 (CCA), a major piece of environmental legislation geared towards decarbonizing the state. Within the CCA, the state set out to achieve net-zero carbon emissions and a 95% GHG reduction below 1990 levels by 2050 with interim targets of a 45% reduction by 2030 and 70% by 2040. The implementation of a cap-and-invest program was designed to be the cornerstone of the state’s decarbonization efforts– covering 75% of state emissions. Washington’s membership in the Western Climate Initiative (WCI) will further allow the state to facilitate a comprehensive and adaptable market structure and provide access to its auction platform. The statewide cap-and-invest program encapsulates businesses that meet or surpass the threshold of 25 ktCO2e per year – specifically fuel suppliers and natural gas and electric utilities. Waste-to-energy and railroads will also be included in the market’s sectoral coverage in 2027 and 2031 respectively. Those exempt from the carbon market include businesses that do not meet the 25 ktCO2e threshold, agricultural businesses, aviation, and maritime fuels. The state’s carbon market includes both auctioning and free allocation of carbon allowances. Free allocation is made available only for emission-intensive, trade exposed (EITEs), natural gas utilities, and electric utilities.

The cap-and-invest program officially began at the start of January 2023 and is expected to conduct its first auction on 28 February. The state’s first auction will have 6,185,222 V23 allowances available but will not offer any V26 allowances in an advanced auction. The carbon market has set its annual auction floor price at USD 22.20. Its January 2023 launch begins the carbon market’s first compliance period that will last until the end of December 2026, at which point compliance entities must cover all compliance period emissions with allowances (with interim periods requiring 30% coverage). Compliance entities may use offsets to cover 5% of their emissions during the first compliance period, permitting an additional 3% for projects on indigenous land. The offset allowance drops to 4% and 2% respectively for the subsequent compliance period. Washington has set an emissions cap of just over 60 MtCO2e for 2023, with annual reductions in the cap thereafter. The Washington Carbon Allowance (WCA) will be sold both at quarterly auctions and on the secondary market.

The WCA contract, in anticipation of the January 2023 launch, reached extremely high levels. Despite the robustness of the state’s carbon market, the high prices seen for the contract were due to speculation before the true price-levels emerged after the program began. Subsequently, the price of the contract is expected to drop.

WCI member state carbon market breakdowns

Despite its membership in WCI and its utilization of the organization’s auction platform, Washington’s carbon market is not currently linked with the California and Quebec joint program. The market’s recent launch will, therefore, have no significant impact on the California Carbon Allowance (CCA) price on the secondary market. Washington regulators, however, have expressed their interest in a possible future linkage with California and Quebec depending on the viability and success of their cap-and-invest program. The structure of Washington’s carbon market was designed similarly to California and Quebec’s carbon markets in order to make a future linkage plausible. The comparability of sectoral coverage, carbon reduction targets, and participation thresholds to California and Quebec, seen in the figure above, are likely to keep market prices for the WCA contract more in line with those of the CCA rather than those of the RGGI contract.

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