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In 2018, Ontario will link its market to California and Quebec, which have both had cap and trade in place since 2012. But California’s market is currently awash in allowances that haven’t been selling out in the quarterly auctions, meaning they’re available for cheap when Ontario links up.

“If (businesses) buy such allowances instead of reducing emissions in Ontario, Ontario emissions may not go down much, and there could be a substantial capital outflow to California,” it states. The report notes that number could be as high as $300 million annually by 2020.

Buying California allowances does mean Ontario can claim some emissions reductions there for its own reduction targets, but Saxe said it creates a dangerous complacency.

“If we have too much dependence on California allowances, then we could get stuck,” Saxe said in an interview. “If you haven’t reduced your emissions on a durable basis, then the next year it’s going to be harder, and harder, and harder.”

There are some steps Ontario can take to lessen its dependence on California — such as allowing businesses to buy made-in-Ontario offsets, which fund programs here that reduce greenhouse gases — but ultimately the province is at the mercy of an economy that’s four times as large. It’s possible California’s market will remain over-allocated with allowances for years, keeping them cheap and plentiful.

The allowances are sold in quarterly auctions, which have performed weakly in 2016. Just 11 per cent of allowances on offer were sold in the California-Quebec auction in May, and 35 per cent were sold in August’s auction.