California's Climate Lesson for Canada

By rejecting Proposition 23, Californians have kept hope alive for climate change regulation not only at home, but also in Canada.

With Republicans now in control of the House of Representatives, the prospect for nation-wide, comprehensive climate change legislation looks dim, both in the U.S. and in Canada, where the Harper government has been patiently waiting for U.S. action. But even as those hopes fade, a key victory in California's November elections has enabled North America's most promising foray into climate change regulation.

The battle was over Proposition 23, an initiative on the California ballot that would have suspended the implementation of the state's progressive global warming legislation, known as AB32, until California's unemployment rate dropped below 5.5 per cent for one full year. That has happened only three times since 1970 and is not likely to happen again in the near future, with state unemployment currently above 12 per cent.

By rejecting Proposition 23, Californians have kept hope alive for climate change regulation not only at home, but also in Quebec, Ontario, and B.C. These three provinces, along with California, are the most active partners in the Western Climate Initiative (WCI), an effort to cap regional greenhouse gas emissions starting on Jan. 1, 2012, and then to reduce those emissions 15 per cent below 2005 levels by 2020. California has been leading the WCI's development since AB32 was passed in 2006. If Californians had voted Yes on Proposition 23, the WCI would have effectively lost its leader.

Even as it stands, the WCI's future is still tenuous; its fate depends on each partner passing regulations in support of the program. These regulations would put an ever-shrinking cap on the emissions of major industrial firms. To meet these caps, firms could reduce their emissions or go to the market to purchase emissions permits held by others. Quebec, Ontario, and B.C. have each passed legislation to authorize such a cap-and-trade system, but still lack the implementing regulations.

There are compelling reasons for these provinces to seize the political momentum in California and finalize the regulations necessary to participate in the WCI.

First, coordinating efforts with California has practical advantages. With the start date for the WCI system just over a year away, the provinces will benefit from the fact that California is far up the learning curve. Some of the pioneering experience with emissions trading for smog-forming gases took place in Southern California in the 1990s. More recently, the California Air Resources Board has become a world leader in developing rules for greenhouse gas emissions trading.

California and the three provinces also share environmental goals. The bulk of the California's emissions come from passenger cars, not from fossil-fired power plants. The same is true for hydro-rich B.C. and Quebec, as well as for Ontario as it continues to close its remaining coal-fired power plants. In the WCI, these jurisdictions have an ideal platform for limiting greenhouse gas emissions related to transportation fuels, which the partners propose to do by 2015.

Teaming up with California also makes economic sense. California accounts for one-third of all greenhouse gas emissions across the WCI jurisdictions. It would cap the emissions of more industrial facilities than Quebec, Ontario, and B.C. combined. Having access to these potential permit buyers and sellers would help drive down compliance costs for capped Canadian firms; greater abatement options lead to lower abatement costs. More buyers and sellers also means a more liquid market, which helps smooth out costly price spikes that can occur in systems with less supply and demand.

The Canadian provinces should feel comfortable following California's lead. The state is no stranger to leading the way in successful environmental regulation. Even the fuel efficiency standards that Environment Canada finalized this October were first developed and implemented in California. After President Obama adopted them as nation-wide standards, Canada soon followed suit, given the integration in the North American vehicle market. UC Berkeley professor David Vogel has described this influence as the California Effect – when an influential, environmentally progressive state actually causes its trading partners to ratchet up their regulatory standards.

The No vote on Proposition 23 has allowed the same process to unfold for North American climate change regulation. While campaigning for the No vote, George Schultz, the former secretary of state to Ronald Reagan, said in an interview, "I believe that if we can get something going in California, it will spread." When it comes to capping greenhouse gas emissions, the California Effect is one contagion the Canadian provinces would be wise to catch.