California has cleared a required legal step toward linking its carbon allowance market with Washington state, setting up a public regulatory process that could eventually place three jurisdictions in a shared auction system with Quebec.
In a Sept. 21 findings letter, Gov. Gavin Newsom authorized the California Air Resources Board to proceed after concluding that Washington's program meets four tests in state law. The action does not switch on a combined market. CARB must still amend its regulations, take public input and test auction and trading systems before linkage can become effective.
California already operates a joint market with Quebec. The proposed expansion would allow covered companies to use qualifying allowances and credits issued across the linked programs, while each government would retain control of its own emissions rules. Officials signed a framework agreement in June, but California's participation was contingent on the governor making the statutory findings.
The governor found that Washington's rules are equivalent to or stricter than California's, that California can preserve its enforcement authority, that Washington has adequate enforcement tools and that linkage would not impose significant liability on the state. A separate Sept. 18 legal analysis from Attorney General Rob Bonta reached the same conclusion.
What changes, and what does not
The comparison is built around each state's legally required emissions targets. Washington must reduce economywide greenhouse gases 45% below 1990 levels by 2030, compared with California's 40% target. Washington's longer-term law calls for a 70% reduction by 2040 and a 95% reduction plus net-zero emissions by 2050. California requires an 85% reduction and carbon neutrality by 2045.
Both systems set a declining emissions cap and require large polluters to surrender compliance instruments. The governor's findings say the programs use similar reporting, verification, allowance tracking, price controls and anti-fraud protections. Washington also requires four compliance instruments for every one an entity fails to surrender by a deadline, in addition to possible civil penalties and trading restrictions.
The immediate effect is procedural. CARB must address overlapping obligations, emissions leakage, protection of confidential market data and an orderly path for separating the programs if problems arise. The agency must also report progress and impediments before proposing the final linkage amendments.
California's announcement argues that a larger market should improve liquidity and reduce compliance costs. That is a policy expectation rather than a guaranteed price outcome; allowance prices will still depend on supply, demand and the rules adopted in the final proceeding.
The stakes are substantial. California says its program covers about 80% of statewide climate emissions and has generated $37 billion for climate investments. A prior state accounting details spending on transportation, housing, clean energy and wildfire programs. Linking Washington would change the market's scale, but not California's statutory emissions limits or CARB's obligation to enforce them.
