California and the Canadian province of Quebec will hold their first joint auction of greenhouse gas reduction credits on November 19, 2014, according to the California Air Resources Board, which oversees these auctions in California. These auctions allow companies subject to greenhouse gas regulation to acquire permits that can be later surrendered to meet compliance obligations.

What is a climate change auction?

Auctions are a key step in the annual compliance process in the California and Quebec climate change programs. These allow the entities subject to the program to acquire the tradable emissions credits that they must use to certify their compliance with the program. These entities bid on the credits in the auction and then pay to purchase them at the auction clearing price. Under the terms of the programs, these credits must later be surrendered in amounts sufficient to cover the greenhouse gas emissions of the entity.

What does this mean for compliance entities subject to the programs?

This auction should run the same as previous auctions before it. Market participants in California and Quebec will be using the same auction platform used previously for both programs. A test auction was held in August 2014 to ensure that the new features of the joint auction system functioned properly, such as the ability to accept both United States and Canadian. Officials expect the auction to run seamlessly in the same way as previous auctions.

What other states are expected to join the program?

Currently no other states or territies have firm commitments to join the regional climate change program. However, in comments made to the Power Association of Northern California this week, Michael Gibbs, a high-level deputy at the California Air Resources Board stated that other West Coast states are considering the program, and pointed to the state of Washington as an example.

What does this joint auction mean for the future of climate change regulation?

This is an important step toward the larger goal of creating a region-wide climate change regulation program. The need for regional integration has long been recognized as critical to bringing smaller states and territories into a climate change program, thereby increasing the total reach of the program.

Smaller states with lower population levels typically have lower emissions levels overall. This makes it more difficult and expensive to achieve the same level of emissions reductions that can be achieved in states with larger total emissions, like California. These smaller states and territories are much more likely to participate in a program that already exists on a regional level than develop them on their own. Additionally, in some states, the sheer number of participating entities in such a program may be too limited to allow for a functioning market.

Achieving a successful joint auction between two different jurisdictions is a key step along the path of acheiving a wider regional program.

For more information, please contact Lawyers for Clean Energy by clicking here.

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