Editorial note: On Nov. 2, Laura Watson, director of the Washington State Department of Ecology, made a preliminary decision to pursue linking Washington’s cap-and-invest carbon reduction program to similar programs in California and the Canadian province of Québec. The decision was based on a report Ecology issued in October.
The preliminary decision signals to the other jurisdictions that Washington is ready to begin discussions between the three governments concerning the potential linkage of our carbon markets. California and Québec also have their own processes to determine whether to link.
In this blog, 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.
Why linking Washington’s carbon market is the path to a stronger future
In 2021, when Gov. Jay Inslee and the Washington Legislature were designing a new path to cut carbon pollution and address the growing damage climate change is causing to our state, they recognized that there could be strength in numbers.
In the legislation that became Washington’s Climate Commitment Act (CCA), the Legislature saw the potential to go beyond our state’s borders and forge a partnership to fight climate change by aligning with like-minded North American state and provincial governments. This type of joint effort is possible because of the design of the Climate Commitment Act: It created a carbon marketplace where allowances to emit greenhouse gases can be bought or sold. The number of available allowances decreases over time, thereby requiring businesses and other major emitters to invest in technology or programs to cut their emissions. In other words, the amount of statewide carbon pollution is “capped” and that cap decreases over time so that Washington can reach net zero emission by 2050.
Connecting the market here in Washington to similar programs elsewhere would create a larger, more liquid market – providing price stability and assurances to participating businesses that would incentivize wise long-term strategies to reduce emissions. A common market would also align the goals and mechanisms Washington is using to decarbonize its economy with our peers, ensuring that the combination is greater than the sum of its parts in influencing climate policy and advancing a clean energy economy.
With this in mind, the Climate Commitment Act directs Ecology to “seek to enter into linkage agreements with other jurisdictions” and charges Ecology’s director with negotiating and signing such an agreement.
It’s important to recognize that this potential combined market is not just a hypothetical idea: California and the Canadian province of Québec have operated a linked carbon market since Jan. 1, 2014. That combined market means that allowances have been interchangeable between the programs and they have conducted joint auctions of allowances.
Keeping Washington’s fair share of the benefits
While joining this successful partnership holds great promise, Gov. Inslee and legislative leaders wanted to ensure that Washingtonians would see the economic, environmental and health benefits that would come along with reduced emissions. While a ton of carbon dioxide emissions does the same damage to the climate no matter where in the world it gets emitted, there are very tangible and very specific local benefits that come from cleaner transportation, cleaner electricity generation, and cleaner buildings and heating.
Even in a program that partners with far-flung peers, Washington residents have a strong interest in seeing those localized benefits associated with air pollution reduction realized in their own communities.
The Climate Commitment Act lays out in detail the considerations and evaluations that Ecology needs to complete before signing on to a linkage agreement with California and Québec. Specifically, the CCA establishes criteria to ensure linkage would benefit Washington’s communities, economy, and climate goals.
In addition, Ecology must ensure that a linkage agreement would reduce compliance costs, ensure seamless sale and tracking of allowances, and maintain market security.
Next, the law directs Ecology to conduct an Environmental Justice Assessment in order to evaluate the potential impacts of the linkage agreement on Washington communities that bear more than their share of pollution, and that face economic and health challenges.
And finally, the law requires that Ecology consult with the public, Tribes, businesses, the state’s Environmental Justice Council, and other stakeholders before signing onto a linkage agreement.
As we prepared to make this preliminary decision, Ecology has gone beyond the law’s requirements to ensure we are reaching out to and hearing from key constituencies early in the process. Between Jan. 31 and May 15, Ecology sought public input on linkage, and held several online listening sessions, conducted a survey, and met with community groups and stakeholders. Ecology also sought input from Tribes and engaged with the Environmental Justice Council. Further public engagement will be central to the linkage process moving forward as well.
The preliminary decision to pursue linkage with California and Québec – and what comes after
Based on the public input, my staff’s preliminary analysis of the benefits and impacts of linkage, and the independent economic analysis Ecology commissioned last year, I have determined that seeking to link Washington’s cap-and-invest program to those in California and Québec likely offers our state the best path to a successful, stable carbon market that will allow us to meet the greenhouse gas emission limits set in state law.
This decision is not an end, but a beginning. We must now work with California and Québec to determine their interest in linking, what a combined market might look like, what issues need to be resolved, and what timeline would make sense for all three parties. We have determined that there will be both regulatory and statutory tweaks needed to Washington’s cap-and-invest program to facilitate a linkage agreement.
All of this will take over a year to complete and would need to occur before Washington could begin participating in a linked market. If no major obstacles arise, the soonest Washington could begin operating as part of a linked market would likely be 2025 or later.
The public will have a say in this process. There will be opportunities to learn more about linkage and to provide input on the proposed regulatory and statutory changes, and the draft linkage agreement. Ecology will also be conducting an Environmental Justice Assessment to determine how linkage would impact vulnerable Washington communities, and areas that have historically borne more than their share of pollution. And before an agreement is signed, my staff will update their analysis of the benefits and impacts of linkage and will publish a final report taking into account any changes in California’s, Québec’s, and Washington’s programs between now and then.
While there is much work still ahead of us, this is an important day. On Jan. 1, 2023, Washington launched the cap-and-invest program, our most ambitious and important carbon reduction policy. Now, on Nov. 2, 2023, we begin a new chapter by seeking to connect our carbon market to others.
I give my thanks to the Ecology staff that have worked tirelessly to establish the cap-and-invest program and investigate the potential impacts of linkage, and to the Washington residents, Tribal representatives, members of Washington’s Environmental Justice Council, and industry and nonprofit stakeholders who provided their input and advice as we conducted those evaluations. As we seek to reach a formal linkage agreement, we will continue to reach out to these partners and the public. I am grateful for your continued interest and input.
- Laura Watson, director, Washington Department of Ecology