California-Quebec Carbon Cap and Trade

California’s Assembly Bill 32 (AB32) went into effect in January 1, 2013. The goal of AB32 is to reduce greenhouse gas emissions for activities in the state of California and for power produced outside the state but used in California.


Greenhouse gases (GHGs) include carbon dioxide, methane, and nitrous oxide. In 2008, Québec joined the program and started working in close collaboration with California to develop guidelines and operating rules for a cap-and-trade (C&T) system for greenhouse gas emission allowances. Quebec’s Ministry of Sustainable Development, Environment and the Fight against Climate Change (MDDELCC) required eligible facilities in their jurisdiction to have compliance starting with greenhouse gas emissions in 2013. The cap-and-trade program reduces GHG emissions by placing a cap on the amount that may be emitted. The primary sectors of regulation include electric power plants, industrial plants, and fuel distributors. The emissions cap does decrease over time, which results in an overall reduction of emission levels. A large-scale reduction of greenhouse gas emission levels should create incentive for the expansion of renewable energy resources, cleaner transportation and the reduction of waste. Entities under regulation must possess enough emission allowances to cover their emissions, but are able to buy and sell allowances on the market.

California held its first auction of greenhouse gas allowances on November 14, 2012. And in November 14, 2014, California and Quebec announced their first combined auction of greenhouse gas emission credits. Cap-and-trade is an environmentally effective and economically efficient response to climate change. This program will help put California on the path to meet its goal of reducing GHG emissions to 1990 levels by the year 2020, and ultimately achieving an 80% reduction from 1990 levels by 2050.

Regional Greenhouse Gas Initiative (RGGI)

The Regional Greenhouse Gas Initiative (RGGI) is the first mandatory carbon cap and trade program established in the United States. The states which comprise RGGI are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.


Their first carbon dioxide (CO2) auction of RGGI allowances was held in 2008.The program was created for the purpose of limiting carbon dioxide emissions from power plants in the participating states. In August 2005, RGGI proposed an emissions reduction program that would take effect in 2009 and lead to a stabilization of emissions at current levels (an average of 2002-2004 levels) by 2015.

The RGGI CO2 cap is expected to contribute to a 45 percent reduction in annual CO2 from the power-sector in the region in comparison to the levels in 2005. It accounts for reduction between 80 and 90 million short tons of CO2 emissions. It requires fossil fuel operated power plants over 25 megawatts within their domain of regulation to obtain an allowance for each ton of CO2 emitted. RGGI uses three-year control periods to manage compliance of entities. The first two years of each three-year compliance period constitute the Interim Control Period, during this period it is a requirement that 50% of the total emissions must be offset with allowances by placing the allowances in facilities’ compliance account. The 2013 cap was 165 million tons, but emissions in 2012 were only 91 million tons. Emissions were lower than previously anticipated due to low natural gas prices prompting a conversion to the lower-emitting fuel, and to a lesser degree energy conservation and the Great Recession. In February 2013, a major change in the RGGI cap was announced, lowering its cap to 91 million tons for 2014 with 2.5% annual reductions until 2020. Power plants within the region may comply with the cap by purchasing allowances from quarterly auctions, other generators within the region, traders or offset projects. RGGI has a 2016 Program Review which is expected to lower the cap post 2020.


Carbon Offsets

Carbon offsets are used to compensate for emissions made elsewhere. One carbon offset has an equivalent measure to one ton of carbon dioxide.


The offset credit is representative of six primary categories of greenhouse gasses, which include carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, sulphur hexafluoride, and perfluorocarbons. Offset are typically achieved through financial support of projects that destroy the emission of greenhouse gasses. Typical carbon offset projects are forestry projects, destruction of landfill methane and energy efficiency projects. Carbon offsets may be either voluntary or compliance oriented. Voluntary carbon offset usage enable business, government, NGO’s and individuals to offset their emissions, or “carbon footprint.” Carbon offsets may be used to help entities that have exceeded the emission cap to reach compliance standards in RGGI states or California or Canadian Provinces.