Anna Fero, 09 June 2021
On May 17, 2021, Washington Governor Jay Inslee signed into law the Climate Commitment Act. The legislation creates a market-based, economy-wide cap-and-trade program for greenhouse gas emissions in Washington state. The legislation includes provisions ordering the Washington Department of Ecology (Ecology) to “consider opportunities to implement the [cap-and-trade] program in a manner that allows linking the state’s program with those of other jurisdictions.”
Until now, California has been the only state with a greenhouse gas emissions cap-and-trade program. California’s program began operation in 2013, and has been linked with Québec’s cap-and-trade system since 2014. Now, Washington’s new cap-and-trade legislation paves the way for a Washington-California linkage agreement.
What Is Linkage?
Linkage refers to a bilateral or multilateral agreement between emissions trading systems to accept each other’s allowances or credits and to otherwise coordinate activities to facilitate operation of a joint market.
Linking cap-and-trade systems provides covered entities with a more cost-effective way to meet their compliance obligations: if the price of allowances in one system is lower than that of another, then participants have an incentive to purchase allowances from the less expensive system until prices are equalized between the two, resulting in net cost savings.