Washington state could be closer to joining the California-Quebec carbon market after the three governments issued a statement March 20 saying they will explore linking their cap-and-trade systems. 

The announcement came about a year after Washington held its first quarterly auction of carbon allowances following its cap-and-invest program’s launch in January 2023.  

California implemented cap-and-trade in 2013, followed by Quebec in 2014, with the two subnational governments merging their systems in 2014. Advocates of adding Washington to the mix cite the expectation that a larger market would increase liquidity in allowances and reduce costs for businesses and other organizations needing to meet greenhouse gas reduction targets.  

“Linking the California-Quebec carbon market and the Washington carbon market would enhance the ability of all three jurisdictions to work together to develop and implement cost-effective programs to fight climate change, while allowing each jurisdiction to maintain authority over its own program’s design and enforcement,” the March 20 statement said. 

In a linked market, allowances issued by each government could be used by businesses in any of the three jurisdictions to comply with their emissions caps.  

“The three jurisdictions would host joint auctions, and market participants could trade across jurisdictions — so allowance prices would be the same across the jurisdictions,” the statement said. “Each government would retain authority over their respective programs, but businesses would gain access to a larger pool of allowances.” 

‘Mutual Interest’

Wednesday’s joint statement notes the three jurisdictions already are cooperating by “sharing best practices regarding program design and implementation” through their membership in the Western Climate Initiative. A shared market would deepen that cooperation significantly.

“Though Washington has formally expressed interest in joining the California-Quebec carbon market, today’s joint statement is the first time that all three governments have expressed their mutual interest in forming a shared market,” Caroline Halter, spokesperson for the Washington Department of Ecology, which oversees that state’s program, told NetZero Insider via email

Details around integrating the markets will have to be hashed out among the three governments. 

“The three jurisdictions are following their respective processes to explore linking carbon markets. If the three jurisdictions enter into an agreement to link, linkage would then be attained through updates to regulations adopted by each jurisdiction,” the statement said. 

Washington already has advanced on that front. Last month, lawmakers in both Democrat-controlled houses passed a bill along party lines to align the state’s carbon market regulations with those of the California-Quebec market. While Republicans warned against linkage, House Majority Leader Joe Fitzgibbon (D) argued that New York, Massachusetts and Maryland are watching Washington’s efforts with the idea of creating their own cap-and-trade programs to eventually join the bigger market. (See Bill to Link Wash. Cap-and-trade with Calif.-Quebec Passes Both Houses.)  

The earliest the proposed linkage could take place is 2025. Lurking in the background is a Republican-backed November referendum in Washington on whether to repeal cap-and-invest, which critics have blamed for the state’s relatively high gas prices. 

In the auctions held last year, Washington carbon allowance (WCA) prices ranged from $48.50 to $63.03, reaching levels significantly above those in the California-Quebec market. But the first auction of 2024 held earlier this month saw prices for WCAs drop sharply to $25.76, well below the clearing price of $41.76 in the most recent California-Quebec auction.