Will California And Australia Trade Carbon Credits?

California's greenhouse gas cap and trade program will basically merge with a similar program in Quebec in January. If a Tuesday announcement by the California Air Resources Board (CARB) is any indication, Australia may be next.

The announcement comes in the form of a Memorandum of Understanding (MOU) between CARB, which manages the state's greenhouse gas emissions credit auction and trading program, and the Australian Government Clean Energy Regulator. The MOU doesn't come right out and say that California and Australia would like to combine their greenhouse gas cap and trade markets, but its focus on "information-sharing" about how to "harmonize" and coordinate "market-based programs to reduce greenhouse gas emissions" makes it clear that a joint Cal-Oz greenhouse gas market is at least next to the table, if not actually on it.

"This agreement continues our productive relationship with the Clean Energy Regulator to improve our respective programs," said CARB Chairman Mary Nichols in a press release. "It is another step forward in California's efforts to establish relationships with other programs to continue sharing information and best practices to fight the global danger of climate change."

The Australian agency, founded in 2011, is essentially Oz's "Department of Climate Change": it encourages the nation's increase in renewable energy use, manages greenhouse gas reduction through promoting conservation and cleanup in the business and agricultural sectors, and -- most importantly for the purposes of this story -- runs the Australian National Registry of Emissions Units, Australia's cap-and-trade program.

CARB, meanwhile, as we've mentioned here before, was charged by the Global Warming Solutions Act of 2006 with launching California's carbon credit cap and trade system. CARB has been issuing emissions allowances for greenhouse gases since November 2012, with quarterly auctions held since. (The next one's set for August 16.)

The idea behind cap-and-trade programs is that if companies must buy "allowances" for each unit of greenhouse gas they release into the atmosphere, they have two incentives to reduce their emissions. Not only do they avoid having to buy allowances for emissions they plan to avoid, but they can also sell off any extra allowances they end up not needing.

Expanding the allowances market past the California state line means California corporations have more willing buyers and sellers of allowances with whom they can trade. In theory, this should accelerate the rate at which emissions are reduced by making it potentially much more lucrative to engage in allowances trading.

The problem is in determining what counts toward emissions allowances. Some programs let businesses include carbon "offsets" in their allowances trading. Offsets sometimes come from direct reductions of greenhouse gas emissions: say, measurable reductions in methane emissions from landfills.

But some companies offer informal carbon offsets for sale derived from activities like planting trees, where the actual reduction in atmospheric carbon is hard to quantify.

The Clean Energy Regulator's "Carbon Farming" program would seem to offer opportunity for such criticism: we'll be keeping tabs on it.

[For the record: a previous version of this article mistakenly asserted that CARB allowed offsets such as the landfill methane emissions reductions mentioned above. This is not in fact the case: the error stemmed from ReWire's misinterpretation of material on the CARB website. As CARB's Dave Clegern said in an email to ReWire, " California''s cap-and-trade program does not accept offsets for landfill methane as those emissions are already covered by other regulations. ARB does not accept offsets for emissions which are already regulated."

Clegern also took issue with our implication that CARB might have trouble quantifying the benefits of offsets, saying "The verification process put in place by ARB is the most stringent and rigorous in the world. It involves a pre-screening of projects by an approved carbon registry before a project makes it to ARB. Any compliance project must then be verified on site by ARB trained, independent, third-party verifiers to ensure the project is as described. ARB staff often accompanies these verifiers on these site inspections."

We regret the error regarding landfill emissions offsets, and thank Dave for his comments.]