Potential Linkage between Californian and Australian Greenhouse Gas Cap-and-Trade Regimes


Australia and the State of California are investigating opportunities for linking their carbon pricing and greenhouse gas (“GHG”) cap-and-trade programs. On January 15, 2013, officials from the Australian Parliament and the California state government, including the Honorable Mark Dreyfus, Australian Parliamentary Secretary for Climate Change and Energy Efficiency, Mary Nichols, Chairman of the California Air Resources Board (“CARB”), and representatives from the California Environmental Protection Agency, met at the Davis campus of the University of California for discussions regarding carbon pricing and GHG cap-and-trade markets. Although the discussions were preliminary, and no specific plans for linkage have been formulated yet, representatives from both sides expressed considerable enthusiasm for pursuing further discussions. A linkage of the California and Australia cap-and-trade programs could increase liquidity in both carbon markets by providing market participants with additional trading options, and would be likely to cause price convergence between the two programs.

California’s Cap-and-Trade Program -

California’s long-awaited GHG cap-and-trade program was mandated as part of California’s landmark Assembly Bill 32, the Global Warming Solutions Act of 2006, generally known as “AB32.” AB32 establishes a cap on annual emissions of companies covered by the program and mandates that each covered entity have qualifying compliance instruments for every metric ton of CO2 emitted per year (“tCO2-e/pa”). AB32 requires that GHG emissions in California be reduced to 1990 levels (427 million tCO2-e/pa (“mtCO2-e/pa”)) by 2020 (which represents a reduction of 80 mtCO2-e/pa), and the state has announced plans to reduce emissions to 20% below 1990 levels by 2050. In accordance with AB32, CARB adopted final regulations instituting a GHG cap-and-trade program in October 2011. Those regulations were revised in new final regulations that were issued in September 2012. The final regulations issued in September 2012 provide, among other things, for a formal linkage between California’s GHG cap-and-trade program and a similar GHG cap-and-trade program in the Canadian province of Quebec.

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