Regional trading systems are expected to expand and increase their connections with one another
Carbon pricing and trading regimes are developing regionally in a bottom-up approach, rather than through a global top-down approach as some may have anticipated. As a result of this approach, regional trading programs are expected to expand in the coming years. For example, as the Canadian Province of Ontario intends to connect its emerging greenhouse gas (GHG) trading scheme with the California and Québec regimes by 2018, in the US, Oregon and Washington State are reportedly considering similar action.
However, the lack of an overarching global trading system leaves regional systems and those entities regulated by those systems in a slightly precarious position, as demonstrated by the litigation surrounding California's regional trading system. Other regional programs, such as the Australian emissions trading system, have already been disbanded due to political changes in the region.
The force of international cooperation, even in the form of "soft law" should not be underestimated though. With COP23 coming up in November 2017, those who see emissions trading as a potential solution for carbon reduction will be eager to see the development of rules and procedures for international carbon trading.
Regulated businesses in the industrial and electricity sectors developing or acquiring power generation and other regulated stationary sources that have or are developing carbon pricing and/or trading regimes should understand the scope and limitations of emissions trading. Carbon trading systems may present operators and acquirers of regulated facilities with unique local compliance obligations, along with potential opportunities to take advantage of connections between different regional systems.
Going forward, as regional trading markets emerge, disband, change and connect with other regions, it will be important for market participants to remain aware of the legal and political developments and opportunities surrounding these issues as they develop, finance, acquire, sell and operate regulated emissions sources.
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