Washington's cap-and-invest program

Roughly 75% of statewide emissions will be covered under this program. Generally, businesses are covered under the program if they generate covered emissions that exceed 25,000 metric tons of CO₂ equivalent per year. 

Covered business types include (but are not limited to) fuel suppliers, natural gas and electric utilities, waste-to-energy facilities (starting in 2027), and railroads (starting in 2031).

Landfills were removed from the program after the passage of HB 1663, which establishes a landfill-specific methane-reduction program.

In general, businesses with emissions below the 25,000 metric ton threshold are not covered by the cap-and-invest program. In addition, some types of fuel emissions are exempt under the law – meaning that businesses do not need to purchase allowances to cover those emissons, reducing their compliance costs. Of course, all exemptions are subject to documentation and verification. 

Exempted emissions include those from fuels used for agricultural purposes, aviation fuels, and marine fuels combusted outside of Washington. Emissions from fuels exported out of Washington are also excluded. 

Specific guidance about exemptions will be posted on the CCA Emissions Reporting webpage once available.

Cap-and-invest is a market based program — as allowances become more scarce, they become more valuable due to the powers of supply and demand. Businesses that do not sufficiently reduce their emissions will be faced with increasing compliance costs, so investing in cleaner operations is good for the planet and the bottom line.

If a covered businesses chooses not to comply with the program, the CCA directs Ecology to issue steep fines of up to $50,000 per violation, per day.

Cap-and-invest auctions are sealed-bid auctions — not like the classic highest-bidder-take-all auctions we see in the movies. Instead, participants can choose to submit a single bid for all their desired allowances, or a series of bids for groups of allowances at different prices. 

The bids are then automatically sorted in order of bid price, starting with the highest bid, and allocated to each bidder in that order. Once all the allowances are accounted for, the lowest bid that successfully won allowances is the price that all bidders pay. 

Participants who bid below that threshold will need to purchase their allowances from other businesses and individuals on the trading market, like buying stocks.

As required by regulation, we will issue a public notice of each scheduled auction at least 60 days before the auction date. These notices will be posted on the CCA Auctions and Trading webpage in the Auction Notices tab at the bottom of the page.

You can also sign up to receive auction alerts or general CCA updates to stay informed about upcoming auctions.

Businesses and individuals who want to participate in the cap-and-invest auctions — or buy and sell allowances and offset credits on the trading market — must first register with Ecology and provide information about their corporate structure and affiliations to make sure the marketplace is fair, safe, and transparent.

You can learn more about the auction and trading registration requirements on our CCA  Auctions and Trading webpage.

On Sept. 29, 2022, we adopted the final language for the Chapter 173-446 WAC rule, which includes the calculations for determining auction floor and ceiling prices for cap-and-invest auctions.

The specific floor and ceiling prices for each year will be announced on the first business day of December of the year preceding the relevant auctions. The prices for 2023 auctions were announced on Dec. 1, 2022.

The Legislature determined that three types of businesses should be issued allowances at no cost: "emissions-intensive, trade exposed" industries (EITEs), natural gas utilities, and electric utilities.

The amount of no-cost allowances a business receives depends on the type of business and their total baseline emissions or carbon intensity, so the exact amount will vary.

Offset projects reduce, remove, or avoid greenhouse gas emissions. Offset projects include things like reforestation, planting trees in urban areas, and removing ozone from the atmosphere.

By investing in these projects, businesses, governments, and individuals receive offset credits. In the cap-and-invest program, emitters can use these credits to cover a small portion of their emissions.

Yes, but there are limits.

In the first compliance period, 2023-2026, participating entities can cover up to 5% of their emissions with offset credits, and can cover an additional 3% with credits from projects on federally recognized Tribal lands.

In the second period, 2027-2030, the general limit drops to 4%, with an additional 2% from projects on Tribal lands.

In our proposed rule language for Chapter 173-446 WAC, we are proposing to apply the offset credit limits from the second period to all remaining compliance periods through 2050.

Applications for listing offset projects are currently available in these categories:

• Livestock
• Reforestation
• Avoided conversion
• Ozone-depleting substances
• Urban forestry                                          

Offset verification registration applications for:

• Verification bodies for offset projects
• Verifier of offset-project data reports