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 could need revisions to some regulations, so the soonest we can reasonably expect to have a linkage agreement is late 2025.
Linkage means combining Washington's Cap-and-Invest Program with similar carbon markets.
In 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 it 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.
Environmental & health considerations of linkage
By law, we must evaluate the effect on vulnerable populations and overburdened communities before making a final decision to link markets. For our initial assessment of potential impacts, read the Preliminary Linkage Criteria Analysis.
We'll review new information about changes California and Québec may make to their programs as we continue to refine our analysis.
We’re also looking at potential impacts to overburdened communities and Tribes as part of the Environmental Justice Assessment. Learn more about the assessment and how to share your input.
CCA policies that center communities and Tribes
The CCA includes several policies to address potential environmental justice concerns for communities and Tribes. Read more about these policies below or in our CCA: Focus on Environmental Justice resource. These polices will stay in place if we link with California and Québec.
Under the CCA, Ecology must reduce “criteria” air pollution in Washington's most affected communities. Criteria air pollutants are six common substances known to harm human health and the environment: carbon monoxide, lead, nitrogen dioxide, ozone, particle pollution, and sulfur dioxide. Ecology identified 16 Washington communities that are historically overburdened with health, social, and environmental inequities and are highly impacted by air pollution.
Improving air quality will happen in stages over multiple years. In August, we launched a grant program for these communities. We also plan to set stricter air quality standards for the 16 overburdened communities.
Every two years, we'll report on air pollution, greenhouse gases, and health impacts in each community. We'll review the list of communities every six years. Our first report published in December 2023.
In a linked market, we'd continue to expand air quality monitoring and reduce pollutants in these communities. Read more about our air quality work.
The CCA also directs us to consider air quality when approving new, high-emission industrial facilities classified as emissions-intensive and trade-exposed (EITEs). New EITEs covered under the Cap-and-Invest Program must reduce their impact on particle pollution in the affected communities.
Businesses can use offset credits from qualified projects to cover a small portion of their emissions (up to 8%). These offsets are “under the cap,” meaning we reduce the number of allowances we issue by the number of offset credits used, keeping us on track to meet our statutory commitment to reduce emissions by 95% by 2050.
The CCA gives us the authority to reduce the number of offset credits a business can use if we determine it contributes substantially to air pollution in an overburdened community.
If we link, Washington would still have these restrictions on the use of offset credits.
In a linked market, the revenue from the sale of allowances that Washington adds to a joint auction would fund projects in Washington.
While the Legislature is responsible for selecting which types of projects are funded, the Climate Commitment Act includes some specific requirements that ensure the benefits of this program are enjoyed by all of Washington. The CCA requires that a minimum of 35%, with a goal of 40%, of Washington’s auction proceeds be used for projects that provide a direct benefit to vulnerable populations within overburdened communities. In addition, 10% of auction funds must be used for projects with Tribal support.
Separately, Ecology administers two grant programs for Tribes through the CCA. Tribal Consultation Grants provide support for federally recognized Tribes with lands and territories in Washington to engage in the consultation process on CCA funding decisions and clean energy siting studies.
Tribal Carbon Offset Assistance Program Grants assist federally recognized Tribes with lands and territories in Washington State in designing, assessing, and implementing carbon offset projects on Tribal lands. The Legislature must allocate at least $5 million biennially for the carbon offset grant program. In a linked market, both the Tribal funding portion and grant programs would continue.
These measures ensure the CCA's benefits reach all Washingtonians.
Washington's law mandates regular program reviews to verify emissions reductions align with state limits. Linking wouldn't impede our ability to adjust the Cap-and-Invest Program through rule or law changes. The law also ensures any linkage agreement includes provisions for withdrawal or delinking, preserving our autonomy and flexibility in emissions management.
Linkage Criteria: Preliminary Analysis Report
Ecology's report for our analysis of how linking would impact Washington’s communities, economy, and climate goals includes our initial evaluation of the linkage criteria from the CCA and a summary of input received. We'll continue to assess the potential impacts of linking and share a final assessment of the criteria before making a final decision to link.
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 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, 2023, 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'll 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.
Of note: California and Québec also would need to make regulatory adjustments before entering into a linkage agreement.
Before Washington can enter into a linkage agreement, the CCA requires Ecology to conduct an Environmental Justice Assessment focused on understanding how linking Washington’s carbon market to the California-Québec market could potentially impact overburdened communities. As a part of this assessment, we’ll identify overburdened communities and vulnerable populations that could be impacted by linkage, and we'll also offer Tribal consultation.
We began this Environmental Justice Assessment in June. Information on how to share your input is available below. If you have questions or would like to schedule a meeting with us about the Environmental Justice Assessment, please email CCALinkage@ecy.wa.gov.
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 to discuss a linkage agreement. In Washington, we would hold a public hearing on the proposed agreement. We'd also issue a final assessment of the linkage criteria prior to making a final decision on linkage.
Depending on the outcome of these steps, we may sign on to a linkage agreement. At this time, we can't predict if or when we would enter into a linkage agreement with California and Québec and start holding joint allowance auctions. This is because all three programs would need to complete regulatory changes before markets could actually be linked.
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 doesn't 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's expected to provide substantial benefits to Washington’s cap-and-invest program, economy, and communities. 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 directs us to develop a "linkage-ready" program in Washington, so many key aspects of our Cap-and-Invest Program are already aligned with the programs in California and Québec.
For example, we use the same auction platform as California and Québec, which is administered by WCI Inc. 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. All three programs would need to complete regulatory changes before markets could actually link.
Share your input
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've begun the rulemaking process.
We're accepting written feedback from June 3 at 5 p.m. through Sept. 27, 2024, at 11:59 p.m. Sign up for Climate Commitment Act email alerts to receive notifications for meetings and online comment opportunities.
Environmental Justice Assessments
We are doing two Environmental Justice Assessments related to a possible carbon market linkage. The first focuses on understanding how linking Washington’s carbon market to the California-Québec market could potentially impact overburdened communities, as defined in the HEAL Act. The second focuses on understanding potential impacts of specific rule changes that would need to occur in order to link (Chapter 173-441 WAC and Chapter 173-446 WAC).
Under the HEAL Act, “overburdened communities” are defined as geographic areas with combined, multiple environmental harms and health impacts facing vulnerable populations, meaning groups of people who are more likely to be at higher risk for poor health outcomes in response to environmental harms. The purpose of an Environmental Justice Assessment is to identify a wide range of potential environmental justice impacts an action may have. The Environmental Justice Assessment is required to occur in the early developmental stages of our work and helps us make informed decisions to reduce environmental harms and to address environmental and health disparities in overburdened communities.
We’ll host a series of listening sessions to hear how the potential linkage of carbon markets could impact Tribal communities, communities of color, low-income communities, and other communities who face environmental harms/health impacts. We’ll also have individual and small group meetings and accept written feedback.
You also can submit written comments online for both Environmental Justice Assessments or email them to us at CCALinkage@ecy.wa.gov. The current comment period runs from June 3, 2024, at 5 p.m. through Sept. 27, 2024, at 11:59 p.m. We plan to hold additional comment periods after we review the first set of comments.
If you have any questions or would like to set up a meeting, contact CCALinkage@ecy.wa.gov.
Future opportunities for input
There will be more opportunities for public input before we make a final decision on linkage, including a public hearing to get feedback on a draft linkage agreement.
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.
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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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