Accounting Mechanism for Compliance Instruments Traded among WCI Linked Jurisdictions

The California and Québec Cap-and-Trade System have been linked since January 2014. Linking enables compliance instruments to be traded and used interchangeably across the linked programs. Linking thus enables GHG emissions to be reduced wherever it is most cost efficient by broadening the options for least cost reductions opportunities.

Recognizing the importance of the net effect of emissions trading to fully demonstrate the beneficial results of linking their market, Quebec and California have worked together to develop an accounting mechanism developed pursuant to their market linkage agreement. This mechanism identifies and accounts for compliance instruments traded between jurisdictions and retired in the WCI linked carbon market.

Thus, for a government, net trade flow is calculated as follows:

• The total number of compliance instruments this government has issued that have been received and retired by another jurisdiction; minus
• The total number of compliance instruments issued by another jurisdiction that were retired domestically that this government has received and retired.

The document Accounting Mechanism for Compliance Instruments Traded (PDF, 393 KB) details the accounting methodology.

The accounting method developed respects the following principles:

• Transparency
• Secure management of confidential and market-sensitive information
• Environmental integrity and robust accounting
• Avoidance of double counting and double claiming
• Building on international principles and criteria

This mechanism attributes compliance instruments retired at the end of each compliance period to the annual emissions for which they were retired. The Report on the Net Flow of Compliance Instruments between Québec and California for the Period 2013-2020 (PDF, 116 KB) presents the net flow of compliance instruments between Québec and California as calculated using this mechanism.

These net flows are then subject to corresponding adjustments by participating governments when accounting for their GHG emissions. A jurisdiction with a negative net flow of compliance instruments (the acquiring jurisdiction) discloses a downward adjustment, and a jurisdiction with a positive net flow (the transferring jurisdiction) discloses an equal and opposite upward adjustment. The adjustments do not represent a change to a jurisdiction’s GHG emissions inventory or to its actual GHG emissions. Corresponding adjustments are a parameter considered used when accounting to recognize the impact of linking cap-and-trade programs across jurisdictions.

The contribution of Québec’s Cap-and-Trade system to the assessment of its target will therefore consists of an adjustment of the level of emissions reported in Québec's GHG emissions inventory with respect to the level of corresponding adjustments. This data has been published in the Quebec’s 2020 GHG Emissions reduction Target Achievement Report (French, PDF, 1,6 MB) as required by the Environment Quality Act.