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Behind the EU ETS: The increasing role of WCI’s California-Quebec market in the global scene

Since its launch in May 2021, as a result of the United Kingdom’s exit from the European Union, the UK ETS has seen significant volatility; initially following trends in the EU ETS, but more recently seeing a large diversion from price levels in its neighboring ETS program. Beginning their slide in the spring of 2023, UK Allowance (UKA) prices have reached several all-time lows, with the latest on 29 January 2024. WCI’s California-Quebec joint program has seen a much more gradual, yet steady rise in both price and ambition since its beginning in 2013, with California Carbon Allowance (CCA) prices exceeding historical highs in recent weeks. On 18 January 2024, CCA prices surpassed UKA prices for the first time ever. Although price is not the sole indicator for overall strength of a cap-and-trade program, the growing political climate ambition in California and Quebec has been accelerating the rate in which the impacts of its program reform has been strengthening the joint market. Low confidence in political will for climate initiatives in the UK has instilled uncertainty in its ETS which has hampered the market impact and growth from its own program reforms.

An Unwinding in the UK Regulators initiated the UK ETS with the intention of re-linking with the EU ETS. Since the program’s start, UKA prices have largely been in line with or slightly higher than EUAs. It was not until April 2023 that UKA prices began d...

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