DOSSIER: Western Climate Initiative (WCI)

Published 18:30 on September 1, 2016  /  Last updated at 22:24 on November 9, 2018  /  Conversations, Dossiers  /  No Comments

This dossier gives an overview of WCI’s cap-and-trade programme, including recent price and trading developments, political and legal updates, details on expansion beyond the WCI’s initial participants California and Quebec and potential new members. It also features a summary of key elements by the International Carbon Action Partnership (ICAP).

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Summary (ICAP)

ICAPlogoSummary provided by the secretariat of the International Carbon Action Partnership (ICAP), a multilateral forum working on carbon markets. For more information, visit ICAP’s website.  Copyright © ICAP and reproduced with permission.

 

California

General information:

Initiated in 2012, the Californian cap-and-trade program entered into force on 1 January 2013. As a key component of Californian climate policy, the program will help the state meet its mandate of reducing GHG emissions to 1990 levels by 2020 and achieving an 80% reduction from 1990 levels by 2050. California formally linked its system with that of Québec’s on 1 January 2014 and with Ontario on 1 January 2018. In 2017, legislation (Assembly Bill (AB) 398) was passed to extend the cap-and-trade program until 2030 to help achieve Californiaʼs climate goals.

Background information:

Compliance in the Californian Cap-and-Trade system is mandatory for entities of covered sectors which are captured by the inclusion threshold.

There is an absolute cap at 358.3 MtCO2e (2018) that will be reduced stepwise to 193.8 MtCO2e by 2031.

Total emissions and proportion covered:

440.4 MtCO2e (2015) (~85%)

Liable entities:

450 (2015-2017)

Sector coverage:

Downstream: Industry, power

Upstream: Buildings, transport

Gas coverage:

CO2, CH4, N2O, SF6, HFCs, PFCs, NF3 and other fluorinated GHGs

 

Allocation:

Auctioning (70% in 2017) and free allocation (30% in 2017)

 

Offsets and credits:

Domestic1

1California accepts domestic US offsets, as well as units recognized under the Québec and Ontario Cap and Trade program.

 Phases and compliance periods:

First compliance period: 2013-2014

Second compliance period: 2015-2017

Third compliance period: 2018-2020

*Fourth compliance period: 2021-2022

*Fifth compliance period: 2023-2024

*Sixth compliance period: 2025-2027

*Seventh compliance period: 2028-2029

*Eighth compliance period: 2030-2031

 

* If U.S. EPA has not approved California’s plan for compliance with the Clean Power Plan by 1 January 2019, then the fourth compliance period starts on 1 January 2021 and ends on 31 December 2023, and each subsequent compliance period will be three years long.

A compliance period lasts three calendar years (after a first compliance period of two years).

Allowances for emissions of the whole compliance period must be surrendered by 1 November (or the first business day thereafter) of the year following the last year of a compliance period.

Temporal flexibility

Banking is allowed but the emitter is subject to a general holding limit.

Borrowing across compliance periods is not allowed.

Provisions for price management:

Auction reserve price: USD 14.53 in 2018 per allowance. The auction reserve price increases annually by 5% plus inflation, as measured by the Consumer Price Index.

Allowance Price Containment Reserve: allowances will be allocated from various budgets (1% from budget years 2013-2014; 4% from budget years 2015-2017; and 7% from budget years 2018-2020).  AB 398 requires two-thirds of the reserve allowances that remain on December 31, 2017 to be used to populate the two price containment points starting in 2021.

Linking:

California linked with Québec’s ETS on 1 January 2014. The two extended their joint market by linking with Ontario on 1 January 2018.

For further information, visit the ICAP ETS Map.

 

Quebec

General information:

Québec’s cap-and-trade program for greenhouse gas (GHG) emissions was introduced in 2012 with a transition year in which emitters could prepare and familiarize themselves with the program without mandatory compliance. The program’s enforceable compliance obligation began on 1 January 2013. Compliance periods are three years long.

Québec has been a member of the Western Climate Initiative (WCI) since 2008 and formally linked its system with California on 1 January 2014 and with Ontario on 1 January 2018.

The target of the program is to reduce GHG emissions by 20% from 1990 GHG levels by 2020 and by 80-95% by 2050.

Background information:

Compliance in the Québec Cap-and-Trade system is now mandatory for entities of covered sectors which are captured by the inclusion threshold.

The system absolute cap is at 58.96 MtCO2e in 2018, which is reduced linearly to 54.74 MtCO2e by 2020.

 

Total emissions and proportion covered:

82.1 MtCO2e (2014) (85%)

Liable entities:

132 (2017)

Sector Coverage:

Downstream: electricity, industry,

Upstream: transport, buildings.

Gas coverage:

CO2, CH4, N2O, SF6, HFC, PFC, NO3 and other fluorinated GHGs

Allocation:

Free allocation & auctioning

Offsets and credits

Domestic1 

1Québec accepts offset credits from projects in Quebec as well as units recognized by the Californian Cap and Trade program.

 

Phases & Compliance periods:

First compliance period: 2013-2014
Subsequent compliance periods: three calendar years as of 1 January 2015 (2015-2017, 2018-2020, and so forth)

Allowances must be surrendered by 1 November following the end of the compliance period.

Temporal flexibility:

Banking is allowed but emitters are subject to a general holding limit.
Borrowing is not allowed.

Provisions for price management:

Minimum auction (reserve) price for joint auction with California and Ontario in 2018: The highest of Québecʼs (CAD 14.35; USD 18.63), Ontarioʼs (CAD 14.68; USD 19.05) or Californiaʼs (USD 14.53) annual price; increasing annually by 5% plus inflation until 2030.

Allowance Price Containment Reserve: Reserve emission units held in the Allowance Price Containment Reserve account may be sold at CAD 53.37 (USD 69.27), 60.04 (USD 77.93), 66.71 (USD 86.59)/t CO₂e in 2018.

Only covered entities in Québec are eligible to purchase allowances from the Reserve, as long as they do not have valid compliance instruments for the current period in their general account. Reserve prices increase annually by 5% plus inflation.

Linking:

On 1 January 2014, Québec linked with California. On 1 January 2018, Québec and California linked with Ontario.

Québec has been a member of the Western Climate Initiative (WCI) since 2008.

For further information, visit the ICAP ETS Map.

 

Ontario

General information:

On 18 May 2016, Ontario passed legislation and introduced regulations establishing a cap-and-trade program with a first compliance period of 2017-2020. The program covers facilities generating more than 25,000 tons of GHG, as well as natural gas distributors, fuel suppliers and electricity importers. Facilities with emissions between 10,000-25,000 tons may opt in to the program.  Ontario has been a member of the Western Climate Initiative (WCI) since 2008. In 2017, Ontario signed an agreement linking its carbon market with California and Québec starting in 2018, forming a three-jurisdictional carbon market.

Background information:

Compliance in the Ontario Cap-and-Trade system is mandatory for entities of covered sectors which are captured by the inclusion threshold.

The system absolute cap is at 136.4 MtCO2e in 2018, which is reduced linearly to 124.7 MtCO2e by 2020. For 2021-2030 the cap declines by 3.6 Mt annually.

 

Total emissions and proportion covered:

166.2 MtCO2e (2015) (~80-85%)

Liable entities:

132 (2017)

Sector coverage:

Downstream: Power, industry

Upstream: Transport, building

Gas coverage:

CO2, CH4, N2O, SF6, NF3 and other fluorinated GHGs

Allocation:

Auctioning (100% for electricity, natural gas and fuel sectors) and free allocation (100% for all other sectors)

Offsets and credits

Domestic1

 

1Ontario is working to finalize additional offset protocols together with Québec by the end of 2018.

Phases and compliance periods:

First compliance period: 2017-2020

Subsequent compliance periods: Three calendar years.

Allowances must be surrendered by 1 November (or the first business day thereafter) following the end of the compliance period.

Temporal flexibility:

Banking is allowed but the emitter is subject to a general holding limit.

Provisions for price management:

Reserve price at auction: In 2017, the minimum price at Ontario auctions was the higher of the annual action reserve prices in either Québec or California (USD 13.57 (CAL) or 13.56 (QC)) adjusted to CAD based on the exchange rate on the day prior to the auction.  In 2018, Ontario’s reserve price will be CAD14.68 (USD 11.31), increasing annually by 5% plus inflation, as measured by the Consumer Price Index for Ontario.

Since February 2018, Ontario holds joint auctions with California and Québec where the auction reserve price is the highest of the three jurisdictions.

Cost Containment Reserve: Ontario also has a strategic allowance reserve for Ontario entities. Allowances released from this reserve can only be used for compliance. Ontario’s prices are closely aligned with Québec’s.

Linking:

Ontario linked its system with California and Québec in January 2018.

For further information, visit the ICAP ETS Map.

 

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