Ontario Joins Calif. Cap-And-Trade Market

California’s climate change market, where businesses buy and trade the right to emit greenhouse gases, just got bigger.

Achieving a long-time goal of both governments, Governor Jerry Brown announced Friday that he’s signed an agreement with Ontario to link cap-and-trade systems.

Under California's signature climate change program, businesses must obtain government credits for each ton of pollution they emit.

Stanford energy researcher Michael Wara says the state hopes to prove the program is viable and to convince other regional governments to join it.

"We want other states, sub-national governments, like provinces in Canada, to adopt carbon-pricing," Wara says "One way they can do that is by developing a system that’s compatible with ours and linking."

Starting in January, Ontario will join California and Quebec in their quarterly cap-and-trade auctions. Adding Ontario expands the market, potentially by as much as a third, creating both more credits and more buyers. That could lower the cost for businesses to meet the goals.

Wara says the size and--thus far--relative stability of the California market is attractive to smaller regional governments that may not be able to support their own, independent cap-and-trade programs.

"California does kind of serve an anchoring purpose for those other smaller provinces," Wara says. "But the more we do this, the more dependent we are on if there are big policy changes" by the other governments.

Wara says if Ontario businesses fail to cut emissions enough to meet the province's targets, they could purchase an excess number of cap-and-trade credits, driving up the cost of credits, and affecting energy prices in California.