California is the most populous and economically powerful state in the United States. As a pathbreaker on environmental matters, it is able to fashion US environmental policy because of its market clout. The current row on car emission standards is an example of this.

Quebec, thanks to decisions made by Premier Robert Bourassa and his Liberal government in the 1970s, is a world leader in hydroelectricity and high-voltage transmission. Quebec produces 99.7% of its electricity from renewable sources. In 2007, Quebec was the first Canadian province to impose carbon pricing and in 2013 implemented a cap-and-trade system.

In 2014, California and Quebec linked their respective cap-and-trade systems under what is called the Western Climate Initiative (WCI). A somewhat ambitious title, as the initiative only has two members. Ontario briefly joined the WCI in January 2018, only to exit in July 2018.

In 2019, Quebec’s cap and trade system generated nearly one billion CAD thanks to the WCI. 

These proceeds are paid to the Quebec Ministry of Sustainable Development, the Environment and Fight Against Climate Change to fund environmental programs and initiatives. In October 2019, the Quebec government announced that it would be modifying legislation to ensure that the use of such funds is more focused, and that it wants the funds to be used exclusively to fight climate change and assist with the electrification of Quebec industry.

That same month, the Trump administration challenged the validity of the Quebec-California cap-and-trade agreement in federal court. Generally stated, the suit filed in the Eastern District of California alleged that California, by entering into the agreement, had infringed on the exclusive powers of the Federal Government to establish and carry out foreign policy. The federal court recently dismissed the Federal government’s challenge on July 16, 2020.

It is not clear what caused the federal authorities to institute the suit three years after President Trump arrived in office, nor whether the decision of the court of first instance will be appealed. The matter is not theoretical for Quebec. Quebec is very much interested in the outcome of the dispute. If the province cannot participate in WCI auctions, this would have a material adverse effect on Quebec’s funding of its environmental transition. Without California, the size of the market for Quebec emission allowances and the price therefor would be greatly reduced. Hundreds of millions are at stake and one can only hope that the Trump administration will let the matter rest.