DOSSIER: Western Climate Initiative (WCI)

Published 18:30 on January 1, 2016  /  Last updated at 16:14 on May 24, 2017  /  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 with the start of its first compliance period (2013-14). 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.

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 370.4 MtCO2e (2017) that will be reduced stepwise to 334.2 MtCO2e by 2020.

Total emissions, proportion covered:

441.5 MtCO2e (2014) (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:

Free allocation & auctioning

 

Offsets and credits

Domestic1

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

 

Phases & Compliance periods:

First compliance period: 2013-2014

Second compliance period: 2015-2017

Third compliance period: 2018-2020

 

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

Allowances for 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 Floor Price: 13.57 in 2017 (EUR 12.78) 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% for budget years 2013-2014; 4% for budget years 2015-2017; and 7% for budget years 2018-2020) and can be sold if certain trigger prices are met. The reserve sale administrator can sell accumulated allowances in 2017 on a regular basis in three equal price tiers at USD 50.69, 57.04, and 63.37 (EUR 48.61, 54.70 and 60.77).. Tier prices increase by 5% plus inflation (as measured by the Consumer Price Index).

California linked with Québec’s ETS on 1 January 2014. Current amendments propose to link with the Ontario program beginning in 2018.

For further information, visit the ICAP ETS Map.

 

Ontario

General information:

On 18 May 2016, Ontario passed legislation introducing 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. Ontario has been a member of the Western Climate Initiative (WCI) since 2008.

Background information:

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

There is an absolute cap of 142 MtCO2e in 2017, which is reduced linearly to 125 MtCO2e by 2020.

 

Total emissions and proportion covered:

170.2 MtCO2e (2014) (80-85%)

Liable entities: 142 (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 Domestic 

 

Phases & Compliance periods:

First compliance period: First compliance period: 2017-2020.
Subsequent compliance periods: three calendar years

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 price: Auction price will be the higher of the annual action reserve prices in either Québec or California (USD 13.57 (CA) or 13.56 (QC) in 2017 adjusted to CAD based on the exchange rate on the day prior to the auction). The reserve price increases annually by 5% plus inflation.

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 intends to link its system with California and Québec in 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. 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 61.1 MtCO2e in 2017, which is reduced linearly to 54.74 MtCO2e by 2020.

 

Total emissions and proportion covered:81.2 MtCO2e (2013) (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 creditsDomestic1 

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 in 2015: the higher of CAD 12.08 or US 12.10 (EUR 11.38); increasing annually by 5% plus inflation.

Reserve emission units held in the Allowance Price Containment Reserve account may be sold at ca. CAD 66.79, 75.16, 83.5 / tCO2e (EUR 47.76, 53.75, 59.71) in 2017 (inferred from Californian prices). 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:

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

For further information, visit the ICAP ETS Map.

 

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