SEATTLE—Washington state on June 25 signed a historic carbon market linkage agreement with California and Québec, setting the stage for large-scale greenhouse gas reductions and long-term investment in clean energy across the jurisdictions.
“This is a historic milestone in our climate partnership,” Governor Bob Ferguson said. “At a moment when the federal government is abandoning science-driven policy and climate leadership, Washington state is moving forward. This agreement shows it’s possible to work together across borders to address the climate crisis. Our collaboration will reduce emissions and capitalize on the growing demand for clean energy.”
Governor Ferguson was joined by Delegate David Ruiz of the Government of Québec, Rep. Joe Fitzgibbon, Climate Jobs Washington Executive Director Cassie Bordelon, Climate Solutions Washington Legislative Director Leah Missik and Washington State Department of Ecology Director Casey Sixkiller, who signed the linkage agreement at an event in Seattle.
The agreement is a major milestone for Washington in joining the largest subnational carbon market in the world. This unprecedented climate partnership means businesses in all three jurisdictions can make more predictable, long-term investments in reducing greenhouse gases. With greater investment, the cost of emission-reducing technologies will go down, leading to even higher rates of adoption and local economic benefits like job growth, the governor’s office said.
In a linked market, allowances issued by California and Québec could be used by Washington businesses to cover their emissions, and vice versa. The three jurisdictions would host joint allowance auctions and share a common allowance price. Market participants could also trade allowances across jurisdictions.
“This Agreement strengthens a climate partnership that is already renowned worldwide,” said Pascale Déry, Québec’s Minister of the Environment, the Fight Against Climate Change, Wildlife and Parks. “It will bring even greater stability, predictability, and economic efficiency to our joint carbon market. The proceeds generated by the market flow back into Quebec’s economy, helping to protect our communities from the impacts of climate change while also helping residents reduce their home energy costs. Our carbon market is truly a pillar of Québec’s climate and energy transition.”
“Signing this agreement is an important milestone as each government works through our own processes to enable linkage – a move that can help boost climate outcomes, enhance compliance flexibility and deliver even greater benefits to our residents,” said Lauren Sanchez, Chair of the California Air Resources Board.
The Québec, California, and Washington linkage replace the prior 2017 Québec-California agreement. Key elements of the new agreement include:
- Harmonization of GHG reporting and carbon market rules (while each jurisdiction keeps its own regulations).
- Mutual recognition and interchangeability of compliance instruments (allowances/offsets).
- Joint auctions via a common platform.
- A secure common registry for tracking and trading.
- Information sharing for enforcement and administration.
- An accounting mechanism (based on the 2022 Québec-California approach) to attribute emission reductions properly, avoid double-counting, and handle net flows of instruments across jurisdictions.
- Ongoing consultation via a Consultation Committee, with respect for each government’s sovereign authority and public processes.
- Provisions for termination (with notice) and adding future participants.
The agreement explicitly states it does not restrict any party’s right to adopt, modify, or repeal its own laws/regulations.
Impacts of carbon market agreement to WA State
Lower auction revenue for Washington: Allowance prices in Washington are expected to fall toward the (lower) California-Québec price level, Resources for the Future projected. This will reduce revenue from Washington’s auctions, which fund clean energy, climate adaptation, and transportation.
Without the linkage, Washington would soon see very high prices hitting the price ceiling and triggering more price containment mechanisms. Linkage pulls prices down toward the larger California-Québec market level, reducing Washington’s auction revenues and limiting how many extra allowances (from reserves) get sold.
The revenue loss for Washington is projected by Resources in the Future to be significantly smaller than in the low-demand scenario of $25 billion cumulative by 2045. Total revenues across all three jurisdictions (Washington + California + Québec) are now expected higher with the linkage by roughly $8 billion cumulatively by 2045.
Recent auction prices in WA are higher than normal. The December 2025 auction cleared at $70.86 which is well above the APCR Tier 1 trigger of $60. Average 2025 prices have been in the $57–61 range.
Strong demand is triggering APCR auctions, which are selling out after I-2117 failed. Carbon emissions are trending down, but allowance supply is being reduced even faster. That supply-demand imbalance is what’s driving prices higher.
The CCA program is working as designed: the cap is tightening, entities need allowances for compliance, and confidence in the program’s future has returned since I-2117, to repeal the auction, failed.
Reduce Incentives: Washington’s Environmental Justice Council and some advocacy groups flagged risks, including less funding for local projects, reduced incentives for on-site reductions at facilities near overburdened communities, and potential effects from California-Québec’s large bank of allowances flooding the market and suppressing prices.
Other impacts: The agreement includes safeguards like the transparent accounting mechanism to properly credit reductions and prevent double-counting. Washington retains the ability to add its own policies (e.g., facility-specific caps or an emissions containment reserve, if coordinated). The state can terminate participation with notice.
When is Washington linking with California and Québec?
While completing a linkage agreement is a major milestone, it is just one part of each jurisdiction’s linkage process. In Washington, the Climate Commitment Act establishes that the linkage agreement is the step that authorizes Washington’s Cap-and-Invest Program to accept allowances and offset credits from California and Québec, completing the linkage process. California and Québec must complete additional steps, including adopting regulations to accept compliance instruments from Washington, before a linked market can take effect.
Linkage will take effect once all regulatory and statutory process steps are complete. The date the linkage agreement is signed is not the linkage effective date. Ecology will provide notice to the market at least 90 days in advance of the linkage effective date.
In Québec, establishing a market linkage requires several steps, including completion of a formal rulemaking process to accept compliance instruments from Washington, the approval of the linkage agreement by Québec National Assembly, and ratification of the linkage agreement by way of an Order in Council.
In California, establishing a program linkage requires several steps, including positive linkage findings by the California Governor under Senate Bill 1018 (Stats. 2012, ch. 39) and completion of a formal rulemaking process with adoption of linkage amendments to the Cap-and-Invest Regulation by the California Air Resources Board (CARB).
Section 17 of the linkage agreement states: “Each Government will notify the other Governments in writing as soon as possible after having completed all its internal requirements necessary for the Agreement to come into effect.”
Pending the completion of these steps, a linked market is expected to begin operating in 2027.
Does the federal government need to approve this agreement?
No. Washington has clear authority under their own environmental statutes to operate and link carbon markets.
The Trump administration sued California in 2019 over the CA-Québec linkage, claiming violations of the U.S. Constitution’s Treaty and Compact Clauses (states cannot enter treaties or certain compacts with foreign powers without congressional consent) and interference with federal foreign policy. Federal courts dismissed these claims in 2020, ruling that the agreement was not a prohibited treaty/compact, did not conflict with any clear federal policy, and fell within state authority. The linkage continued without federal approval or congressional consent.
Washington’s Cap-and-Invest Program
Created by the Climate Commitment Act (CCA) in 2021, Cap-and-Invest aims to reduce carbon pollution and achieve the greenhouse gas limits set in state law. Similar to California and Québec’s program, Cap-and-Invest sets a limit, or cap, on overall carbon emissions in the state and requires businesses to obtain allowances equal to their covered greenhouse gas emissions. These allowances can be obtained through quarterly auctions hosted by Ecology, or bought and sold on a secondary market (just like stocks and bonds).
In a linked market, allowances issued by California and Québec could be used by Washington businesses to cover their emissions, and vice versa. The three jurisdictions would host joint allowance auctions and share a common allowance price. Market participants could also trade allowances across jurisdictions.
Source: Office of Gov. Bob Ferguson press release with key elements, impacts, legal authority, and implementation timeline added by Lynnwood Times.
Author: Mario Lotmore
