Quebec set to launch carbon market with first permit auction

Mon Dec 2, 2013 6:37pm EST
 
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By Rory Carroll and Valerie Volcovici

SAN FRANCISCO Dec 2 (Reuters) - Some of Quebec's biggest polluters will be able to buy carbon permits at the Canadian province's first such auction on Tuesday, a key step toward linking its cap-and-trade program next year to a similar effort in California.

The 40 or so emitters in Quebec will be on the hook to pay for emissions from roughly 70 facilities.

Participation in the auction is likely to be limited to some of the province's largest polluters, including metals companies such as Rio Tinto Alcan and Xstrata, as well as energy companies such as TransCanada Corp.

Smaller companies and speculators are also allowed to buy permits at the auction to trade on secondary markets or bank for use in later years, for example when the program expands to cover businesses that distribute fuels in 2015.

Some Quebec emitters have already started hedging by participating in California's auctions. Some will want to practice at Quebec's auction, while others will want to carry out marquis first trades.

Traders active in the year-old California carbon market said it was difficult to forecast where the allowances would clear at the inaugural auction.

"I've heard people say it will definitely clear at a discount to California and others say it will clear at a premium," said one trader, referring to the clearing price of California's most recent auction, where allowances fetched a year-low of $11.48 per tonne despite strong demand.

"I'm leaning toward a slight premium due to new auction jitters. During the first auction, people come in who don't know about bidding strategies and they tend to overpay."   Continued...