action Partnership
Resources on linking ETS Linking as ongoing theme in ICAP technical dialogue : 2 workshops to date, working group on linking ETS 7 International Carbon Action Partnership
Thank you for your attention! www.icapcarbonaction.com constanze.haug@icapcarbonaction.com @ICAPSecretariat 8 International Carbon Action Partnership
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 n o 1187-2009) • 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
Linking QC-CA carbon markets • 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
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 CO 2 eq. 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 CO 2 eq. 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 1 st Compliance Period First Compliance Period (2013-2014) 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%
Auction Revenues 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
Derivatives and Auction Prices
Thanks! More info : www.westernclimateinitiative.org www.wci-inc.org www.mddefp.gouv.qc.ca/changements/carbone/index.asp
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