More ambition, fewer allowances: Towards a tighter future in the Western Climate Initiative

Within the California and Quebec joint cap-and-trade programs, the two jurisdictions have their corresponding emissions caps declining annually at a rate previously determined to help achieve their decarbonization targets. Although the two markets are linked, the scale of the programs and their sustainability portfolios vary significantly. The allowance supply forecasts for both the California and Quebec market prove bullish for California Carbon Allowance (CCA) contract prices in the long term – stemming particularly from declining allowance offerings in the program’s quarterly auctions. When considering the respective jurisdictions’ climate targets, however, the allowance and electricity generation forecasts show a gap between the current level of ambition and that needed to achieve the programs' goals. Proposed updates to the two ETS programs to fill this deficit, however, will exert even greater bullish pressure on allowances prices as emissions caps tighten and ambition grows.