Quebec Eyes California for Forest Offsets, but Demand Seen as Weak in First Year

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A webinar hosted by the Climate Action Reserve on January 16 took a look at California and Quebec’s cap-and-trade honeymoon. The linked program expands the market for forestry offsets sourced from US-based projects.

The marriage of Quebec and California’s carbon markets went into effect on January 1, and their allowances and offsets are now tradable across national borders, but demand for offsets, including forestry credits, from buyers in the Canadian province will be low in the short term, according to one market expert.

As in California, the Quebec government is doing a bit of hand-holding at the beginning of the program, giving away a generous quantity of allowances for free, said Jean Nolet, President of ÉcoRessources.. Indeed, during Quebec’s first allowance auction on December 3, only a third of 2013 allowances and a fourth of 2016 allowances were sold, at the price floor of CAD$10.75 – indicating low demand at the beginning of the program.

Projections of future oversupply and a general sentiment that greenhouse gas policy has been slowmoving in Canada have also fostered a ‘wait-and-see’ attitude among regulated and to-be regulated entities in Quebec.

“Enterprises have been slow in taking seriously the regulation,” Nolet said during a webinar hosted Thursday by the Climate Action Reserve (CAR). “This is still what is prevailing today…there is no sense of urgency.”

However, demand for allowances and offsets is expected to pick up as of the beginning of 2015, when fuel distributors begin to fall under the carbon regulation. Though Quebec has so far approved three offset protocols – livestock manure management, landfill gas capture, and destruction of ozone depleting substances (ODS) – the province is expected to supply very few offsets. Its compliance entities will instead purchase offsets from the California program, said Scott Hernandez, CAR’s Business Development Manager.

“As things are right now, there is no prospect for a great supply of offsets in Quebec,” Nolet said. “In livestock landfills, the transaction costs are so high…the carbon prices that we foresee would not overcome that cost.”

California’s approved offset protocols have a greater reach, covering forestry as well as destruction of ODS from refrigerants. Quebec’s protocol limits ODS destruction offsets to foam.

While the linked program allows for forestry offsets sourced anywhere in the United States, adding forestry projects in Quebec and across Canada would require changing California’s regulation, said Ashley Conrad-Saydah, Deputy Secretary for Climate Policy of California’s Environmental Protection Agency.

Read more about the linkage in Ecosystem Marketplace