Ecology Director announces decision to pursue linkage
On Nov. 2, Director Watson announced that the Department of Ecology will pursue linking Washington's carbon market with California and Québec. Director Watson explains her decision, the research and public input that led to the decision, and what happens next for Washington and its potential partners. Read the announcement.
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 has decided to pursue linking our carbon market with these other jurisdictions. 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 cap-and-invest program would mean that Washington would have joint allowance auctions with California and Québec, and all three jurisdictions would share a common allowance price. Market participants could also trade allowances across jurisdictions — meaning allowances issued by the other two programs could be used by Washington businesses to cover their emissions, and vice versa.
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 emitters reduces price swings when participants enter or leave the program.
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. First, we gathered input from our partners and the public on whether linkage would be beneficial for Washington and shared an initial evaluation of the linkage criteria set forth in the law.
On Nov. 2, Ecology announced that we will pursue linking with California and Québec. The other two jurisdictions would also need to go through their own processes to see if they want to link.
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 and, then, from stakeholders 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 is designed to align with California and Québec, we have identified policies that need further alignment through changes to the law and rules. We are currently developing agency request legislation and plan to start rule changes in the spring.
California and Québec may also need to make regulatory adjustments before entering into a linkage agreement.
We expect this part of the process would take at least a year.
California and Québec would need to go through their own respective processes to decide whether to link.
If all three jurisdictions determine that linking would be beneficial, we would begin discussing a linkage agreement and hold a public hearing to get comments 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 lead allowance prices to be lower, 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 should pursue 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 Washington’s program to be "linkage-ready," so many of the key aspects of our cap-and-invest program are already aligned with California and Québec's.
For example, Washington's program uses the same auction platform (administered by WCI Inc.). We also wrote our regulation to mirror those programs' floor- and ceiling-price calculations, and we adopted four offset protocols from the California program.
However, we have identified policies that need further alignment through changes to the law and rules in Washington. California and Québec may also need to make some regulatory changes if all three jurisdictions agree linking is a good idea. In Washington, the rulemaking process for linkage would take around a year, and all three programs would need to complete their regulatory changes before our 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 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.
Agency request legislation
We’ll need to submit agency request legislation to amend provisions of the CCA. We're interesting in your thoughts on the request legislation.
Read about the topics that may be included in the request legislation.
Environmental Justice Assessment for agency request legislation
We are in the process of completing an Environmental Justice Assessment for the agency request legislation development process, required under the HEAL Act. We held two public meetings on Oct. 25 and Oct. 26. We recently extended the comment period to accept comments until Dec. 31 to gather input from overburdened communities on impacts from this proposed legislation. Please contact us at CCALinkage@ecy.wa.gov to request a meeting.
We are holding separate forums for Tribal governments on Nov. 2 and Dec. 11. If you represent a Tribal government and would like to attend a Tribal Forum or meet with us, please contact us at CCALinkage@ecy.wa.gov.
Future opportunities for input
There will be other opportunities for public input in 2024 or later, before we make a final decision on linkage. You can sign up for Climate Commitment Act email alerts to stay up-to-date on our work.
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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