The Future of California’s Cap-and-Trade Program: Policy Choices and Implications for Cross Border Linkage

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California is in the process of defining the next chapter of its innovative greenhouse gas cap-and-trade program. Last year the state adopted a legally binding emissions reduction goal of 40 percent from 2020 to 2030, but the role of cap and trade in meeting this target is uncertain. This summer the California legislature is considering what that role should be. A number of important issues are likely to emerge that, if implemented in some form, could well affect the functioning of the California program in the next decade. These issues include the following possibilities:

  • Facility-specific requirement of emissions reductions in order to address environmental justice concerns
  • Limitations on the banking of allowances
  • Limitations on the use of offset credits
  • Incorporation of a strict price collar to limit the range of allowance prices
  • A border price adjustment mechanism or other measures to address leakage
  • Changes in the allocation of allowance value to various parties

These changes could have important and possibly destabilizing spillover effects on jurisdictions linked to the California program, including Quebec (currently linked), and Ontario (which plans to link next year).

There was an interactive online panel discussion about the proposed features of these competing pathways for the California cap-and-trade program, what modifications or amendments may be considered as they work through the legislative process, potential implications for the California carbon market, and the potential effects on linkage with the programs in Quebec, Ontario, and other jurisdictions that might consider linkage in the future.

This webinar was a joint effort of the Smart Prosperity Institute, Ottawa Institute of the Environment, Duke University's Energy Initiative and Nicholas Institute for Environmental Policy Solutions, and Resources for the Future.

More information here.

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