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USA - California Cap-and-Invest Program
General Information
The California Cap-and-Invest Program began operation in 2012 with the opening of its tracking system for allocation, auction distribution, and trading of compliance instruments. Compliance obligations started in January 2013. The program was extended through 2045 and renamed Cap-and-Invest by legislation adopted in 2025. The program puts a carbon price on ~76% of the state’s GHG emissions.
The program covers fuel combustion emissions in the mining, power, buildings, transport, industrial, agriculture, and forestry sectors, as well as industrial process emissions of about 400 covered facilities. Fuel use in buildings, transportation, and in agricultural, forestry, and fishing operations is covered upstream at the fuel supplier. Covered entities must surrender allowances for all their covered emissions. Allowances are distributed via a combination of auction, free allocation, and free allocation with consignment. The proceeds from auctioning are reinvested in projects that reduce emissions, strengthening the economy, public health, and the environment, especially in disadvantaged communities.
The California Cap-and-Invest Program is implemented under the authority of the California Air Resources Board (CARB). California has been part of the Western Climate Initiative (WCI) since 2007 and formally linked its program with Québec’s in January 2014.
In September 2025, California adopted Assembly Bill 1207 (AB 1207) and Senate Bill 840 (SB 840), which extended the Cap-and-Invest Program (formerly Cap-and-Trade) through 2045 and made technical changes to the Program.
AB 1207 directs CARB to ensure that program-wide aggregate emissions from covered sources decline, at a minimum, in line with the state’s 2030 and 2045 climate targets, maintain robust price-containment mechanisms, set offset usage limits for 2031 to 2045, and remove allowances from future budgets equal to offsets used for compliance, while considering cost-effectiveness and affordability, minimizing leakage risks, and avoiding disproportionate impacts on low-income communities. SB 840 complements these changes by requiring CARB to conduct an evaluation of the Compliance Offsets Program by the end of 2026 and to update all existing compliance offset protocols to reflect the best available science by January 1, 2029.
By 2034 and every five years thereafter, SB 840 further requires CARB to evaluate all compliance offset protocols and consider whether updates are necessary to reflect the best available science. SB 840 also sets future appropriation rules for Greenhouse Gas Reduction Fund programs, including affordable housing, sustainable communities, community air monitoring, and high-speed rail.
In January 2026, CARB proposed changes to the Cap-and-Invest Regulation to implement the requirements of AB 1207. The formal rulemaking process is underway with regulatory amendments expected to be adopted and reflected in allowance budgets from 2027 onwards.
California and Québec continue to operate a joint carbon market, while California, Québec, and Washington continue discussions about potential future linkage of Washington’s program to the joint market.
Emissions & Targets
360.4 MtCO2e (2023)
By 2030: 40% reduction from 1990 GHG levels (“SB 32”)
By 2045: Carbon neutrality and 85% reduction from 1990 anthropogenic GHG levels (“AB 1279”)
Updated prices available here
- Average Current Auction price: USD 28.14* (2025)
- Average secondary market price: USD 29.10 (2025)
* “Current auction settlement price“ in USD, weighted by the total number of government-owned and consignment current vintage allowances sold in the year for both California and Québec.
Size & Phases
FIRST COMPLIANCE PERIOD: Two years (2013 to 2014)
SECOND COMPLIANCE PERIOD: Three years (2015 to 2017)
THIRD COMPLIANCE PERIOD: Three years (2018 to 2020)
FOURTH COMPLIANCE PERIOD: Three years (2021 to 2023)
FIFTH COMPLIANCE PERIOD: Three years (2024 to 2026)
SIXTH COMPLIANCE PERIOD: Three years (2027 to 2029)
An absolute cap limits the total emissions allowed in the system and is fixed ex-ante.
FIRST COMPLIANCE PERIOD: The system started in 2013 with a cap of 162.8 MtCO2e, declining to 159.7 MtCO2e in 2014, at a rate of ~2% annually.
SECOND COMPLIANCE PERIOD: With the program expanding to include fuel distribution, the cap rose to 394.5 MtCO2e in 2015. The cap decline factor averaged 3.1% per year in the second compliance period, reaching 370.4 MtCO2e.
THIRD COMPLIANCE PERIOD: The cap in the third compliance period started at 358.3 MtCO2e and declined at an average annual rate of 3.3% to 334.2 MtCO2e in 2020.
FOURTH COMPLIANCE PERIOD AND BEYOND: During the 2021 to 2030 period, the cap declines by about 13.4 MtCO2e each year, averaging ~4%, to reach 200.5 MtCO2e in 2030. The “Cap-and-Invest Regulation” (the Regulation) sets a formula for declining caps after 2030 through 2050.
Rulemaking is underway to implement recent legislative requirements and to align allowance budgets with California’s 2030 and 2045 targets.
FIRST COMPLIANCE PERIOD: Covered sectors included those that have one or more of the following processes or operations: large industrial facilities (including cement, glass, hydrogen, iron and steel, lead, lime manufacturing, nitric acid, petroleum and natural gas systems, petroleum refining, and pulp and paper manufacturing, including cogeneration facilities co-owned/operated at any of these facilities); electricity generation; electricity imports; other stationary combustion; and CO2 suppliers.
SECOND COMPLIANCE PERIOD AND BEYOND: In addition to the sectors listed above, suppliers of natural gas, suppliers of reformulatedblendstock for oxygenateblending (i.e., gasoline blendstock) and distillate fuel oil (i.e., diesel fuel), suppliers of liquefied petroleum gas in California, and suppliers of liquefied natural gas are covered by the program.
INCLUSION THRESHOLDS: Facilities emitting greater than or equal to 25,000 tCO2e per year. All electricity imported from specified sources connected to a specific generator with emissions greater than or equal to 25,000 tCO2e per year is covered. Emissions associated with imported electricity from unspecified sources have a zero threshold, and all imported electricity emissions are covered using a default emissions factor.
OPT-IN COVERED ENTITIES: A facility in one of the covered sectors that emits less than 25,000 tCO2e annually can voluntarily participate in the Program. Opt-in entities are subject to all registration, reporting, verification, compliance obligations, and enforcement applicable to covered entities.
Upstream (buildings, transport, agriculture, and forestry fuel use); point source (mining and extractives, industry, in-state power generation); imported electricity at the point of first delivery onto California’s electricity grid
~400 facilities (2025)
Allowance Allocation & Revenue
Proportion of 2025 cap auctioned as 2025 vintage units: 42.8%*
Allowances are distributed via free allocation, free allocation with consignment, and auction.
FREE ALLOCATION: Industrial facilities receive free allowances to minimize carbon leakage. For nearly all industrial facilities, the amount is determined by product-specific benchmarks, recent production volumes, a cap adjustment factor, and an assistance factor based on assessment of leakage risk. **
Leakage risk is divided into “low”, “medium”, and “high” risk tiers based on levels of emissions intensity and trade exposure for each specific industrial sector.
FIRST COMPLIANCE PERIOD: The Regulation as adopted in 2011 set assistance factors of 100% for the first compliance period, regardless of leakage risk.
SECOND COMPLIANCE PERIOD AND BEYOND: For facilities with medium leakage risk, the original regulation included an assistance factor decline to 75% for the second compliance period and to 50% for the third. For facilities with low leakage risk, it included an assistance factor decline to 50% for the second compliance period and to 30% for the third. However, amendments to the Regulation in 2013 delayed these assistance factor declines by one compliance period. Pursuant to “AB 398” adopted in 2017, all assistance factors were changed to 100% through 2030, citing continued vulnerability to carbon leakage. There is no cap on the total amount of industrial allocation, but the formula for allocation includes a declining cap adjustment factor to gradually reduce allocation in line with the overall cap trajectory.
Free allocation is also provided for transition assistance to public wholesale water entities, legacy contract generators, universities, public service facilities, and, during the period from 2018 to 2024, waste-to-energy facilities.
FREE ALLOCATION WITH CONSIGNMENT: Electrical distribution utilities and natural gas suppliers receive free allocation on behalf of their ratepayers.*** These utilities must use the allowance value for ratepayer benefit and for GHG emissions reductions. All allowances allocated to investor-owned electric utilities and an annually increasing percentage of the allocation to natural gas suppliers must be consigned for sale at the state’s regular quarterly auctions. Publicly owned electric utilities can choose to consign freely allocated allowances to auction or use them for their own compliance needs.
AUCTIONING:
- Auction share: ~67% of total California-issued vintage 2025 allowances made available through auction in 2025, which included allowances owned by CARB (~35%) and allowances consigned to auction by utilities (~32%).
- Auction volume: 174,505,948 (2025 vintage); 22,730,000 (2028 vintage).
- Share of the 2025 cap auctioned as vintage 2025 CARB-owned allowances so far: 42.8%.
Unsold allowances in past auctions are gradually released for sale at auction after two consecutive auctions are held in which the clearing price is higher than the minimum price. However, if any of these allowances remain unsold after 24 months, they will be placed into CARB’s price ceiling reserve or into the two lower reserve tiers (see ‘Market Stability Provisions’ section). To date, 37 million allowances originally designated for auction have been placed in reserves through these provisions.
* Excluding consigned allowances.
** See Section 95891(c) of the Regulation for a minor exception.
*** See Section 95892 and Section 95893 of the Regulation for further details on the approach to free allocations for electrical distribution utilities and natural gas suppliers, respectively.
USD 34.5 billion since beginning of program
USD 3.13 billion* in 2025
* Does not include revenues from the auction of consigned allowances.
Revenue from auction of California-owned allowances: Most of California’s auction revenue goes to the Greenhouse Gas Reduction Fund, of which at least 35% must benefit disadvantaged and low-income communities. The funds are then distributed as California Climate Investments, which support projects that deliver significant environmental, economic, and public health benefits across the state. As of November 2024, USD 12.8 billion had been invested in 590,703 projects, with expected GHG reductions of 116.1 MtCO2e.
Over USD 9.2 billion has reached disadvantaged and low-income communities.
Revenue from auction of utility-owned allowances: Investor-owned electric utilities and natural gas suppliers are allocated allowances, a portion of which must be consigned to auction. Auction proceeds must be used for ratepayer benefit and for GHG emissions reductions. Since the Program’s inception, approximately USD 26.5 billion in allowance value has been provided to ratepayers. Investor-owned electric utilities and natural gas suppliers have provided USD 13.5 billion directly to residential ratepayers through 2024 via the California Climate Credit.
Flexibility & Linking
Banking is allowed but is subject to a holding limit on allowances to which all entities in the system are held. The holding limit is based on the year’s cap and decreases annually. Entities may also be eligible for a limited exemption from the holding limit based on their emissions levels to support meeting annual compliance obligations or obligations at the end of a three-year compliance period.
Borrowing is not allowed.
The use of compliance offset credits is allowed. Such credits, issued by CARB or by the authority of a linked system, are compliance instruments under the California Cap-and-Invest Program.
QUALITATIVE LIMIT: Currently, offset credits originating from projects carried out according to one of the following six compliance offset protocols are accepted as compliance instruments:
- US forest projects;
- urban forest projects;
- livestock projects (methane management);
- ozone-depleting substances projects;
- mine methane capture projects; and
- rice cultivation projects.
Compliance offset credits issued by jurisdictions linked with California (i.e., Québec) are eligible, subject to the quantitative limits described below.
To ensure environmental integrity, California’s compliance offset program has incorporated the principle of buyer liability. The state may invalidate an offset credit that is later determined not to have met the requirements of its compliance offset protocol due to double counting, over-issuance, or regulatory non-conformance. The entity that surrendered the offset credit for compliance must then substitute a valid compliance instrument for the invalidated offset credit.
QUANTITATIVE LIMIT: The share of offsets that can be used by an entity to fulfill its compliance obligation is 4% per year for 2021 to 2025 emissions, and 6% for 2026 to 2045 emissions.
In addition to setting new quantitative limits on the use of offset credits, AB 398 set new limits on the types of offset credits that can be used to fulfill compliance obligations. Starting with compliance obligations for 2021 emissions, no more than 50% of any entity’s offset usage limit can come from offset projects that do not provide direct environmental benefits to the state (DEBS).
Projects located within California are automatically considered to provide DEBS. Offset projects implemented outside of California may still result in DEBS, based on scientific evidence and project data provided. For example, a forest project outside California has been determined to provide benefits within California by improving the quality of water flowing through the state. Recent regulatory amendments specify the criteria used to determine DEBS.
In November 2022, California entities surrendered ~2.2 million offset credits for a portion of 2021 emissions. In November 2023, California entities surrendered ~2 million offset credits for a portion of 2022 emissions.
In November 2024, California entities surrendered an additional 22 million credits for the remainder of their emissions during the fourth compliance period, while Québec entities surrendered 13.3 million California-issued offset credits. Of the 35.2 million credits surrendered, 26.5 million were from US forest offset projects and 5.3 million from mine methane capture projects.
In November 2025, California entities surrendered ~2.2 million offset credits at the annual compliance event for the first year of the fifth compliance period (2024), when compliance for 30% of the 2024 annual emissions was required.
California’s program linked with Québec’s in January 2014. The two expanded their joint market by linking with Ontario in January 2018 until the termination of Ontario’s system in mid-2018. In March and September 2024, joint statements from the governments of Québec, California, and Washington affirmed their commitment to explore potential linkage.
Compliance
Except for the year following the last year of a compliance period, compliance instruments equal to 30% of the previous year’s verified emissions must be surrendered annually, by the start of November. Compliance instruments equal to all remaining emissions must be surrendered by the start of November of the year following the last year of a compliance period.
FRAMEWORK: California’s MRV framework is set by the “Regulation for the Mandatory Reporting of Greenhouse Gas Emissions (MRR), title 17 California Code of Regulations (CCR) §§ 95100-95163”. The “Cap‑and‑Invest Regulation, title 17 CCR §§ 95801-96022” relies on MRR data.
MONITORING: Reporters must use calculation, monitoring, QA/QC, missing data, recordkeeping, and reporting methods specified in MRR.
MRR requires that reporters subject to the regulation maintain a GHG Monitoring Plan for facilities and suppliers that includes detailed, source‑specific monitoring and QA/QC obligations and record retention for all data used to calculate emissions, specified in MRR § 95105(c). Similarly, electric power entities that import or export electricity must maintain a GHG inventory program, as specified in MRR § 95105(d).
REPORTING: Annual reporting for the following entities based on emissions thresholds listed, using the standardized methods and formats specified in MRR:
- Facilities in specified categories (e.g., large power plants under 40 CFR Part 75, cement, lime, nitric acid, refineries, CO₂ sequestration/injection) report regardless of emissions level.
- Other facilities (e.g., stationary combustion, glass, hydrogen, iron and steel, pulp and paper, petroleum and natural gas systems, geothermal, lead) report at ≥10,000 tCO₂e/year of stationary and process emissions; petroleum and natural gas systems also apply a 25,000 tCO₂e threshold when including vented and fugitive emissions.
- Fuel and CO₂ suppliers report at ≥10,000 tCO₂e/year, calculated as volume of CO2 supplied, or based on emissions that would result from combustion of the fuels supplied
- Importers or exporters of electricity as defined in § 95102(a) with any volume of imported or exported electricity, retail providers as defined in § 95102(a), along with certain public agencies specified in § 95101(d)
VERIFICATION: Third‑party verification is required under MRR for emissions data reports of entities with a compliance obligation under the Cap‑and‑Invest Regulation and for other reporters above specified thresholds or categories, as specified in § 95103(f).
Verification requirements, including requirements for the accreditation of verification bodies and individual verifiers are specified in §§ 95130-95133. Similar accreditation and conflict‑of‑interest provisions apply to offset verifiers and verification bodies under Cap‑and‑Invest Regulation §§ 95977–95978.
Entities remain subject to annual reporting (and, where applicable, verification) under MRR until they meet the cessation conditions in § 95101(h)-(i).
A covered entity that fails to surrender sufficient compliance instruments to cover its verified GHG emissions at a relevant compliance deadline is automatically assessed an untimely surrender obligation. It is required to surrender the missing compliance instruments as well as three additional ones for each it failed to surrender.
Failure to meet this untimely surrender obligation would subject the entity to substantial financial penalties for its noncompliance, pursuant to “California Health and Safety Code Section 38580”.
Separate and substantial penalties apply to mis-reporting or non-reporting under the MRR.
Market Regulation
MARKET PARTICIPATION: Covered entities, opt-in covered entities, and voluntarily associated entities can participate in the program. Voluntarily associated entities are approved individuals or entities that intend to:
- purchase, hold, sell, or retire compliance instruments but are not covered under the program;
- operate a compliance offset project registered with CARB; or
- provide clearing services and derivative clearing services as qualified entities.
Voluntarily associated entities must be in the United States and have an approved account in the system registry, the Compliance Instrument Tracking System Service (CITSS). Additional eligibility criteria apply, including for individual market participants.
MARKET TYPES:
Primary: Allowances are made available through sealed-bid auctions. State-owned and consigned allowances are offered through quarterly allowance auctions organized jointly with Québec. Auctions are administered by WCI, Inc.
Secondary: Allowances, offset credits, and financial derivatives are traded in the secondary market on the Intercontinental Exchange (ICE), CME Group, and Nodal Exchange platforms. Any company qualified to access these platforms can trade directly or through a future commission merchant. Companies can also trade directly over the counter but must have a CITSS account to take delivery of compliance instruments.
LEGAL STATUS OF ALLOWANCES: Allowances are defined as limited tradable authorizations to emit up to one tCO2e. According to the “California Code of Regulations”, an allowance does not constitute property or bestow property rights and cannot limit the authority of the regulator to terminate or limit such authorization to emit.
AUCTION RESERVE PRICE
Instrument type: Price-based instrument
Functioning: The auction reserve price is set at USD 27.94 and CAD 26.47 per allowance in 2026.
It was initially established at USD 10.00 for the auction in 2012, and it increases annually by 5% plus inflation, as measured by the Consumer Price Index. The auction reserve price for each joint auction with Québec is determined using the minimum prices set annually by California in USD in accordance with Section 95911 of the Regulation and by Québec in CAD in accordance with Article 49 of the “Regulation respecting a cap-and-trade system for greenhouse gas emission allowances” (Québec Regulation). To manage multiple currencies, an Auction Exchange Rate is determined prior to each joint auction. The Auction Reserve Price for a joint auction is then determined as the higher of the Annual Auction Reserve Prices established in USD and CAD after applying the established Auction Exchange Rate (USD to CAD FX Rate).
ALLOWANCE PRICE CONTAINMENT RESERVE (APCR)
Instrument type: Price-based instrument
Functioning: In 2026, the two APCR tiers are set at USD 65.31 and USD 83.92 per allowance. Tier prices increase each year by 5% plus inflation, as measured by the Consumer Price Index.
At the start of the program, about 4.9% of allowances from the 2013 to 2020 budgets were placed in an APCR. Prior to amendments mandated by AB 398 in 2017, these allowances were spread across three tiers. Pursuant to AB 398, from 2021 onward, these allowances have been moved into two price tiers and a price ceiling. Currently, there are approximately 66.8 million and 89.5 million allowances in the Tier 1 and 2 reserves, respectively.
Although no APCR sale has been held so far, CARB will offer one if auction settlement prices from the preceding quarter are greater than or equal to 60% of the lowest APCR price tier. CARB also always offers the third quarter APCR sale before the November compliance obligation deadline.
ALLOWANCE PRICE CEILING
Instrument type: Price-based instrument
Functioning: In 2026, the price ceiling is set at USD 102.52. The price ceiling increases each year by 5% plus inflation, as measured by the Consumer Price Index.
At the price ceiling, a covered entity can purchase allowances (or, if no allowances remain, “price ceiling units”) up to the amount of its current unfulfilled emissions obligation. The revenues from the sale of price ceiling units will be used to purchase real, permanent, quantifiable, verifiable, enforceable, and additional emissions reductions on at least a tonne for tonne basis. Sales at the price ceiling will only be conducted if no allowances remain at the two lower APCR tiers and a covered entity has demonstrated that it does not have sufficient compliance instruments in its accounts for that year’s compliance event. Currently, there are approximately 77.7 million allowances in the Price Ceiling Account.
Other Information
California Air Resources Board: Responsible for the design and implementation of the Cap-and-Invest Program.
Western Climate Initiative, Inc.: Non-profit organization that provides cost-effective administrative and technical solutions for supporting the coordinated development and implementation of participating jurisdictions’ GHG emissions trading programs, such as administering auctions and maintaining the system registry (CITSS).
Pursuant to requirements in existing legislation (AB 32, AB 197, and AB 398), CARB must update the “California Climate Change Scoping Plan” at least every five years and must provide annual reports to various committees of the Legislature and the Board. The Scoping Plan provides updates on progress toward climate targets and lays out strategies to achieve them, including the role and level of effort accorded to different programs in the state’s portfolio approach to climate mitigation. The latest update to the Scoping Plan was adopted in December 2022.
Global Warming Solutions Act of 2006 (AB 32)
Current Cap-and-Invest regulation can be found on the dedicated CARB website.
Current MRV regulation can be found on the dedicated CARB website.
USA - Washington Cap-and-Invest Program
General Information
Washington’s Cap-and-Invest Program began operating in January 2023. It covers around 70% of the state’s emissions, and its cap trajectory is consistent with the long-term target to reduce statewide emissions to 95% below 1990 levels by 2050.
The program covers emissions from 96 entities in the mining, energy, industrial, buildings, and transport sectors. Many of the Cap-and-Invest Program’s design elements are similar to those of California’s Cap-and-Invest Program. Covered entities must surrender allowances for all their covered emissions. Allowances are distributed through auctioning and free allocation, with the latter based primarily on benchmarking. The program has a cost containment reserve and auction reserve price to support market stability and moderate covered entities’ compliance costs.
The Cap-and-Invest Program was established by the “Climate Commitment Act” (CCA), signed into law by then-Governor Jay Inslee in May 2021. Washington is the second state in the United States to pass a law requiring such an economy-wide program, after California. Launched as a standalone system, the CCA directed the Department of Ecology to pursue linkage with California and Québec. “Senate Bill 6058”, which is designed to facilitate linkage, went into effect in January 2025.
Washington’s Cap‑and‑Invest Program saw significant changes in 2025, with the Legislature enacting “HB 1975” (Chapter 320, Laws of 2025; effective July 27, 2025). The bill directs Ecology to analyze and model the program’s allowance and other compliance‑instrument markets, including scenarios with potential linkage, to support market-dynamics assessment and future design adjustments. Though price ceiling units were already in effect as a backstop to offer additional units issued at the price ceiling if Allowance Price Containment Reserve (APCR) supply is exhausted, HB 1975 established the fixed price ceiling of USD 80 for 2026 to 2027.
Ecology expanded its “Program Updates and Linkage” rulemaking (CR‑101 refiled March 31, 2025), published draft rule language through spring and summer 2025, and set a timetable to propose linkage rules in spring 2026, with a view to adopting them in autumn 2026 to enable potential linkage with California and Québec.
Ecology also concluded an offsets rulemaking, adopting an updated Ozone Depleting Substances protocol from Aug 2025. In parallel, Ecology advanced a separate US forest protocol update. On January 9, 2026, Ecology submitted a statutory report to the Legislature on no-cost allowance allocation for emissions-intensive, trade-exposed industries (EITEs) for 2035–2050.
Ecology held a planned pre-compliance APCR auction in October. The September quarterly auction cleared above the APCR Tier 1 trigger, prompting an additional reserve auction on November 12 at the fixed reserve price of USD 60.43. The final auction of the year (and 12th auction since the start of the Cap-and-Invest Program) took place on December 3. All 7,424,390 current vintage allowances offered for sale by Ecology and consigning entities were sold at a settlement price of USD 70.86 apiece. All 1,945,905 future vintage allowances were sold in the advance auction at a settlement price of USD 29.40 each.
Emissions & Targets
96.1 MtCO2e (2021)
By 2030: 45% reduction from 1990 GHG levels (“Greenhouse Gas Emission Limits – Amendment 2020”)
By 2040: 70% reduction from 1990 GHG levels (Greenhouse Gas Emission Limits – Amendment 2020)
By 2050: 95% reduction of total GHG emissions below 1990 levels and achievement of net-zero emissions (Greenhouse Gas Emission Limits – Amendment 2020)
- Average auction price (current vintage): USD 60.95
- Average secondary market price: USD 61.36
Size & Phases
FIRST COMPLIANCE PERIOD: Four years (2023 to 2026)
SECOND COMPLIANCE PERIOD: Four years (2027 to 2030)
THIRD COMPLIANCE PERIOD: Four years (2031 to 2034)
Under Senate Bill 6058, the Department of Ecology may be required to revise the definition of “compliance period” through rulemaking to align with a linked jurisdiction. However, the length of the first compliance period will not change.
An absolute cap limits the total emissions allowed in the system and is fixed ex-ante.
FIRST COMPLIANCE PERIOD: The cap for 2023 was set at 63 MtCO2e, which is equal to 93% of average emissions levels of covered entities between 2015 and 2019. The cap declines annually by 7%, to reach 49 MtCO2e in 2026.
SECOND COMPLIANCE PERIOD: The cap for 2027 will be set at 93% of the sum of the 2026 cap and emissions from new entities entering the program for the second compliance period. The cap declines by 7% annually through 2030.
THIRD COMPLIANCE PERIOD AND BEYOND: The cap for 2031 will be set at 98.2% of the sum of the 2030 cap and emissions from new entities entering the program for the third compliance period. In the period from 2032 to 2042, the cap declines annually by 1.8%.
In the period from 2043 to 2049, the cap declines annually by 2.6%, reaching a 95% reduction from 1990 emissions levels by 2050.
FIRST COMPLIANCE PERIOD: All facilities with emissions over 25,000 tCO2e, including industrial facilities, electricity generators, importers of electricity, fuel distributors, and natural gas suppliers. Excludes emissions from waste-to-energy and solid waste management. Starting in emissions year 2025, electric power entities (EPEs) which meet the 10,000 tCO2e emissions reporting threshold and have over 0 tCO2e emissions from unspecified sources, also have to participate in the Cap-and-Invest Program.
SECOND COMPLIANCE PERIOD: Waste-to-energy facilities with emissions over 25,000 tCO2e in at least one year between 2023 and 2025 will be added.
THIRD COMPLIANCE PERIOD: Railroad companies with emissions over 25,000 tCO2e in at least one year between 2027 and 2029 will be included.
VOLUNTARY OPT-IN PARTICIPATION: Any facility that is already covered by the mandatory MRV system but with emissions below the 25,000 tCO2e Cap-and-Invest Program inclusion threshold may voluntarily participate as an opt-in entity. Other facilities, including federal power marketing administrations (FPMA), can also participate as opt-in entities. Opt-in entities become covered by the mandatory MRV system and must follow the same MRV requirements as other covered entities.
Upstream (building, power [imported electricity] transport); point source (mining, industry, power).
96 covered entities, covered sources, or opt-in entities.
Allowance Allocation & Revenue
Proportion of auctioned allowances: 35% (2025)
Allowances are distributed via free allocation, free allocation with consignment, and auction.
FREE ALLOCATION: Emissions-intensive, trade-exposed facilities receive free allowances to mitigate the risk of carbon leakage. Allocation is done using facility-specific benchmarks, based on their average carbon intensity over the period between 2015 and 2019. Facilities could request free allocation based on their average emissions (i.e., grandparenting) only in a few instances where they were unable to calculate the emissions intensity of their production over this period. The reduction schedule that is applied to the allocation of no-cost allowances to eligible facilities will be based on four-year periods that are specified in the statute, instead of compliance periods.
FIRST COMPLIANCE PERIOD: Set at 100% of the benchmark multiplied by actual production, or historical emissions level.
SECOND COMPLIANCE PERIOD: Set at 97% of the benchmark multiplied by actual production, or historical emissions level.
THIRD COMPLIANCE PERIOD: Set at 94% of the benchmark multiplied by actual production, or historical emissions level.
FREE ALLOCATION WITH CONSIGNMENT: Electricity utilities receive free allowances based on forecasts of the electricity supply and administrative costs associated with complying with the Cap-and-Invest Program. During the first compliance period, they can choose to consign up to 100% of their allowances to auction. Natural gas facilities received an initial free allocation equal to 93% of their average emissions in the period from 2015 to 2019. The amount reduces annually in line with the cap decline factor. In 2023, 65% of free allowances must have been consigned for auction. This amount increases by 5% each year, reaching full consignment in 2030. Freely allocated allowances that are not consigned for auction may only be used for surrender and cannot be traded. Whether consigned or not, the allowance value allocated to electricity utilities and natural gas suppliers is required to be used for ratepayer benefit.
AUCTIONING: Auctions occur four times a year. Unsold allowances are held for future auctions and only sold if the settlement price is above the auction floor price for two consecutive auctions. Any that remain unsold within 24 months are transferred to an emissions containment reserve (see ‘Market Stability Provisions’ section).
USD 4.3 billion of state revenue since the beginning of the program (USD 5.6 billion including consigned allowances)
USD 1.7 billion in 2025 (USD 2.3 billion including consigned allowances)
USE OF REVENUE FROM FREE ALLOWANCES CONSIGNED FOR AUCTION: Revenues raised from the auctioning of free allowances on behalf of electricity utilities and natural gas facilities must be used to benefit ratepayers or customers, prioritizing those from low-income groups. In most cases the state’s Utilities and Transportation Commission determines how the revenues are used.
USE OF REVENUES FROM ALLOWANCES AUCTIONED BY THE DEPARTMENT OF ECOLOGY: Proceeds from auctions are split into five accounts:
- Carbon Emissions Reduction Account (CERA);
- Climate Investment Account (CIA);
- Climate Commitment Account (CCA);
- Natural Climate Solutions Account (NCSA); and
- Air Quality and Health Disparities Improvement Account (AQHDIA).
Each account is intended for different environmentally beneficial activities. Not all projects funded from these accounts are intended to reduce GHG emissions. Funds in each of these five accounts are to be appropriated for specific types of climate, environmental justice, and ecological projects. The CCA requires that a minimum of 35%, with a goal of 40%, of money from CCA accounts be used for projects that provide a direct and meaningful benefit to vulnerable populations within overburdened communities. At least 10% of CCA account funds are required to be used for projects formally supported by the resolution of a Tribe.
Prior to June 2025, the CERA included two additional accounts, the Climate Active Transportation and Climate Transit Program Accounts. The Legislature repealed these accounts in Chapter 417 Laws of 2025 (ESSB 5801, Sec 801). All residual funds in the two accounts were deposited back into CERA.
For the 2023 to 2025 Biennium, the Legislature appropriated a total of USD 2.75 billion across all budget types (operating, capital, and transportation) and total spending for the same period reached USD 1.5 billion or 55% of legislative appropriations. During fiscal year 2025 (July 1, 2024 through June 30, 2025), approximately USD 1 billion was spent.* Of the amount already spent during the Biennium, approximately USD 375 million was through CTPA, USD 650 million through CCA and USD 220 million through NCSA
*The annual report titled “Distribution of Funds from CCA Accounts” for Fiscal Year 2025 is available here.
Flexibility & Linking
Unlimited banking is allowed between periods; however, covered entities are subject to general holding limits, which depend on the cap level. Allowances held in a compliance account to be used for compliance or that are to be consigned for auction do not count towards the holding limit.
Borrowing is not allowed.
The use of offset credits is allowed.
QUALITATIVE LIMITS: Washington has adopted – with modifications – the following offset credit protocols developed under the California Cap-and-Trade Program:
- Livestock projects;
- Ozone depleting substance projects;
- US forest projects; and
- Urban forestry projects.
Ecology adopted amendments updating the ozone depleting substances protocol on July 21, 2025 (effective August 21, 2025), and is separately advancing a US forest protocol update, with draft language released in July and September 2025 and a proposal (CR‑102) slated for January 2026.
QUANTITATIVE LIMITS:
First compliance period: Up to 8% in aggregate. Up to 5% of an entity’s compliance obligation from projects not located on federally recognized tribal land. An additional 3% can be met from projects located on federally recognized tribal land.
Second compliance period: Up to 6% in aggregate. Up to 4% of an entity’s compliance obligation from projects not located on federally recognized tribal land. An additional 2% can be met from projects located on federally recognized tribal land.
Third compliance period and beyond: Up to 6% in aggregate. Up to 4% of an entity’s compliance obligation, including from projects located on federally recognized tribal land. An additional 2% can be met from projects located on federally recognized tribal land.
In the event of a link to another trading system, at least 50% of offset credits must provide direct environmental benefits to the state (DEBS) in the first compliance period, rising to 75% from the second compliance period. Without a link, all offset credits must provide DEBS.
Entities surrendered 26,280 offset credits in 2023, corresponding to 0.13% of total instruments surrendered for compliance.
The Washington Cap-and-Invest Program is not currently linked with any other system. However, in November 2023, the Department of Ecology announced that it would pursue linkage with the cap-and-trade programs of California and Québec. In March and September 2024, joint statements from the governments of Washington, California, and Québec affirmed their commitment to explore potential linkage. The state’s linkage-related rulemaking and Environmental Justice Assessments are ongoing. The state anticipates full linkage occurring by 2027. Quarterly status updates on linkage are posted on the Ecology Linkage Website.The most recent update occurred in December 2025.
Compliance
Four years
Except for the year following the last year of a compliance period, compliance instruments equal to at least 30% of the previous year’s verified emissions must be surrendered annually, by the start of November (or the first business day thereafter). Compliance instruments equal to all remaining emissions must be surrendered by the start of November (or the first business day thereafter) of the year following the last year of a compliance period.
FRAMEWORK: The MRV framework was established by the regulation “Reporting of Emissions of Greenhouse Gases” (WAC 173-441).
MONITORING: Reporters must follow the calculation, monitoring, quality assurance, missing data, recordkeeping and reporting procedures specified in the applicable sections of the rule.
A written GHG monitoring plan is mandatory for reporters required to report under WAC 173‑441‑030, and must identify roles, data collection methods, quality assurance, maintenance, and repair procedures for meters/continuous monitoring systems, and include simplified block diagrams for facilities.
Calibration and accuracy requirements apply to meters and measurement devices at facilities, with different initial calibration dates for emissions and product data monitoring, and subsequent recalibrations per rule, manufacturer, or industry standards (WAC 173-441-050).
MRV thresholds: mandatory GHG reporting at ≥10,000 tCO2e/year for facilities, fuel suppliers, and electric power entities; facilities report from 2012 onward; suppliers and electric power entities report beginning with the 2022 emissions year reported in 2023 (WAC 173-441-030).
REPORTING: Annual reporting is required; the emissions report is due by March 31 for most reporters, and by June 1 for electric power entities (WAC 173-441-050).
VERIFICATION: Third‑party verification is required from the 2023 emissions year (reported in 2024) for any reporter emitting ≥25,000 tCO2e/year, or any reporter with a mandatory or voluntary compliance obligation under the cap‑and‑invest law.
For reporters subject to third‑party verification, full verification is required at least once every three reporting years (the first year must be full), with less‑intensive verification allowed in the other two years if conditions are met. The verifier’s report is due by August 10 for the prior calendar year (WAC 173-441-085). Verifiers must be certified by Ecology, including active accreditation/recognition under California ARB’s Mandatory Reporting program (WAC 173-441-085).
If a covered or opt-in entity lacks sufficient compliance instruments to cover its annual and final compliance obligations at the relevant deadlines, it must, within six months, submit four penalty allowances for every missing compliance instrument. If the entity fails to submit the penalty allowances, Ecology must issue an order or a civil penalty of up to USD 10,000 per day per violation; each tonne of CO2e not covered by a compliance instrument constitutes a separate violation (WAC 173-446-610).
Market Regulation
MARKET PARTICIPATION: Compliance entities, including opt-in entities; non-compliance entities, including offset project participants; individuals with primary residence in the United States.
MARKET TYPES:
Primary: Auctions are held four times per year, with a calendar giving dates and volumes published in January of each year. Participants must have an account in the Compliance Instrument Tracking System Service (CITSS). Auctions are delivered through the Western Climate Initiative, Inc.
Secondary: Futures and options contracts for allowances are traded on the Intercontinental Exchange and Nodal Exchange. Allowances can be traded over the counter directly between market participants.
LEGAL STATUS OF ALLOWANCES: Allowances are not explicitly defined as “financial instruments” or “securities”, but, alongside offset credits, are treated as “compliance instruments” created and administered by Ecology for compliance purposes, and are subject to specific rules on creation, trading, holding, banking and retirement.
AUCTION PRICE FLOOR
Instrument type: Price-based instrument
Functioning: The auction price floor is set at USD 27.92 for 2026. It increases by 5% plus inflation annually, as measured by the nationwide Consumer Price Index for All Urban Consumers (CPI-U) identified by the US Bureau of Labor Statistics.
ALLOWANCE PRICE CONTAINMENT RESERVE (APCR)
Instrument type: Price-based instrument
Functioning: The APCR is a separate account managed by the Department of Ecology, from which allowances can be auctioned at pre-defined prices in the event of unexpectedly high allowance costs. Ecology places a percentage of each annual allowance budget into the APCR (currently 5% in the first and second compliance periods, 2023 to 2030), rather than a one-time frontload at program outset. The APCR has two price tiers, which in 2026 are set at USD 65.26 and USD 83.84 for Tiers 1 and 2 respectively.* Prices increase annually by 5% plus inflation, as measured by the CPI-U.
APCR auctions are held following any quarter in which the auction settlement price reaches or exceeds the Tier 1 price level, and a pre‑compliance APCR auction is also held before each annual compliance deadline. Only covered and opt-in entities can participate. Sales occur at the fixed tier prices. Purchased allowances are deposited directly into entities’ compliance accounts and cannot be traded on secondary markets. Any unsold allowances are carried over to future APCR auctions. Ecology publishes schedules and results for APCR auctions each year.
PRICE CEILING UNITS
Instrument type: Price-based instrument
Functioning: If there are no units remaining in the APCR, price ceiling units are made available to covered entities with insufficient allowances to meet their compliance obligations. Price ceiling unit sales only occur at the end of a compliance period and following the request of a covered entity, with advance notice as specified in rule. The ceiling price is set at USD 80.00 for 2026 to 2027 under HB 1975. Subsequent adjustments are determined by Ecology consistent with statute and rulemaking to facilitate potential linkage.
EMISSIONS CONTAINMENT RESERVE (ECR)
Instrument type: Price-based instrument
Functioning: Allowances can be withheld from an auction and placed in the ECR if auction settlement prices fall below the ECR trigger price. The trigger price is currently suspended, and this provision is therefore not operational.
*Until a linkage agreement is signed, APCR auctions only include allowances at the Tier 1 price.
Other Information
Department of Ecology: Responsible for the program rules and implementation of the Cap-and-Invest Program.
Western Climate Initiative Inc.: Non-profit organization responsible for administering auctions, the CITSS registry, and conducting market surveillance.
Other partner jurisdictions utilizing WCI, including California, Québec, and New York State.
By December 2027, and every four years thereafter, the Department of Ecology is required to submit a comprehensive review of the program to the legislature.
Investments made during the 2023 to 2025 biennium are expected to directly reduce GHG emissions by nearly 9 MtCO2e, at an estimated cost of USD 40 per tonne.*
*See the report Distribution of funds from CCA accounts Fiscal Year 2025. Note the disclaimer on the cover page.