Peter Weisberg, The Climate Trust
Weekly Policy and Finance Update – December 11, 2017
|Bottom line | Since offset usage is a function of actual emissions, which is distinct from an emissions cap, usage is independent of the stringency of the cap.|
Results from Ontario’s November 29th auction highlight a new uncertainty for the Western Climate Initiative and developers of offset projects outside of California. In Ontario’s last independent auction before joining the Western Climate Initiative in 2018, 17% of the current vintage allowances went unsold at auction. Analysts point to the political uncertainty introduced by Ontario’s Progressive Conservative party, which is leading current polls to win the June 2018 general election. This party has promised to end the current cap and trade program by July 2019 and withdraw Ontario from the Western Climate Initiative (Canada will require carbon pricing in all provinces, so the Progressive Conservative’s propose a tax and dividend program instead).
Ontario’s cap and trade program is forecasted to be twice as large as Quebec’s and roughly 40% of California’s. Ontario was anticipated to be a net importer of allowances and offsets, and, importantly, The Climate Trust did not anticipate it to follow California’s new reduced offset limits or protectionist preference for in-jurisdiction projects. This meant Ontario was anticipated to be an important source of demand of offsets that are not classified as having direct environmental benefits in California. With Ontario in the Western Climate Initiative, The Climate Trust anticipated existing projects outside California to fulfill only 50% of the demand for “non-California benefit” offsets in the Western Climate Initiative through 2030. If Ontario were to leave the Western Climate Initiative in 2020, existing projects outside of California would fulfill 85% of that reduced demand for “non-California benefit” projects – leaving significantly less room to continue to develop agriculture and forestry greenhouse gas mitigation projects outside of California.
The assumptions here, of course, can drastically change this story. The percentage of the offset limit that is actually used will likely grow; Oregon could join the WCI. If offset usage increases to 75% of the offset limit and Oregon joins while Ontario leaves the Western Climate Initiative, existing out-of-state California projects would then only meet 40% of the demand for “non-California benefit” credits in the Western Climate Initiative. But uncertainty, no stranger to environmental market entrepreneurs, is now larger than it once looked for offset projects outside of California.
Ontario Auction #4 Results
Ontario Ministry of the Environment and Climate Change, November 2017
Scraping cap and trade would cost families more
Global News, Shawn Jeffords, December 1, 2017
A Carbon Copy of California’s Cap and Trade for Oregon?
Sheldon Zakreski, The Climate Trust, May 31, 2017
North American Demand for Offsets Analysis
Peter Weisberg, The Climate Trust, October 27, 2017
Do Offsets Affect the Stringency of a Carbon Cap? Sheldon Zakreski, Dec 4, 2017
Bonn Brings Forth Agriculture as a Strategic Priority Sean Penrith, Nov 28, 2017
Oregon Cap and Invest Should Allow Aggregation Sheldon Zakreski, Nov 20, 2017
Image credit: Flickr/Bemep
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