California-Quebec price forecast: Allowance price set to nearly double by the end of the decade

Over the past several years, California and Quebec have made increasing efforts to strengthen their respective climate targets. The two jurisdictions have both implemented policies to completely phase out the sale of new internal combustion engine (ICE) vehicles by 2035. Additionally, California plans to ban the installation of new gas boilers in buildings from 2030. In an effort to better align their cap-and-trade programs with their updated climate targets, California and Quebec regulators are currently conducting a reform process aimed at increasing their programs’ stringency. Most notably, regulators are considering reducing 2026 – 2030 supply by either 180 or 265 million allowances in California and an additional 17 million in Quebec. California regulators are also looking to extend their ETS through 2045 to help achieve its net-zero target for that year. When looking at the role supply and policy play in shaping future allowance prices, we found that prices depend largely on those jurisdictions’ phaseout of ICE vehicles and gas boilers. Depending on how they are implemented, those make for lower emissions permit prices in the medium and longer term – in one scenario where the technology bans are successful, the carbon price could be as low as USD 43/t in 2030 and USD 105/t in 2045. In the instance where adherence to these bans is unsuccessful, allowance prices may be as high as USD 89/t in 2030 and USD 234/t in 2045.