State of Washington cap-and-invest program enters into force

This article was updated on 1 February 2023 following the launch of the Washington cap-and-invest program.

On 1 January 2023, the US state of Washington launched its “cap-and-invest” program. Established through the Climate Commitment Act Program Rule, the program sets a cap on approximately 70% of Washington’s greenhouse gas emissions. The program design closely resembles those of California and Québec, who are also members of the Western Climate Initiative (WCI).

The program fulfills the mandate of Senate Bill (SB) 5126, the “Washington Climate Commitment Act”, which was signed into law by Governor Jay Inslee in May 2021. The Act provides for the implementation of a mandatory cap-and-invest program as a cornerstone policy to achieve Washington’s goal of net zero GHG emissions by 2050. The program’s cap is aligned with Washington’s statutory emissions limits of 50 MCO₂e in 2030, 27 MtCO₂e in 2040, and 5 MtCO₂e in 2050.

Washington’s Department of Ecology (WDE) published the final program regulation in September 2022. Its design was informed by a series of stakeholder consultations held throughout the year, as well as a study analyzing the economic effects of the program under different scenarios. The study modelled the potential allowance prices and emissions pathways for covered sectors until 2030. It found that linking the program to the carbon markets of California and Québec would be the most cost-effective option for Washington to meet its targets.

The initial program regulation established three, four-year compliance periods covering the years 2023 to 2034. Starting with a cap of 63 MtCO₂e in 2023, it will decline annually by 7% in the period to 2030, and by 1.8% from 2031 to 2042. A cap decline factor of 2.6% between 2043 and 2049 will then deliver emissions reductions of 95% below 1990 levels in 2050. The program covers industrial facilities, electricity generators, importers of electricity, fuel distributors, and natural gas suppliers, with annual emissions of more than 25,000 tCO₂e. It will expand to include eligible waste-to-energy facilities from 2027 and railroad companies from 2031.

Allowances will be both auctioned and freely allocated, through a mixture of grandparenting, benchmarking, and free allocation with consignment auctions. The program has several market stability measures resembling those of the California-Québec market:

• An auction floor price of USD 22.20 in 2023.

• An Allowance Price Containment Reserve (ACPR) to respond to unexpectedly high allowance prices. The reserve has been frontloaded with 5% of allowances from the caps between 2023 and 2030. The APCR has two price tiers, which in 2023 are set at USD 51.90 and USD 66.68 for Tiers 1 and 2 respectively. Auctions from the APCR will be held if the settlement price in the last auction reaches the Tier 1 price level. Bids must be offered at one of the two tier price levels.
• If there are no units remaining in the ACPR, price ceiling units can be made available to entities without enough allowances to meet their compliance obligations. The ceiling price is set at USD 81.47 in 2023.

In February WDE launched a public consultation process to explore linking Washington’s cap-and-invest program to the systems of California and Québec. A decision on whether to link with the joint market is expected this summer.