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Washington State Takes Preliminary Steps to Link Cap-and-Trade Program

Washington State’s Department of Ecology has taken preliminary steps to link its carbon dioxide cap-and-trade programs with similar programs in California and Quebec.

In a decision letter sent to Governor Jay Inslee, Laura Watson, director of the Washington’s Department of Ecology, said she had directed her staff “to immediately begin the process of pursuing a linkage agreement” to connect Washington’s cap-and-invest program to similar carbon dioxide markets in California and Quebec.

Last October, the state’s Department of Ecology began finalizing the regulations for a greenhouse gas cap-and-trade program, the second of its kind in the nation.

In the letter, Watson warned, “we do not yet know if linkage will be achieved. Any final decision to link will be contingent on the results of the statutorily required Environmental Justice Assessment and a final determination that the statutory linkage criteria have been met.”

Each jurisdiction must follow its own process to determine whether to link, and what statutory or regulatory changes would be needed to complete such an agreement, Watson said, noting that even if all three potential partners agree on a plan, the negotiations and determination would likely take until 2025 or later.

Watson based her decision on an Oct. 12 Ecology report that evaluated the criteria for linkage laid out in Washington’s Climate Commitment Act, along with input from Tribes, the state’s Environmental Justice Council, stakeholders, and the public.

The report found that a linked market would be larger and more liquid, reducing compliance costs for businesses while increasing price stability, which would allow businesses to make long-term plans to reduce their emissions.

Under the Climate Commitment Act, passed in 2021, the Department of Ecology was required to implement the program by Jan. 1, 2023.

Under Washington’s cap-and-invest program, businesses and organizations responsible for 75 percent of Washington’s greenhouse gas emissions have to obtain allowances to cover their emissions. The number of allowances is reduced over time, providing incentives for businesses to cut their emissions.

In 2013, California became the first state to implement an emissions cap-and-trade program. The program applies to emissions that cover about 80 percent of the state’s greenhouse gas emissions. In January 2014, California linked its cap-and-trade program with Quebec’s program.

In 2005, seven East Coast states signed a memorandum of understanding to form the Regional Greenhouse Gas Initiative, a cooperative effort to reduce their carbon dioxide emissions using a regional cap-and-invest market mechanism under which each state sets its owns CO2 emission limits from its electric power plants, issues CO2 allowances and establishes participation in regional CO2 allowance auctions. The program went into effect in January 2009.

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