Carbon markets are already decarbonizing the energy supply of California, Quebec, and the Northeast United States. But they may be about to expand across the entire continent – from the southern tip of Louisiana to the northernmost edges of Manitoba and Ontario.
Officials in Canada and the US are considering cap-and-trade programs for the Midcontinent ISO (MISO), Southwest Power Pool (SPP), and Province of Ontario – with linkages to existing regional cap-and-trade systems potentially creating a true North American carbon market.
While the rationale driving these proposals varies, one central theme stands out: Regional carbon markets keep looking like the best option to cut emissions, boost renewables, and protect consumers from the costs of transitioning to a clean energy economy.
Ontario Cap-And-Trade Linking to California-Quebec
Of the three, Ontario’s is the most straightforward and most likely to have a quick impact. The province, which closed down all its coal-fired generation in 2014, is expected to unveil a cap-and-trade program as soon as next week – with support from various political factors.
Ontario’s cap-and-trade would function similarly to neighboring Quebec’s system, setting a limit (the “cap) on emissions from various industries, and auctioning off permits (the “trade”) among polluting entities to cover emissions beyond the cap. System revenue is expected to generate between $1 billion to $2 billion per year, which would then be reinvested into clean energy projects.
The most interesting aspect of Ontario’s cap-and-trade push is an immediate planned linkage to the California-Quebec carbon market, which held its first joint allowance auction in 2014. This new mega-market will cover roughly 60 million people, not to mention more than 60%of Canada’s entire economic output and the largest American state economy.
Ontario’s connection also represents a bit of a coup for regulators in California and Quebec. Late last year, Quebec’s premier floated the idea of linking to Ontario and potentially the Northeast US Regional Greenhouse Gas Initiative, and was initially batted down over integration concerns.
Carbon Markets Stretching From The Arctic To The Gulf Of Mexico
But if Ontario looks like a kid who can’t wait to join the California-Quebec party, SPP and MISO seem like they’re being forced to go when they’d rather stay home. The two regional grid operators, responsible for coordinating electricity generation and transmission across most of the Midwest US and Canadian Province of Manitoba, are working toward cap-and-trade to comply with the EPA’s Clean Power Plan.
Last week, RTO Insider reported stakeholders from both grid systems told the Federal Energy Regulatory Commission they were creating a system to comply with expected 30% reductions on power plant emissions on a regional basis to smooth out impacts in any one state.
The MISO-SPP cap-and-trade system would differ from RGGI by eschewing an overall cap on power plant emissions which all states must agree to and then comply with, in favor of each state proposing emissions reduction goals to EPA for compliance with Clean Power Plan targets, then setting an overall carbon price and using an allowance auction to smooth out decarbonization costs over a large region.
This approach could play out as states with an abundance of renewables (i.e. Iowa or Illinois) trade allowances to primarily fossil fuel-dependent states (i.e. North Dakota or Indiana), thus allowing the entire region to comply with EPA’s emissions reduction targets through a “blended” rate without massive investment in any one state. “There’s no question the rule as proposed creates winners and losers,” commented one industry analyst. “But the mass-based approach can provide every state an opportunity to do better through trading.”
165 Million North Americans Covered By Carbon Markets?
Combine those two with RGGI’s 42 million people and another 60 million across the potential California-Quebec-Ontario market, and you’ve got a clear pathway to include around 165 million North Americans in functioning carbon markets. That’s nearly half the combined population of 353 million people in Canada and the U.S., and real movement toward reflecting the true social cost of carbon.
The MISO-SPP carbon market also shows conservative states who may not want to replace coal generation with clean energy can accomplish America’s emissions reduction goals. That’s a direct rebuttal to Senate Majority Leader Mitch McConnell’s potentially illegal suggestion for states to ignore the federal government, and evidence America’s grid – and its economy – can succeed in a low-carbon future.