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Costly compliance: Quebec schedules emission allowance sale for last-minute shoppers

by Mark Sabourin
EcoLog, 8/10/2018 10:11:00 AM

Quebec expects to hold its first “sale by mutual agreement” of greenhouse gas emission allowances on October 3, 2018. The sale will involve allowances held in a reserve account by Quebec for the 2015-2017 compliance period. Facilities subject to cap-and-trade have until November 1, 2018 to submit allowances for that compliance period, and this sale of allowances will allow those facilities to top up their accounts if they are short.

The allowances held in reserve by Quebec are within the cap for the compliance period and are premium-priced.

Three baskets of allowances will be put up for sale, each holding 13,017,381 allowances. The first will sell at $53.38 per allowance, the second at $60.04 per allowance, and the third at $66.71 per allowance. The price is determined by a formula that set a baseline of $40, $45 and $50 in 2014, rising by 5% annually plus the rate of inflation.

Sale by mutual agreement was contemplated in the design of the cap-and-trade system as a mechanism with two purposes. Mostly, it was intended as a price-moderating device should the market price of allowances rise too steeply. Allowances would be made available if the market price, which most recently fell in the $18.70 range, soared.

In the case of the upcoming October 3, 2018 auction, however, the available allowances will serve the second purpose. It will provide an option, albeit a costly one, for facilities whose accounts are short of their compliance needs for the current period.

The rules around sales by mutual agreement ensure that allowances are used only for compliance by the purchaser. The sale is open only to Quebec companies already registered with the Western Climate Initiative’s Compliance Instrument Tracking System Service and whose compliance accounts are empty. The allowances must be used for the current compliance period and may not be resold.

Companies intending to participate in the sale by mutual agreement must apply by midnight, Eastern Time, September 4, 2018. Learn more here.

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