Nations, states and sub-national governments are planting domestic capital - monetary and political - into stand-alone actions that could school Cancun negotiators on the shape of a future climate compact.  

One of these stand-alone markets - California’s cap and trade program under AB32 - captivates market participants’ attention as voters axed the scheme-killing Proposition 23 in the US midterm elections, only to wake up to another, more subtle threat on November 3rd: Proposition 26.

While some are (rightfully?) concerned about the passage of Proposition 26 - which reclassifies some regulatory “fees” as “taxes,” thus requiring a two-thirds majority vote to levy - California’s in-the-know environmental players say the sleeper initiative may not have teeth. At least not for taking a bite out of cap and trade implementation.

On the topic, National Resource Defense Council’s Legal Director for Western Energy and Climate Projects Kristin Eberhard makes a simple argument. She explains that Proposition 26 only applies to “any change in state statute” that occurs after January 1, 2010. Coincidentally, AB32 was signed into law way back in 2006.

“Although AB 32 implementation is ongoing,” she explains, “authority to impose fees on polluters under AB 32 will not require “any change in state statute” post January 1, 2010.” Another analyst points out that, judging by the sound defeat of Proposition 23, the “intent of the voters” and meaning behind Proposition 26 was not to interfere with AB32 implementation.

Climate Action Reserve President Gary Gero echoes the sentiment of California Air Resources Board Chair Mary Nichols and others in an interview with Ecosystem Marketplace: “The general assessment is that it does not affect AB 32 implementation,” he explains. “We’re feeling better about it.”

“It was a little murky leading up to the election,” he continues, “and even as the analysis was being done not everyone was certain what the impacts would be. But it’s starting to become a little clearer.”

And everyone in the carbon schoolyard should take note of the scheme’s inaugural forward California Carbon Allowance trade between Barclays Capital and NRG Energy. Barclays says the CCAs will be delivered on December 2012. This vintage last week saw offers priced at $11.50/tCO2.

Says Eric Klein, environmental markets director for broker Tradition Financial Services, “There’s a live market. We’re pretty much going to go forward in California.”  

While California is sorting out its ballot challenges, regions and nations are also making some “new school” gestures at market innovation. As it turns out, California decision-makers have already turned their attention from legal minutia to extend a hand to the Brazilian state of Acre and Mexican state of Chiapas - to color the California scheme REDD.

Elsewhere, the Japanese government continues to ramp up development of a domestic carbon trading scheme while the the African Carbon Asset Development Facility farms out finance to domestic projects and Jakarta looks to the future with a futures exchange to bring CDM trades closer to home. All this and more in this week’s issue of V-Carbon news.