Political Uncertainty, Post-2020 Cap Declines, Carbon Offsets and the Secondary Market

Transcription

1 Political Uncertainty, Post-2020 Cap Declines, Carbon Offsets and the Secondary Market Q&A Interview with Michael Berends, Managing Director, Origination By John McCloy, Canadian Clean Energy Conferences In the run-up to the 2nd Annual Ontario Cap and Trade Forum on April at the Beanfield Centre in Toronto, Canadian Clean Energy Conferences is producing a series of articles featuring the key topics concerning regulated entities under Ontario s program. Visit the news section of the Forum s website to read other stories and sign-up to receive news:

2 Political Uncertainty, Post-2020 Cap Declines, Carbon Offsets and the Secondary Market Q&A Interview with Michael Berends, Managing Director, Origination By John McCloy, Canadian Clean Energy Conferences The benefits of the recent linkage with the Western Climate Initiative (WCI), and the success of the first clude already muddy waters. In this Q&A interview, Berends ex- relates to the pricing of carbon, is to remove carbon pricing from Ontario and to challenge the ability of the Federal joint auction in February, are being plains how the uncertain political cli- government to impose a carbon pricing overshadowed by uncertainty over the mate is having a significant effect on system in Ontario. future of the cap and trade program, compliance entities in Ontario. He reports Michael Berends, Managing Di- will also be presenting at the up- Currently there is a framework for a rector for Origination. coming Ontario Cap and Trade Fo- federal backstop on pricing carbon rum, taking place on April at that is nationwide, which the Fed- Market certainty is critical, Berends the Beanfield Centre, Toronto. Visit: eral Government has put in place for points out, both for the current func- any jurisdiction that does not have its Michael Berends Head of Carbon Sales ClearBlue Markets tioning of the cap and trade program and to allow compliance entities in Ontario to make long-term, market- Canadian Clean Energy Conferences: What are the top concerns for Ontario own provincial carbon pricing system. In Ontario right now we have the cap and trade system. However, if that is critical, business decisions. Compound- participants at this stage of the removed, then there are significant ing this atmosphere of uncertainty program? questions about what the alternative is the lack of clarity surrounding the would be, if not the federal backstop. program s post-2020 regulation. While Michael Berends: At this point in time, the Ontario Government is expected to with the upcoming provincial election in So the big question for our current cap announce post-2020 regulatory guide- June, the key concern for Ontario partic- and trade clients is will there be a cap lines later this year, the current lack of ipants is market certainty. The current and trade market post-2018 and, just information is serving to further oc- platform of the Ontario PC party, as it as importantly, will there be one post- 2

3 2020. Saying that, no matter which California, and Ontario entities looking four year compliance period compared So the big question for our party is in power, we see significant at different routes to market to either to three years in California and Quebec. current cap and trade clients challenges in dismantling the cap and purchasing or selling allowances, as This difference in compliance timelines is will there be a cap and trade trade program prior to the end of the well as the purchase of offsets. means that 2017 was the first year in market post 2018 and, just as First Compliance Period in Ontario (i.e. an Ontario compliance period and the importantly, will there be one 2020). The offset market is relatively new in last year in a previous compliance peri- post Saying that, no Ontario because of the delays in the od for California and Quebec. This leads matter which party is in power, Regarding a post-2020 cap and trade creation of a policy framework for that to market behaviour being influenced we see significant challenges market, the main question is what that market, but now Ontario entities have by a deadline that California and Quebec in dismantling the cap and market would look like, for example, the option to look to the California and are looking to comply with, which is not trade program prior to the end what will be the free allocation for rele- Quebec offset markets to help in man- necessarily relevant to Ontario. of the First Compliance Period vant entities, what will the market price aging compliance. in Ontario (i.e. 2020). be, what will be the offset quota etc.? To use a specific example, we see the CCEC: How is linkage affecting current allowance to offset spread CCEC: How are compliance processes Ontario participants - what are some coming in quite tight, as entities in The main benefits of linkage and best practices evolving? of the main benefits and potential California and Quebec look to purchase are greater market liquidity, drawbacks? offsets to help with compliance by more market participants MB: Something that we are definitely the November 1, 2018 deadline. That to transact with and less seeing is more and more entities mov- MB: The main benefits of linkage are deadline is not relevant to Ontario en- of an impact if something ing into the secondary market. I believe greater market liquidity, more market tities, so a sense of urgency related extreme happens that affects there was a wait and see approach participants to transact with and less to the purchase of offsets by Ontario the market in one of the from most entities in Ontario prior to of an impact if something extreme hap- participants is unwarranted, as the jurisdictions. the linkage with California and Que- pens that affects the market in one deadline does not apply to them. bec. That linkage is now complete and of the jurisdictions. One of the major we ve had, certainly from a govern- drawbacks is the level of misunder- CCEC: How is the secondary market offsets, there is a strong sense of dis- ment perspective, a successful joint standing around what exactly it means evolving in Ontario? appointment in the lack of progress in auction in February. to link with California and Quebec. Ontario in developing offset protocols MB: The WCI linkage has created more and the offset market itself. What we are seeing now are more Most of this misunderstanding revolves liquidity in the secondary market, discussions regarding trading with around the fact that there is an extra making it a viable route for entities in The offset market is a secondary mar- counter-parties in both Quebec and year of compliance here in Ontario, so a regards to allowances. In regards to ket and is very much impacted by the 3

4 regulatory decisions made by the On- made on the post-2020 market by the impacting carbon strategy Entities need to consider tario Government. This is an issue and Ontario Government potentially this development? what will happen if the cap a concern for many Ontario based year and knowledge of their forecast- and trade system is removed, compliance entities, which is why we ed position will serve to dispel some MB: Political uncertainty does have what will happen if it is are seeing an increasing number of of that uncertainty. Of course, the up- an effect on strategy development, replaced by a carbon tax, and those entities exploring the California coming election will play a big role in because the uncertain future of the how they should be managing and Quebec markets for the purchase how those decisions progress. program means that any carbon strat- their carbon strategy based of offsets. egy needs to be flexible and dynamic on this level of uncertainty. CCEC: What key information on enough to adapt to changes in the po- CCEC: How is uncertainty around the post-2020 rules would allow litical and regulatory future of carbon the post-2020 landscape impacting participants to develop plans? pricing in Ontario. The WCI linkage has created business planning? more liquidity in the secondary MB: The major issue here is the cap Entities need to consider what will market, making it a viable MB: If you look at carbon markets decline factor, so how quickly will the happen if the cap and trade system route for entities in regards to across the globe, it s clear that one of overall cap will reduce over time in On- is removed, what will happen if it is allowances. the most important factors in those tario, which in turn will limit the over- replaced by a carbon tax, and how markets is market certainty. Entities in all allowances available in the system, they should be managing their carbon Ontario need to be sure that the mar- but more importantly, the number of strategy based on this level of uncer- compliance entities to engage in car- ket will be there long-term. Any com- free allowances received for those en- tainty. Making decisions only with the bon pricing discussion. We are always pliant actor needs that market cer- tities that are eligible. consideration of a single program can looking to meet new clients to present tainty to be able to make decisions on be risky and entities should be looking our services including how we can add investments, hedging and other mar- If you look at it on an entity by enti- to consider all the possibilities that are value to their position. ket-critical movements that require a ty basis, especially for those that are potentially viable at this point. level of certainty. receiving free allowances, the key in- With our focus on minimizing compli- formation will be exactly what their CCEC: What are you looking forward ance costs while maximizing opportu- The fact that there is a fair amount of benchmarking and baseline will be, to at the Ontario Cap and Trade Forum nities, we are confident we can do so uncertainty around the shape of the how they will be receiving free allow- on April at the Beanfield Centre for all compliance entities. In addition, program beyond 2020 has led to a ances and what to expect from that in Toronto? the many different market players that hesitance in Ontario entities making calculation? will be at the forum, it is an excellent long-term business decisions. That. MB: Firstly we are looking forward way to get an overall view of the mar- being said, there are decisions being CCEC: How is political uncertainty to seeing our clients, as well as other ket and its participants. 4

5 APRIL 18-19, 2018 BEANFIELD CENTRE, TORONTO Canada s largest carbon event focused on cap and trade strategies for industry participants KEYNOTE PRESENTER: The Honourable Chris Ballard, Minister of the Environment and Climate Change Government of Ontario SPONSORS: Hear from 50+ leading Industry, Government, and Carbon Market Experts including: Take advantage of this high-caliber networking opportunity with market participants in Ontario, Quebec and California s cap and trade markets and key government decision-makers. THREE WAYS TO REGISTER: olivia.mendoza@canadianclean.com 5