Last week, Quebec’s Advisory Committee on Climate Change published a review highlighting key recommendations to improve the province’s cap-and-trade program, SPEDE, as requested by the province’s environment ministry, MELCCFP. This follows a July report which called for more stringent changes to the program, to better align with climate goals.
The review highlights the need for amendments in compliance periods, the use of offsets, and free allocations within the program. These recommendations come as California, which has a linked market with Quebec through the WCI since 2014, is undergoing revisions to its stringency, set to be formalized by 2025-26.
The first recommendation is to remove allowances from the emissions cap by 2030. This would reduce the allocation of free allowances by limiting supply, which can be effective in accelerating decarbonization. They suggest removing 17 million allowances from Quebec’s cap by 2030 to better align with emission reduction targets. Removing 17 million has already been floated by MELCCFP at a joint November 2023 Cap-and-Trade workshop with California. The 17 million represents the actual 2013 to 202 gap between the total supply and total demand for compliance instruments in Quebec.
The second recommendation is to extend the program through 2040 and shorten the compliance periods from three to two years starting in 2027 to better align with the target years and key milestones in the province’s decarbonization strategy. Aligning compliance periods to target years has already been under discussion in the pre-rulemaking proposals from both jurisdictions. Quebec's modeling has focused mostly on 2030 to date.
Additionally, they recommend expanding the scope of the program to cover more sectors, particularly industrial entities emitting between 10,000 and 25,000 tonnes of CO2e, and incorporating the waste sector due to its contribution to methane emissions.
Finally, the report advocates for eliminating the use of offsets within the SPEDE. The committee argues that the use of offsets may result in transferring reductions from uncovered sectors to those covered by the program and artificially raise the emission ceiling. However, the committee recommends maintaining the current regulatory basis for offset credit projects in Quebec but reserving their use to the government exclusively. Workshops to date, including from October 2023, have suggested there would be no changes to Quebec's Cap-and-Trade offsets program before 2027.
These recommendations point towards an ambitious push towards a more stringent carbon market in Quebec, aligning with similar amendments in California. The rulemaking is expected to result in higher allowance prices. The proposed changes aim to accelerate decarbonization across Quebec’s economy, with the committee stressing the importance of aligning post-2030 emissions caps with future targets. The Quebec government is expected to publish proposed regulations or legislation for the cap-and-trade program in September 2024, with enactment anticipated in 2025.
ClearBlue will continue to monitor developments and will update clients as the developments unfold.