Arnold Schwarzenegger? Proposition 23? What do they have to do with Ontario as we hunker down for another long, cold winter, you ask? Well, on November 2, California voters – along with voters in 35 other U.S. states – go to the polls to elect their governor in the U.S. mid-term elections. November 2 could be a watershed day for carbon markets, not only in California but also across the North American continent, if not around the world. Why? Because oil and gas interests in Texas are bankrolling something called Proposition 23 that will appear on the California ballot.

If approved by voters, Prop. 23 would force California to roll back its landmark 2006 Global Warming Solutions Act, also called Assembly Bill 32 (AB 32) until the state’s current 12.4 per cent unemployment rate drops to under 5.5 per cent for four consecutive quarters (something that has only happened three times in the last 40 years). This would essentially “terminate” California’s clean energy initiatives and be a major blow to one of the few bright lights in the state’s struggling economy – the growth of green jobs and the development of a low-carbon economy through the introduction of a cap-and-trade system.

Even if Prop. 23 is defeated, the future of AB 32 is still uncertain. Its ultimate fate will depend on whether a Republican or a Democrat is elected governor. (Schwarzenegger is out of the picture as he can’t run for another term.) Both the Democratic and Republican candidates have indicated they don’t support Prop. 23. The Democratic nominee has vowed to move “full speed ahead” on AB 32 and the transformation of California’s economy, assuming he is elected and Prop. 23 is rejected. The Republican candidate has indicated she would suspend all activity on AB 32 for at least a year until the economy improves.

OK, so what do the vagaries and uncertainties surrounding an election in California have to do with Ontario? Simple. Both Ontario and California are key members of the Western Climate Initiative (WCI), a collaboration of seven US states and four Canadian provinces.

WCI’s goal is to reduce greenhouse gas (GHG) emissions 15 per cent below 2005 levels by 2020 through a number of initiatives, the most important of which is a cap-and-trade system. Currently, two U.S. states (California and New Mexico) and three Canadian provinces (Ontario, Quebec and British Columbia) have passed the necessary enabling legislation required for the development of a cap-and-trade program. But, while Ontario has its enabling legislation in place (see Pricing Carbon: Can a Cap-and-Trade System Deliver the Tonnes from the ECO’s latest Annual Report) it has yet to publicly announce the specific design elements of its cap-and-trade program. It must do this through public consultation and the posting of its final decision on the Environmental Registry.

Losing California would be a major blow to the WCI and possibly to carbon trading systems elsewhere in North America, such as the Regional Greenhouse Gas Initiative and the Midwestern Greenhouse Gas Accord, and quite possibly to the developing international carbon market. Why? Because as California goes, so goes the rest of the U.S., the second largest carbon emitter after China and the third-largest emitter of GHGs on a per capital basis (just behind Australia and, yes, Canada). Without California’s leadership, the development of a North American-wide effort to put a price on carbon would likely be delayed for years.

As shown in the first chart below, California’s GHG emissions represent just over half of those WCI members ready to launch the trading system in January 2012, with a total of just under 480 million tonnes (Mt) of GHGs. Adding New Mexico brings the U.S. tally to almost two-thirds of the five jurisdictions’ emissions. Ontario is the next largest emitter at 190 Mt. Elections will also be held in New Mexico on November 2 and indications are it may withdraw from the WCI cap-and-trade provisions, too.

Ironically, as shown in the second chart, this could leave only three Canadian WCI partners in a position to move forward in January 2012 – with Ontario representing almost 60 per cent of the remaining members’ emissions. Which begs an even bigger question: Should (or could) Ontario, B.C. and Quebec go it alone?

As the carbon analysis group PointCarbon noted recently, the three Canadian partners would need to decide if “a market without California would be liquid enough” to support carbon trading without experiencing wide volatility in carbon prices. If Ontario is forced to reconsider the timing of its participation in WCI (or its participation outright), then this has significant implications for its 2014 and 2020 GHG reduction targets as presented in its most recent Climate Change Action Plan annual report . This report, along with the ECO report Finding a Vision for Change, both noted an expected shortfall in achieving the province’s 2014 and 2020 GHG reduction goals.

The Ontario government views the development of a cap-and-trade system as a “significant factor” that could help deliver the tonnes and close the gap at 2020. So, the timing couldn’t be worse: California’s participation in the developing North American carbon market hangs in the balance pending the results of mid-term elections. Ontario’s ability to go it alone is fraught with uncertainty around timing as well: it must make public the details of its cap-and-trade design while at the same time ramping up for a provincial election next October. January 2012 is only 14 months away.

Gord Miller is the Environmental Commissioner of Ontario. You can find his blog here.

Tags: Prop 23, Proposition 23, RGGI, WCI

This entry was posted on Monday, October 18th, 2010 at 10:06 am and is filed under emissions. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.