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Ecology gives early nod to linking WA’s cap-and-trade program to CA-Quebec

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(The Center Square) – Department of Ecology Director Laura Watson has given her preliminary approval to link Washington state’s cap-and-trade program with the joint California-Quebec market.

“After significant research and analysis, we have concluded that linking Washington’s market with California and Quebec would deliver the benefits that come with a larger, more liquid market,” Watson said at a Thursday morning press conference announcing her decision. “Linking would provide price stability and assurances to participating businesses, which would in turn incentive long-term strategies and investments to reduce emissions.”

She went on to say her decision “offers our state the best path to a successful, durable carbon market.”

A component of the state’s Climate Commitment Act, cap-and-trade puts a price on emissions in the form of carbon auctions, which the state hopes will motivate large industrial polluters – oil refineries and energy utilities, for example – to reduce their emissions.

Three quarterly carbon auctions and one Allowance Price Containment Reserve auction have been held so far this year, bringing in more than $1.4 billion meant to go to programs to fight climate change and improve the environment.

The CCA also requires that the Department of Ecology pursue linkage.

The California-Quebec market, established in 2014, is approximately six times the size of Washington’s total emissions allowance market.

The decision to move forward on linkage is just the start of an extensive process to ultimately have the Evergreen State join the California-Quebec market, Watson explained.

That process includes further aligning carbon market policies between the three jurisdictions, completing an Environmental Justice Assessment to identify overburdened communities and vulnerable populations that could be impacted by linkage, as well as negotiating a linkage agreement between the three jurisdictions, conducting additional public outreach and ensuring all statutory criteria have been met.

The earliest Washington could join the California-Quebec market is 2025.

Watson’s decision to pursue linkage was influenced by an Oct. 12 Ecology report examining linkage criteria.

The 97-page report concludes being part of a larger climate market should result in companies paying lower prices for emissions allowances and warns that “continuing as a standalone program and rejecting linkage could lead to the program being curtailed or even repealed, making it significantly more difficult for our state to meet its GHG [greenhouse gas] emission reduction mandates.”

Watson was optimistic California and Quebec would ultimately welcome Washington into their market, even though allowance prices in the California-Quebec market are lower than Washington’s.

The Aug. 16 carbon auction conducted by California and Quebec saw allowances sell for $35.20 apiece. At Washington’s most recent quarterly carbon auction on Aug. 30, the price per allowance was $63.03. Each allowance represents one metric ton of emissions from the state’s biggest greenhouse gas polluters.

“Now we get to work with California and Quebec to determine their interest in linking with us, what a combined market might look like, what issues would need to be resolved and what’s the timeline that makes sense,” Watson said.

She added, “Now that I’ve made this preliminary decision, we will begin the formal discussions with California and Quebec, and of course, they will need to make their own decisions about whether they want to link with Washington state.”

Sen. Joe Nguyen, D-White Center, chair of the Environment, Energy & Technology Committee, applauded Ecology’s decision.

“I am excited to hear of the Department of Ecology’s decision to pursue a linkage agreement with our partners in California and Quebec,” he said in news release. “While there are details that still need to be worked out, this is a crucial step forward for the stability of our cap-and-invest program.”

Rep. Mary Dye, R-Pomeroy, ranking Republican on the House Environment & Energy Committee, was less optimistic.

“California has the highest gas prices in the country and the third highest retail electricity rates in the country,” she said in a news release. “California also is the state that has the most unaffordable housing market and second highest cost of living overall. Everything California policymakers touch related to energy markets ends in disaster for consumers.”

Todd Myers, director of the Center for the Environment at the free market Washington Policy Center think tank, called Thursday morning’s announcement “a formality” that “reduces the risk of volatility in the market.”

Joining the California-Quebec market “would likely result in Washington’s prices going down.”

But he warned that means “California-Quebec prices would likely go up.”

That sets up an interesting political battle, according to Myers.

“It doesn’t mean they won’t let Washington join, but it would essentially be a subsidy for Washington residents,” he said. “Washington legislators bragged that they ‘fixed’ some of the problems of California’s system, making it more strict. That is part of the reason our prices are higher. To join California-Quebec, we’d probably have to conform to their rules rather than them changing to align with us. Will legislators go for that? Will the far-left activists who pushed for those restrictions allow it? I’m guessing not.”

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