California Moves Toward Linking Carbon Market With Washington

California Governor Gavin Newsom on Sep. 23 announced that he has authorized the state to begin the final regulatory process to link its Cap-and-Invest program with Washington’s carbon market, advancing a partnership that would expand carbon trading beyond California’s existing agreement with Québec. The action clears a legal requirement that Washington’s program meets California’s statutory standards before California Air Resources Board can begin public rulemaking. If finalized, businesses covered by either market would be able to use each other’s compliance instruments, creating a larger and potentially more stable market while supporting lower-cost emissions reductions.

The proposed linkage builds on California’s long-running cap-and-trade partnership with Québec, which has operated since 2014. Earlier this year, California and Québec signed an agreement with Washington to begin the linkage process, and recent updates to California’s program have provided the regulatory framework needed to advance the next phase. State lawmakers extended the program through legislation enacted last year, reinforcing its role in California’s broader climate strategy while directing regulators to address affordability, job protection, and industrial competitiveness.

California’s Cap-and-Invest program covers major sources that account for roughly 80 percent of the state’s greenhouse gas emissions, including large industrial facilities, electricity providers, and fuel suppliers. The system establishes a declining emissions limit and requires regulated entities that exceed that limit to obtain compliance allowances, with revenue supporting climate-related investments across the state.

The board adopted significant program revisions in May to strengthen the market through 2030 and beyond. State officials estimate those changes will deliver about $10 billion in electricity bill credits for customers and generate roughly $8 billion for the Greenhouse Gas Reduction Fund through 2030, while maintaining progress toward California’s 2030 and 2045 climate targets.

The program has generated about $37 billion for climate investments, supporting a wide range of projects spanning clean energy, transportation, affordable housing, forest management, and wildfire resilience.