Win-win-win: California and Québec set to link carbon market with Washington!
On June 25, California took the historic step of signing an agreement to link its carbon market with the state of Washington and the province of Québec. This agreement will create the largest subnational carbon market in the world. That’s a win-win-win for market stability, climate leadership, and innovative environmental progress!
California’s carbon market, also known as the Cap-and-Invest program, sets a statewide “cap” on carbon emissions. This cap is brought down each year. In order to enforce the cap, the state distributes emissions allowances to businesses through both auctions and direct allocation. Revenues from emissions allowance auctions are used on programs that further reduce greenhouse gas emissions, improve climate resiliency, and bring economic and public health benefits; in California, cap-and-invest revenues constitute the Greenhouse Gas Reduction Fund.
Since 2014, California and Québec have operated a cross-border cap-and-trade carbon market. This means that businesses in one jurisdiction have more flexibility to comply with regulations by using emissions allowances or offsets issued by the other. Linking the markets allows a larger set of participants to meet emissions reduction targets using the changes with the lowest cost, saving everyone money.
Adding Washington’s carbon market to the mix will amplify the benefits of the California-Québec linkage. Once implemented, market participants in all three jurisdictions will be able to use allowances and offsets issued by any of the three participants to cover their emissions. Additionally, the entire market would share an allowance price. As the cap on emissions tightens, these changes will create a more stable carbon market, which state officials predict will prevent volatility and accelerate the adoption of climate-smart solutions.
When the federal government is pulling out of international cooperation on climate, it’s all the more important that California steps up. California, Québec, and Washington are demonstrating that subnational governments can not only accelerate climate action through their own actions, but also magnify the effects of their leadership through joint efforts. I’m excited to advance California’s track record of collaboration, through this strategy and many others!