Scaling climate leadership across borders: The case for linkage

Big challenges are solved through engagement and partnership. As the federal government has retreated on climate in devastating ways, California’s leaders understand that working together beats going it alone.

State-level policy has become more essential than ever, especially policies that are scalable and replicable, so states can adopt proven solutions and work together to cut emissions and deliver real investments to communities.

California and Québec have worked together for over ten years to cut emissions through a linked carbon market, and their partnership is poised to add the state of Washington. This framework is a model for how subnational action can play a vital role in tackling climate change while Washington, D.C. fails to lead.

California’s Cap-and-Invest program is a platform for climate leadership

Cap-and-Invest puts a binding, declining limit — a “cap” — on climate pollution, requires polluters to pay for the emissions they create under that limit and then reinvests the revenue into things communities need, like utility bill rebates, household electrification incentives, clean energy infrastructure, ecosystem restoration and so much more.

Similar programs in other jurisdictions can be linked with California’s. When multiple jurisdictions link their carbon markets, they unlock lower-cost emissions reductions, more stable prices, and greater climate impact than any one of them could achieve alone.

California has shown economies can grow alongside ambitious climate goals. Between 2000 to 2022, state emissions fell 20% while gross domestic product grew 78%. It has had a Cap-and-Invest program in place since 2012, generating more than $36 billion in revenue for climate action, and it’s been linked with a similar program in Québec since 2014.

The state of Washington passed their own Cap-and-Invest program in 2023, which has already generated over $3 billion for climate and community investments across the state. It was also designed from the beginning to one day be linked with California and Québec. New modeling shows that expanding the California-Québec market to include Washington would deliver deeper regional emissions cuts while protecting affordability and keeping compliance costs stable for covered businesses.

In June of this year, California, Quebéc and Washington signed a joint linkage agreement, laying out how the three jurisdictions will hold joint allowance auctions, share a common allowance price and let market participants trade allowances across jurisdictions.

What linkage with Washington state delivers for California

Since Washington’s steps towards linkage are complete, the ball is now in California’s court. So, let’s focus on the rationale new modeling provides for why the Golden State should be moving forward on its own processes to make linkage a reality.

Modeling shows that through 2045 a linked market will:

• Cut an additional 45 million metric tons of climate pollution across California and Washington — equal to the emissions from 5 billion gallons of gasoline.
• Deliver $1.8 billion more in projected revenue for California’s Greenhouse Gas Reduction Fund — without price spikes for covered entities.
  • Stable compliance costs consistent with average fluctuations seen in California’s market from auction to auction today.
• Protect affordability benefits for communities from the investment of Cap-and-Invest dollars, with households earning less than $100,000 expected to see a slight increase in benefits under linkage.

This new modeling reinforces what we’ve always known: a larger market leads to greater efficiencies, unlocking access to lowest-cost emissions abatement technologies and empowering leaders to be more ambitious on climate while protecting affordability benefits for households.

California’s time to lead

Washington state expects to finalize its rulemaking this month. In order to make its carbon market operationally ready for linkage, Governor Newsom must make the Senate Bill 1018 findings — certifying that Washington state meets requirements for linkage — and the California Air Resources Board must complete its own rulemaking so California’s market can formally accept allowances from Washington entities.

As Governor Newsom enters the final stretch of his time in office, this is a chance to cement his legacy of climate leadership beyond the state’s borders.