Proposition 23 has been defeated and Democrat Jerry Brown has been elected Governor, along with Democrat incumbent Senator Barbara Boxer. These outcomes will send a strong and clear message to markets across North America – including Ontario – that California will be front and centre in efforts to implement market-based instruments such as a cap-and-trade system to help reduce greenhouse gas (GHG) emissions.

In a recent blog I noted that California is a key player in the Western Climate Initiative (WCI), a collaboration of US states and Canadian provinces with a mandate to reduce GHG emission to 15 per cent below 2005 levels by 2020. California’s GHG emissions represent nearly three-fifths of the five remaining WCI members who are ready to launch a permit trading system in January 2012. The other four WCI members “ready to go” in 2012 are Ontario, Quebec, British Columbia and New Mexico.  After California, Ontario is the next largest emitter, representing about one-quarter of member GHG emissions.

But, we’re not out of the woods yet. Another proposition on the California ballot – Proposition 26 – did pass, with potentially ominous implications for carbon markets. Called the “Stop the Hidden Taxes Initiative”, (according to critics; a thinly disguised attempt to protect polluters rather than taxpayers) it has the potential to throw a wrench into California’s WCI plans. Why? Because it rebrands the “permits” apportioned to California polluters as a form of “tax”, thereby requiring two-thirds, rather than a simple majority, vote of the Legislature to enact how these permits are allocated, priced and traded.

The good news is, with California still in the WCI tent, the size of the fledgling WCI carbon market will be much more robust; with greater liquidity and a reduced – but not eliminated – chance for volatile permit price swings. With this uncertainty being eliminated, all eyes now turn to the Ontario government. Will it follow through with its commitment to cap-and-trade? When will the decision be posted?