Washington state has relaunched rulemaking that will pave the way for linking the state’s cap-and-trade program with the already-linked programs of California and Quebec.
The new rulemaking will replace previous linkage rulemaking for Washington’s cap-and-invest program, which is the state’s name for cap-and-trade. The latest rulemaking will cover a wider range of topics, the Washington Department of Ecology announced March 31.
The earlier rulemaking started in April 2024. The Department of Ecology held public meetings and released draft rules July 1. Comments and information gathered during the previous linkage rulemaking will be used as part of the new rulemaking, the department said.
The potential rule changes will help Washington’s cap-and-invest program align with cap-and-trade programs in California and Quebec, although a new rule won’t create a linkage among the programs on its own.
In cap-and-trade programs, major greenhouse gas emitters must buy allowances that correspond to the amount of their emissions; the state also imposes an emissions cap that decreases over time. The state may use proceeds from allowance auctions to fund climate projects.
Linking carbon markets of multiple jurisdictions allows for joint allowance auctions, a common allowance price and trading of allowances between jurisdictions. With a larger pool of buyers and sellers, the linked markets generally have more consistent pricing and fewer price swings, the Department of Ecology said.
California and Quebec linked their cap-and-trade programs in 2014. Washington launched its cap-and-invest program in January 2023, and last year, the state legislature passed Senate Bill 6058, intended to facilitate the linkage with the California-Quebec market.
“We believe linkage will strengthen our respective efforts to fight climate change and reduce air pollution, while also encouraging more governments to adopt scalable, market-based climate policies in the future,” the three jurisdictions said in a joint statement issued in September.
Topics Covered
The new Washington state rulemaking involves changes to two rules: the Climate Commitment Act Program Rule and Reporting of Emissions of Greenhouse Gases Rule.
The previous rulemaking considered a range of topics, including compliance period length, program registration requirements and allowance purchase limits.
Electricity sector topics included reporting for electric power entities, coverage for imported electricity from unspecified sources, participation requirements for federal power marketing administrations and greenhouse gas emissions reporting methods.
Additional topics will be considered in the new rulemaking, including:
-
- imported electricity associated with centralized electricity markets;
- the amount of allowances allocated at no cost to electric utilities that must be consigned to auction during the second compliance period; and
- adoption of allowance budgets for the second compliance period (2027-2030) to ensure that emissions reductions are aligned with the state’s greenhouse gas emissions limits for 2030, 2040 and 2050.
The rulemaking topics may continue to evolve, the Department of Ecology noted, as California and Quebec work on potential changes to their cap-and-trade regulations. And legislation enacted in Washington state this year could prompt further rule changes.
The department will hold public meetings for the new rulemaking this spring through fall. The department expects to release a proposed rule early next year and adopt rule changes in summer 2026. An environmental justice assessment will also be conducted as part of the rulemaking.
The department previously projected that a linkage agreement could be in place in 2026, with linked markets beginning to operate in 2026 or 2027.