Ecology Provides Update on HB1975 Implementation: Proposes Addition of 5% of 2031-40 Caps Into APCR and Brings Back Tier 2 as Market Heads Towards End of CP1

Key Takeaways

• On April 29^th, Ecology issued a notice to inform the market of changes that it is planning to bring in order to implement HB1975. These changes primarily concern supply of allowances coming in auction, the new caps, the retroactive additions, and the quantum and timing of disbursal of extra APCRS coming in through HB1975.
• Ecology has stated that the retroactive vintages coming for the new 2023-26 budgets will be added to the 2027 current vintage auctions, all before the CP1 deadline towards the end of the year. In line with cCarbon’s expectations – these new vintages will also be accordingly disbursed into the APCR, ECR, VRE accounts as per statute.
• Ecology has amended the supply guidance that has been in place till 2023. In 2027, APCRs will be sold at the Tier 1 and Tier 2 price. The APCR Tier 2 price will be the midpoint of the ceiling and APCR Tier 1 Price. cCarbon expects this price to be about $75.24 in 2027, assuming 3% inflation and a corresponding Tier 1 price of $70.48 and ceiling of $80.
• However, the distribution of allowances between both tiers can vary auction to auction and depends on the settlement price of the current auction that triggered it. If the current auction clears at or above the Tier 2 price, all APCR allowances in the subsequent APCR auction will be sold at the Tier 2 price. If it clears at or above the Tier 1 price, the allowances will be split 50% between Tier 1 and 2.
• The calculation of APCRs per auction has also changed, now Ecology plans to disburse all the APCR supply across a maximum of 3 auctions till the compliance deadline. Ecology also confirmed that they plan to add 5% of 2031-40 budgets into the APCR before the conclusion of Compliance Period 1.
• Regardless of the outcome of other APCR auctions, Ecology will offer all remaining APCR supply in the mandatory pre-compliance APCR auction. The pricing and distribution between Tier 1 and 2 for this auction will depend on the June ‘27 current auction.
• Ecology plans to file a CR-102 by Spring 2026. We expect Ecology to conclude the rulemaking by the end of the year as all these changes come into effect in 2027.
• cCarbon will hold a Webinar on 13^th May 2026 providing an overview of these market changes and their impact on demand, supply and pricing in the program.

On April 29, Ecology issued a notice outlining planned market adjustments to implement HB 1975. The changes primarily relate to allowance auction supply, revised caps, retroactive budget additions, and the timing and volume of additional APCR supply entering the market.

Retroactive Vintages to Enter 2027 Auctions

Ecology clarified that retroactive allowances from the revised 2023–2026 budgets will be added to 2027 current vintage auctions before the Compliance Period 1 deadline. In these vintages will also be allocated into APCR, ECR, and VRE accounts as required by statute.

APCR Auctions Move to Tier 1 and Tier 2 Pricing

Ecology has amended its earlier supply guidance, with 2027 APCR auctions to use both Tier 1 and Tier 2 prices. The Tier 2 price will be the midpoint between the ceiling and Tier 1 price. cCarbon expects the 2027 Tier 2 price to be about $75.24, assuming 3% inflation, a Tier 1 price of $70.48, and a ceiling of $80.

APCR Tier Distribution Depends on Auction Clearing Price

The split between Tier 1 and Tier 2 allowances can potentially vary in each auction. The new proposal outlines that the Tier-wise offering will depend on the settlement price of the current auction that triggers APCR release. If the current auction clears at or above Tier 2, all subsequent APCR allowances will be sold at Tier 2. If it clears at or above Tier 1, supply in the APCR auction will be split 50% between Tier 1 and Tier 2. One edge case that Ecology provides clarification on is that if no auction clears an APCR auction, the mandatory pre-compliance deadline auction will provide all APCRs at the Tier 1 price.

APCR Supply to Be Frontloaded Before CP1 Deadline

Ecology now plans to distribute all APCR supply across a maximum of three auctions (May, August, September 2027) before the compliance deadline. Ecology also confirmed that 5% of the 2031–2040 budgets will be added into the APCR before the conclusion of Compliance Period 1.

Mandatory Pre-Compliance APCR Auction to Clear Remaining Supply

Regardless of earlier APCR auction outcomes, Ecology will offer all remaining APCR supply in the mandatory pre-compliance APCR auction. The pricing and Tier 1/Tier 2 distribution for this auction will be in line with the methodology explained earlier but depend on the June 2027 current auction result.

Rulemaking Expected to Conclude Before 2027

Ecology plans to file a CR-102 by Spring 2026. cCarbon expects the rulemaking to conclude by the end of the year, as the announced changes are scheduled to take effect in 2027.

cCarbon will hold a webinar on May 13, 2026, Diving Deeper into these Changes

cCarbon will hold a webinar on May 13, 2026, providing an overview of these market changes and their impact on demand, supply, and pricing in the program.

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Analyst Contact

• Mitul Kaushal (mkaushal@ckinetics.com)