California, Québec and Washington issue joint statement on linkage
All three governments formally expressed mutual interest in forming a shared carbon market for the first time on March 20. Read the joint statement.
Established by the Climate Commitment Act (CCA) in 2021, Washington’s cap-and-invest program is only the second of its kind in the United States. The first U.S. program began in California in 2012, and a similar program was launched in Québec, Canada the following year. Given their similar structure and goals, it was determined that "linking" the two carbon markets could yield important benefits in emissions reductions and long-term program sustainability. California and Québec connected their programs in 2014, creating one shared carbon market.
Washington seeks to link with the California-Québec market, and all three jurisdictions have expressed mutual interest in this possibility. California and Québec would need to undergo their own processes to decide whether to link. All three programs might need to revise some regulations, so finalizing linkage would not happen until at least 2025.
Linkage means combining Washington's cap-and-invest program with similar carbon markets.
A linked market, allowances issued by California and Québec could be used by Washington businesses to cover their emissions, and vice versa. The three jurisdictions would host joint allowance auctions and share a common allowance price. Market participants could also trade allowances across jurisdictions.
The Climate Commitment Act directs us to actively consider linking Washington's cap-and-invest program with other carbon markets and requires that our state's program be built in such a way that linking would be as seamless as possible. However, the law also requires us to review specific criteria to ensure linkage would benefit our state’s communities, economy, and climate goals.
Linkage overview video
The video provides an overview of how Washington's cap-and-invest market currently works and how it would change if linked with other markets.
Joining markets would not negatively impact Washington's ability to meet the emissions-reduction commitments set in state law.
Linking would reduce the cost of compliance for covered businesses.
The linking jurisdictions have provisions to ensure their programs provide benefits to vulnerable populations and overburdened communities.
Linking would not have an overall negative effect on highly impacted communities in any jurisdiction.
In addition, we are required to conduct an Environmental Justice Assessment before we can approve a linkage agreement.
What are some of the potential impacts of linking markets with California and Québec?
When California and Québec linked in 2014, it created a single market with a higher volume of emissions allowances being traded. Larger markets are generally more stable and have more consistent pricing, because a larger pool of buyers and sellers reduces price swings.
The agreement to link California and Québec's markets has enabled businesses to participate in these programs more sustainably and has generated lasting reductions in carbon pollution and much-needed revenue for critical climate projects.
Linkage Criteria: Preliminary Analysis Report
Read the report for our analysis of how linking would impact Washington’s communities, economy, and climate goals. The report includes our initial evaluation of the linkage criteria from the CCA and a summary of input received. We will continue to assess the potential impacts of linking and share a final assessment of the criteria before making a final decision to link. Read the Preliminary Linkage Criteria Analysis.
Linkage process and timeline
The decision to link markets is a multi-step process that will include additional opportunities for public input.
In March, Washington, California and Québec issued a joint statement expressing mutual interest in linking carbon markets.
Below, you'll find a general timeline for how we expect this process to roll out, and we'll update this information if we anticipate any changes.
In early 2023, we began engaging Tribal governments and seeking input from the Environmental Justice Council, followed by other interested parties and the broader public. We used this input to inform our analysis of the linkage criteria laid out in the CCA and the preliminary decision on whether to pursue linkage.
We provided multiple options for submitting comments, including three online listening sessions, an online survey, email, mail, and voicemail. For a link to the recording of an online public listening session, please email us at CCALinkage@ecy.wa.gov.
We held a forum for Tribal governments on Feb. 9, 2023. If you represent a Tribal government and would like to meet with us, please contact us at CCALinkage@ecy.wa.gov.
On Oct. 12 we issued a report covering our initial analysis of the linkage criteria, as well as a summary of the feedback we received during our exploratory process.
We initially planned to announce this preliminary decision in summer 2023, but moved back that decision to fall 2023 to give the Environmental Justice Council more time to discuss the topic. We will conduct a full Environmental Justice Assessment before finalizing or signing a linkage agreement.
While much of Washington’s program was designed to align with the programs in California and Québec, some policies need further alignment through changes to the law and rules. In March, Governor Inslee signed our request legislation to make those changes to the law, and we began the linkage rulemaking process in April. We expect this part of the process to take at least a year.
California and Québec would also need to make regulatory adjustments before entering into a linkage agreement.
California and Québec have their own respective processes to decide whether to link.
Now that all three jurisdictions have expressed interest in linkage, the next step would be discussing a linkage agreement. In Washington, we would hold a public hearing on the proposed agreement. We would also issue a final assessment of the linkage criteria prior to making a final decision on linkage.
Before Washington can enter into a linkage agreement, the CCA requires Ecology to conduct an Environmental Justice Assessment. As a part of this assessment, Ecology will identify overburdened communities and vulnerable populations that could be impacted by linkage and will offer Tribal consultation.
Depending on the outcome of these steps, we may sign on to a linkage agreement. At this time, we cannot predict if or when we would enter into a linkage agreement with California and Québec and start holding joint allowance auctions. However, we know that the long series of steps necessary to link would take more than a year, so Washington's program would not be linked until 2025 or later.
More information
If Washington links with the combined California-Québec market, then any allowances issued by Washington, California, or Québec could be used for compliance by a Washington entity. For example, if linkage occurs before the first compliance period deadline (Nov. 1, 2027), we expect that allowances issued by Washington, California, and/or Québec may be used by Washington businesses to cover emissions from 2023 through 2026.
Each jurisdiction may need to make regulatory adjustments before entering into a linkage agreement. The California and Québec rulemaking processes and the timeline for finalizing a linkage agreement could change the above expectations.
The Legislature established an expectation of linking with other markets when it passed the Climate Commitment Act. The law clearly directs us to pursue linkage if it's determined to be beneficial, though it does not provide a specific timeline for doing so.
In October, Ecology shared our initial analysis of the impacts of linkage. The Cap-and-Invest Linkage Criteria: Preliminary Analysis Report makes clear that a larger, more liquid market with a greater number of participants would likely provide greater price stability and lead to a more durable program. Predictable allowance market prices are important, because they give covered entities the certainty needed to make long-term investments in decarbonization.
Washington is pursuing linkage with California and Québec because it is expected to provide substantial benefits to Washington’s cap-and-invest program, economy, and communities. And we expect linking to help our state successfully decarbonize its economy and meet our greenhouse gas reduction mandates established by the state legislature.
Given the significant impact linkage is projected to have on allowance prices and market stability, we prioritized exploring linkage, beginning that process alongside the implementation of the cap-and-invest program.
The CCA directed us to develop a "linkage-ready" program in Washington, so many key aspects of our cap-and-invest program are already aligned with California's and Québec's.
For example, we use the same auction platform (administered by WCI Inc.) as California and Québec. We also wrote our regulation to mirror those programs' floor- and ceiling-price calculations.
However, some policies need further alignment through changes to the law and rules in Washington. In 2024 lawmakers passed legislation addressing needed changes to the law, and we then started the rulemaking process. California and Québec would also need to make regulatory changes in order to link. We expect Washington's rulemaking process to take about a year, and all three programs would need to complete regulatory changes before markets could actually be linked. This means Washington wouldn't officially join the shared market until 2025 or later.
Stay updated on next steps
We asked for public input during a Spring 2023 outreach period, which ended May 15, 2023. We used your input to inform our analysis of the linkage criteria laid out in the CCA and the preliminary decision to pursue linkage.
The Preliminary Linkage Criteria Analysis includes background on linkage, a summary of input received, and Ecology’s initial evaluation of the linkage criteria from the CCA.
Linkage rulemaking
Governor Inslee signed our request legislation in March, which allows us to make necessary changes to program rules to facilitate linkage. We have begun the rulemaking process, and you can find more details about topics under consideration here.
We will host public meetings for the rulemaking starting in Summer 2024. Sign up for Climate Commitment Act email alerts to receive notifications for meetings and online comment opportunities.
Future opportunities for input
In addition to the rulemaking process, there will be other opportunities for public input before we make a final decision on linkage. We will host a public hearing to get feedback on a draft linkage agreement and ask for input as part of an Environmental Justice Assessment.
La directora de Ecología tomó la decisión preliminar de proseguir con el enlazamiento del mercado de carbón de Washington con los mercados de carbón de California-Quebec. Este es el comienzo de un proyecto de varios años para enlazar los mercados de carbón. Este proceso incluye alinear los reglamentos del mercado de carbón, completar una Evaluación de Justicia Ambiental, desarrollar un acuerdo para el enlazamiento, y obtener comentarios del público.
Giám Đốc Bộ Môi Sinh đã đưa ra quyết định sơ bộ để theo đuổi việc kết hợp thị trường carbon của Washington với thị trường carbon của California - Québec. Đây là sự khởi đầu của một quá trình kéo dài nhiều năm để kết hợp các thị trường carbon. Quá trình này bao gồm việc điều chỉnh các quy định về thị trường carbon, hoàn thành Sự Đánh Giá Công Bằng Môi Trường, xây dựng thỏa thuận sự kết hợp và lấy ý kiến đóng góp của công chúng.
주 환경부 장관은 워싱턴 탄소시장과 캘리포니아-퀘벡 탄소시장을 연결하기로 예비결정을 내렸습니다. 이는 탄소시장을 연결하기 위한 다년간 프로세스의 시작입니다. 이 프로세스에는 탄소시장 규정조정, 환경정의 평가완료, 연계계약 개발, 대중의견 수렴이 포함됩니다.
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