- California and Washington are moving toward linking their carbon markets with Québec’s existing California–Québec system, creating a three-jurisdiction trading market.
- The linkage could launch in 2027, but California and Québec still need to complete regulatory steps; Washington has already made the necessary rule changes.
- For businesses, the combined market would create a larger pool of carbon allowances/credits, potentially improving trading efficiency and giving regulated companies more flexibility in meeting emissions requirements.
The California carbon market, Washington carbon market and carbon credits are moving toward a three-jurisdiction trading system after California Gov. Gavin Newsom authorized regulators to begin the formal process of linking the state’s market with Washington.
The decision, announced Wednesday during New York Climate Week, allows the California Air Resources Board to start the regulatory process required to connect the two markets. Washington, meanwhile, has completed its own regulatory changes needed to make its system compatible with the existing California-Québec market.
The proposed linkage is expected to become operational in 2027, although additional regulatory steps remain in California and Québec.
Three Markets, One Trading System
Under a linked system, companies covered by the participating programs can use compliance instruments from the other jurisdictions to meet their emissions obligations. That creates a larger pool of allowances and credits while preserving each jurisdiction’s authority over its own climate program.
California and Québec have operated a linked carbon market since January 2014. Washington launched its Cap-and-Invest program in 2023 and has spent more than three years analyzing a potential connection with the California-Québec system. Officials from all three jurisdictions signed a linkage agreement in June.
Washington finalized regulatory changes this month, including provisions that align its auction rules with the existing market.
Why the Link Matters
The expansion would create a substantially larger regional carbon market. Washington and California officials say greater market integration could improve the efficiency of emissions reductions and give businesses additional options for meeting their obligations.
For companies participating in the programs, linkage can allow allowances and other compliance instruments to move between jurisdictions. California’s existing system with Québec has operated on that basis for more than a decade.
The size of the combined economies also gives the proposal broader significance. Washington’s governor’s office estimates that California, Washington and Québec together would constitute an economy roughly the size of the world’s third-largest national economy.
What Happens Next
California’s approval does not itself complete the linkage. CARB must now proceed through the state’s public rulemaking process, while Québec has additional steps of its own.
Washington’s Department of Ecology says the three jurisdictions expect to begin operating a linked market in 2027, assuming the remaining regulatory and statutory requirements are completed.
The development would expand an emissions-trading system that began with California and Québec and now could encompass a second U.S. state. For businesses and investors watching carbon markets, the next year will determine how the three programs translate their agreements into a functioning shared marketplace.
Read more: California’s Cap-And-Invest Program Gets Controversial Makeover Favoring Energy Companies
