And we have liftoff! Those who follow this blog series know that the cap-and-invest program, established by the Climate Commitment Act (CCA), officially launched on Jan. 1. While this is a significant milestone for our department and for the State of Washington, it really means the work is just beginning.
It’s been a couple months since we updated, so — full disclosure — this post is a long one. We’ll dive into program updates shortly, but first, we wanted to take a moment to focus on a topic that you’re likely to hear a lot more about in the coming months: Linkage.
Washington’s cap-and-invest program is only the second of its kind in the United States. The first began in California, in 2013, at the same time a similar program launched in Québec, Canada. Because the programs were so similar, they determined that combining the two markets could benefit both jurisdictions by making it easier for businesses to comply and for both programs to achieve their emissions-reduction goals.
In a linked market, emitters from both jurisdictions purchase allowances from a shared marketplace at joint auctions. This means there’s a greater supply of emissions allowances and greater demand. Having more participants reduces the potential for price swings if new emitters enter the program (increasing demand and pushing prices up) or if existing businesses reduce emissions quickly (decreasing demand and pushing prices down).
Termed "linkage," the joining of these two programs in 2014 has enabled businesses to participate successfully, supporting lasting environmental progress and providing revenue for important climate projects.
Is Washington going to link?
The simple answer is: We don’t know yet — and we’re not the only ones who will make that decision.
The CCA directs us to develop Washington’s program to be "linkage-ready,"’ so many of the key aspects of our program are already aligned with those of California and Québec. Staff from both jurisdictions generously provided time and insight to help us navigate the development and implementation of our carbon market, which played a critical role in our ability to build this important program swiftly and effectively.
The law also requires us to undergo a public process to determine whether linkage would benefit Washington’s environment, economy, and communities. It lays out specific criteria that must be met in order for Washington to link with other jurisdictions.
Beside that, even if we find that linkage would meet all the criteria laid out in the CCA, both California and Québec would need to go through their own processes to determine whether they think it would be beneficial. A linkage agreement would need to have an overall positive impact on all jurisdictions.
So, the decision to link has not been made yet. We likely won’t make a determination for Washington until the summer of 2023 — and even if all three jurisdictions agree, we wouldn’t expect a linkage agreement to be complete until 2025 or later.
Where are we now? Tribal Forum and listening sessions
We are beginning to consult with tribal governments and held a Tribal Forum on Feb. 9 to hear feedback on whether tribes think linking is a good idea, and on what we should be looking at as we work to come to a decision.
In addition, we recently announced three public listening sessions, aimed at providing environmental groups, businesses, communities, and the general public an opportunity to provide input on linkage.
During these sessions, we will cover some background on the CCA and cap-and-invest, then dive into linkage — providing insight into what the law requires and what we think our public process is going to look like. Then, we want to hear your opinions on linking, the most important things for us to consider, and what you think the impact of linking our program with California and Québec could be.
Upcoming listening sessions
You can sign up for these sessions using the links below:
While all four engagement opportunities include time for comments and feedback, we also continue to take input via email, voicemail, and in writing, both before and after these events. We’re also working on a survey that will be posted on our website, so stay tuned for updates.
Speaking of our website, we recently launched a new webpage for linkage, which has all this information and more. You can also sign up for our CCA email alerts if you want to stay up to date on new linkage announcements in the coming months.
Possibly the biggest update since our last blog was the announcement of the first cap-and-invest auction, scheduled for Feb. 28. We shared information about the auction in December, including information about the auction floor and ceiling prices.
We will provide an Auction Results Summary Report on March 7, after all the auction data are processed. This report will provide information about the auction settlement price and number of allowances sold. On March 28, we'll release an Auction Public Proceeds Report, which will detail the amount of revenue raised in the first auction. In the future, these reports will also tally the total amount of revenue raised since the program began. We’ll provide these reports after each quarterly auction, and they’ll be available on our Cap-and-invest auctions and trading webpage.
We’ll also provide a list of all the businesses that and individuals who were qualified to participate in the auction, but we won’t indicate whether they actually placed a bid or not. While we understand many people might be curious, information about who bid could provide insight into program participants’ compliance strategy. The security of the market is our primary concern — that’s what makes the program work, after all. Market participants are prohibited from sharing their intent to bid with other participants, so we hold ourselves to same standard, to preserve the market’s integrity.
We’ve mentioned before that we are working to provide as many trainings and resources as possible to help businesses covered by the cap-and-invest program participate effectively. While we also continue to provide one-on-one support to dozens of businesses and individuals, we’ve held and scheduled even more trainings, both on how to participate in auctions and on how specific sectors should report their emissions.
You can find information about upcoming and recorded trainings on our CCA Emissions Reporting and Auctions trainings and resources webpages.
In addition to all our trainings for covered entities, we’re also providing detailed guidance to help covered businesses comply with the program as easily as possible. Of particular note, we recently issued two guidance documents to help fuel suppliers understand how to document the sale of exempted fuels, such as those used by farmers, marine fishing vessels, and aircraft.
These documents and other guidance for the electric sector can be found under the Emissions Reporting Guidance and Resources dropdown on our CCA Emissions Reporting webpage.
While the CCA covers approximately 75% of statewide emissions, the Legislature determined that certain types of fuels and fuel uses should be exempt — either because of existing federal regulation, or to protect critical sectors, such as agriculture, from incurring costs under the program.
Under the law, the following are exempt:
Fuel suppliers that sell fuels in these categories can use different methods, such as account codes, relevant tax forms, and other methods, to document exempted sales and have those emissions deducted from their compliance obligation. Of course, proper documentation of exemptions is required by law as part of accurate emissions reporting, but it also saves fuel suppliers money, since they don’t need to purchase allowances to cover those emissions.
Working toward a win-win
We’re aware that some fuel suppliers have been increasing prices and attributing those costs to the cap-and-invest program — even though the first auction isn’t until the end of February and the first compliance deadline isn’t until November 2024. Especially concerning are reports that some suppliers have been charging these increases on exempted fuels, passing on projected compliance costs to distributors who sell to farmers and fishing-fleet operators. We developed an FAQ on this topic last month to address some of the misinformation being spread about the origin of these price hikes.
We developed the guidance documents linked above as part of our effort to address this issue, and we are finalizing a certification form for agricultural exemptions. Our goal is to help covered fuel suppliers better understand how to document exemptions and reduce compliance costs, hopefully passing those savings on to their customers.
Lastly, we continue to provide direct, one-on-one assistance to fuel suppliers and other businesses throughout the supply chain, as well as members of the public, to ensure that everyone has accurate information about exemptions and documentation requirements. Fuel suppliers should not be assessing compliance-related surcharges on exempt fuels.
The new guidance should resolve the issue for the majority of transactions involving exempt fuels. If you have questions or concerns about this issue, you can email us at CCAQuestions@ecy.wa.gov.
Till next time
Well, there you have it, you’re all caught up on the CCA!
After our first auction at the end of the month, we’ll have more information to share, so be sure to sign up for our CCA email alerts to stay up-to-date on blogs, auction notices, trainings, and more.