QUEBEC — On Tuesday, Jan. 1, Quebec and California became the first jurisdictions in North America to enforce compulsory cap-and-trade regulations to reduce greenhouse gas emissions.

The idea was pushed by former California governor Arnold Schwarzenegger and former Quebec premier Jean Charest, within the Western Climate Initiative, which includes seven states and four provinces — Quebec, Ontario, Manitoba and British Columbia.

Quebec and California will set allowable emissions limits in the first year, with the permitted amount reduced over time.

Quebec aims to reduce its greenhouse gas emissions to 25 per cent below 1990 levels by 2020. California aims to return to its 1990 level of greenhouse gas emissions by the same year.

“The Quebec government is ambitious,” said Jean-Yves Benoit, a climate change expert with Quebec’s Environment Department.

If a facility exceeds its emissions limit, or cap, the owner can buy carbon credits from another producer whose emissions are below the allowed limit, or buy carbon offsets, such as an untilled farm field or a forest that can absorb a specific quantity of carbon dioxide.

Initially, about 80 industrial facilities, belonging to 60 companies — refineries, cement plants, paper mills, Hydro-Québec power stations and aluminum plants — will fall under the new regulations.

The facilities generate 25,000 tonnes or more a year of greenhouse gases, and will be required to reduce emissions so that Quebec hits its reduction target by 2020.

During the first phase, the province will give free carbon allowances to emitters facing international competition, to ensure the new rules do not hurt their business, Benoit explained.

Facilities can invest in green technology to meet their reduction target, and if they have extra credits, the credits can be sold.

“This is where the market starts,” Benoit said.

At the start, companies can deal directly with each other, he explained. Then, brokers can get involved, and banks have shown interest in the carbon market.

In 2015, a second phase of Quebec’s cap-and-trade plan will come into effect, extending the plan to vehicle fuel distributors.

In May 2008, Charest, accompanied by then-Quebec environment minister Line Beauchamp and then-federal environment minister John Baird, participated in a ceremony to inaugurate the Montreal Climate Exchange, where futures contracts were to be traded.

The Montreal Climate Exchange was a joint venture with the Chicago Climate Exchange. Both offered carbon credits on a voluntary basis, but without demand there was no market, Benoit said. So they ceased operations.

Similarly in Europe, ICE Futures, operated by the IntercontinentalExchange, recently resumed trading following a nearly two-year shutdown. Investors lost confidence in the European carbon market after a series of scandals and the alleged theft of 30 million euros (almost $40 million) in emissions allowances. As well, an oversupply of carbon allowances drove down prices.

Trading resumed after the European Commission took steps to rebuild confidence in Europe’s 80-billion-euro market (about $105 billion).