Washington Cap-and-Invest sees lowest prices in years following linkage agreement with California and Québec

Results were released today for the third auction of the year, and 15th overall, in Washington’s Cap-and-Invest program. The auction, conducted last week, is the first following the signing of a joint linkage agreement between California, Washington and Québec on June 25th of this year — a major milestone in the process of expanding the largest economy-wide carbon market in North America.

Cap-and-Invest 101

Washington’s Cap-and-Invest auctions are administered quarterly by the Department of Ecology. During the auction, participating entities submitted their bids for allowances.

Under the Climate Commitment Act — Washington’s landmark climate law that sets a binding, declining limit on pollution — major emitters in Washington are required to hold one allowance for every ton of climate pollution they emit, with the total number of allowances decreasing each year.

This system requires Washington’s polluters to reduce their emissions in line with the state’s climate targets, as fewer allowances become available annually.

September auction results

• All 2,800,000 current vintage allowances offered for sale by the Department of Ecology were purchased, resulting in the 15th consecutive sold out quarterly auction for Washington.
• The current auction settled at $39.50, $11.58 above the price floor of $27.92 and $25.06 below Washington’s last quarterly auction price of $64.56. This is the second consecutive quarterly auction where prices did not reach the Allowance Price Containment Reserve trigger price, and therefore will not trigger an APCR auction.
• This auction is projected to generate roughly $110 million in revenue, to be invested into Washington communities to enhance climate resilience, create jobs and improve air quality. A report from the Department of Ecology confirming the amount of revenue raised in this auction will be published later this month.

What these results mean

Today’s results settled near the midpoint between the price floor and the APCR Tier 1 trigger price. They’re the latest in a line of data points reflecting a cooling trend in the Washington market, consistent with the state’s progress toward linking its market with the joint California-Québec market.

Prices have been trending lower over the last few auctions as Washington’s Department of Ecology has taken steps like launching a formal linkage rulemaking, and releasing a draft linkage agreement between the three jurisdictions. But today’s dramatically lower prices may reflect further growing confidence in a future linked market following the signing of an official joint linkage agreement between California, Washington, and Québec on June 25 of this year. The critical step taken by leaders in all three jurisdictions when they signed the linkage agreement may be reassuring Washington entities that they will soon be part of a broader linked market with lower and more stable prices. Linkage is projected by multiple economic models to lead to lower compliance costs for Washington entities.

Once each jurisdiction’s linkage process is finalized, Washington covered entities will have access to a much larger pool of allowances from a joint market with California and Québec, with a goal of achieving operational linkage by November, 2027.

Background on linked markets

California and Québec have shared a linked market for over a decade, demonstrating that well-designed cap-and-invest programs can lead to deeper pollution cuts while supporting economic growth.
Linking these three markets together would bring about significant advantages for all participants, including:

• Bringing down and stabilizing the prices of allowances for covered polluters and businesses in Washington, which is crucial for polluters to make decisions about compliance planning and investing in decarbonization; and
• Enabling deeper regional cuts in climate pollution compared to an unlinked scenario.

Looking ahead

Linkage is a crucial opportunity for climate leadership for Washington, California and Québec, to take a step that will strengthen one of our best and most cost-effective tools to reduce emissions and raise revenue for community investments. Washington has now concluded its formal rulemaking on linkage, with the rule expected to be finalized this month. We expect to see similar steps taken by Québec and California in the coming months.

The need for scalable, durable climate action at the state level has never been greater, and these jurisdictions are showing how working across borders can drive meaningful progress.