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Washington, California, and Québec Draft Agreement for Carbon Market Linkage: What Timeline Does It Entail?

Washington, California, and Québec Draft Agreement for Carbon Market Linkage: What Timeline Does It Entail?

Key Takeaways

Washington’s Department of Ecology released a draft agreement for its linkage with the joint California-Quebec market. This initial agreement is between the states and not the regulators i.e. CARB or Ecology.
The proposal represents a formal procedural step toward linking Washington’s market with the existing California–Québec system, but operational linkage would still depend on domestic legal approvals, regulatory alignment, and technical integration across jurisdictions.
Quebec’s linkage took about 20 months from start to finish; Washington may be a bit faster; 2027 still is a stretch, with 2028 being likely earliest.

What’s Happened

Washington’s Department of Ecology have released a draft carbon market linkage agreement establishing the framework for integrating their emissions trading systems into a three-jurisdiction Western Carbon Market. If finalized, the agreement would allow compliance instruments issued in each jurisdiction to be mutually recognized for compliance use across the combined market, while enabling shared infrastructure for trading, auctions, administration, and oversight.

Linkage is critical for WCA pricing going into 2027 given tight fundamentals, while HB1975 aimed to alleviate that, there are still important rulemaking points that the market still awaiting clarity on. As discussed in our analyst note, even with HB1975’s interventions, the market clears at $70 or $80. Accordingly, linkage is the most reliable pathway to cooling off WCA pricing in the short term.

The draft agreement does not itself finalize linkage. Instead, it outlines how key program elements could be harmonized across jurisdictions, including emissions reporting, compliance instruments, offset protocols, trading infrastructure, auctions, administration, and accounting.

The agreement would only take effect once each jurisdiction completes its domestic legal and regulatory processes. Participation by California remains contingent on the Governor making the required linkage findings under state law.

The draft agreement has been released for public consultation and represents the first formal procedural step toward linking Washington’s cap-and-invest program with the existing California–Québec market. If implemented, it would replace the 2017 California–Québec linkage agreement with a broader framework capable of accommodating Washington and potentially additional jurisdictions.

WCA secondary market prices dropped to $69 on 11th March ahead of the quarterly auction results.

Market prices appear to have responded to the development. Washington Carbon Allowance (WCA) secondary market prices declined to $69 on March 11, ahead of the quarterly auction results, suggesting that expectations around linkage have finally helped ease the prices.

Quebec-California Linkage Took About 20 Months; Linkage with Washington May be Faster

Québec’s linkage with California provides a useful precedent for how the linkage process may look like for Washington.

CARB’s linkage with Québec moved through a multi-stage process between 2012 and early 2014.

In May 2012, CARB released proposed amendments to the Cap-and-Trade Regulation to approve linkage with Québec’s cap and trade system. After that, California enacted Senate Bill 1018 (passed on June 28, 2012), which added an extra procedural step by requiring CARB to notify the Governor before linking with another emissions trading system, and requiring the Governor to make specific findings before the linkage could be approved.
The process then advanced in 2013. In February 2013, CARB’s Executive Officer formally asked Governor Edmund G. Brown Jr. to make the SB 1018 findings for Québec linkage. The Governor issued those findings in April 2013 and asked CARB to complete additional preparatory actions, including a linkage readiness report.
In October 2013, CARB approved the regulatory amendments recognizing Québec instruments effective January 1, 2014, which legally put the linkage in place. CARB and the Government of Québec also developed a non-binding agreement to continue coordination around the linked system. In November 2013, CARB submitted the linkage readiness report to the Governor, and the California Québec linkage formally began on January 1, 2014.

From the starting point in May 2012 to the formal start of linkage on January 1, 2014, the process took about 20 months. Post SB 1018, and after the findings from the Governor’s Office till completing the change in regulations took 6 months (April 2013 to Nov 2013).

With Washington, regulators would likely follow a process very similar to the California Québec linkage, but without the need for new standalone legislation to authorize linkage itself. SB 1018 already provides the legal framework for linking with another emissions trading system (does not have Quebec-specific language) and requires CARB to notify the Governor and obtain the required findings before proceeding.
The main steps, therefore, in our opinion, would therefore be gubernatorial findings under SB 1018, CARB rulemaking to recognize the other jurisdiction’s instruments, and supporting readiness or coordination documents as needed. In that the pathway is already legally established, and the focus would be on implementation rather than creating new legislative authority. Hence, the process could be slightly faster than the Quebec linkage and could make for a 2027 linkage date at the very earliest.
Linkage in 2027 would be important for both CCA and WCA pricing. The bank drawdown from Washington would likely cause CCA prices to uptick, as discussed in our latest modelling update. while linkage would significantly cool down WCA pricing, which has been above the APCR level for several months.

Key Procedural Steps: SB 1018 Findings and Liability Requirement

Before California can link its emissions trading system with another jurisdiction, the process must proceed through a formal review and approval pathway established under California law.

Under California Legislative Information – Gov. Code §12894, the process begins when CARB formally notifies the Governor that it intends to approve linkage with another jurisdiction’s emissions trading system. Once this notification is issued, the Governor has 45 days to review the proposed linkage and determine whether the required statutory findings can be made. California law requires the Governor to determine that all the following conditions are satisfied before approving linkage:

The partner jurisdiction has adopted greenhouse gas emissions reduction and offset credit program requirements that are equivalent to or stricter than California’s program.
California retains the ability to enforce its own greenhouse gas emissions laws and regulations within the state.
The partner jurisdiction can enforce its own program requirements, and those enforcement mechanisms are equivalent to or stricter than California’s enforcement framework.
The proposed linkage does not impose any significant liability on the State of California or any state agency for any failure associated with the linkage.

The liability provision represents one of the most significant legal hurdles in the linkage process. In practice, the California Air Resources Board would likely need to conduct a detailed assessment of the partner jurisdiction’s program design, enforcement structure, and market oversight mechanisms to demonstrate that linkage would not expose California to legal or financial liability arising from potential program failures in another jurisdiction. In making these findings, the Governor must also consider advice from the California Attorney General regarding the legal implications of the proposed linkage and the enforceability of the partner jurisdiction’s regulatory framework.

Once the Governor issues the required findings, those determinations must also be transmitted to the California Legislature as part of the statutory oversight process required under California law.

Following completion of this review, CARB must then complete a rulemaking process to amend the Cap-and-Trade Regulation to recognize the partner jurisdiction’s compliance instruments for use in California’s program. (Source: California Air Resources Board – Program Linkage Guidance)

Timeline Constraint for a 2027 Linkage

A key question is whether California and Québec will be able to complete these procedural steps in time for linkage with Washington before the start of the 2027 compliance cycle.

Under California law, once the California Air Resources Board notifies the Governor of its intent to approve linkage, the Governor has 45 days to issue the required findings under Government Code §12894.

However, the statutory review represents only one component of the broader linkage process. Before notification can occur, CARB must first complete its internal regulatory review and initiate rulemaking to amend the Cap-and-Trade Regulation so that compliance instruments from the partner jurisdiction can be recognized within California’s program. As a result, the feasibility of a 2027 linkage depends largely on when CARB begins the regulatory process required to implement linkage.

From Washington’s perspective, linkage needs to be in place by September 2027 in time for the First compliance period surrender in November 2027, where obligations comprising 70% of 2023-25 and 100% of 2026 emissions will come due, and considering where WCA prices trade at right now, availability of cheaper CCAs will go a long way in cooling down WCA pricing as a result, and prevent the market from going to the ceiling.

We have outlined a few scenarios for the timeline for linkage:

4.1.1 Scenario: Early 2026 Start

If California Air Resources Board (CARB) begins a program compatibility assessment in the next few weeks, the agency could complete its analysis and notify the Governor by mid-2026.

A similar sequence occurred during California’s linkage with Québec. CARB formally requested the Governor’s findings in February 2013, and the Governor issued the required findings in April 2013. CARB then adopted regulatory amendments in October 2013, allowing the linkage to take effect on January 1, 2014. Quebec would have to follow suite.

This time there would be past learning to build on, and the process could be faster. In such a case CARB and MELFCPP, could complete rulemaking before the distribution of 2027 vintage allowances later in 2026.

This scenario is unlikely, since CARB would wait to formalize its own Cap and Invest program at the May board meeting. The same for Quebec formalizing its changes.

4.1.2 Scenario: Mid-2026 Start and tight execution

If CARB begins the assessment process in mid-2026, the timeline becomes tighter.

Past linkage processes required several steps:

Program compatibility analysis by CARB
Notification to the Governor requesting findings under California Legislative Information – Gov. Code §12894
Issuance of gubernatorial findings
Formal rulemaking to amend the cap-and-trade regulation.

For example, during the linkage process with Ontario, CARB requested the Governor make the SB 1018 findings regarding Ontario’s cap-and-trade program in January 2017. The Governor issued those findings in March 2017, and CARB adopted regulatory amendments in July 2017. Linkage of California’s Cap-and-Trade Program with Ontario’s Cap-and-Trade Program occurred on January 1, 2018.

A mid-2026 start could still allow completion before the end of the year, but it would leave limited manoeuvrability for any rulemaking delays.

4.1.3 Scenario: Late 2026 Start

If the linkage review process begins only in late 2026 (or if there are delays even with a Mid 2026 start), completing the statutory review, gubernatorial findings, and regulatory amendments before the distribution of 2027 vintage allowances would likely be difficult.

Even after gubernatorial findings are issued, CARB must still complete formal regulatory amendments and prepare the program administratively for linkage. Under this timeline, linkage would more likely begin in a later compliance period rather than in 2027.

Accordingly, while Washington’s draft agreement represents a significant procedural milestone toward a three jurisdiction Western Carbon Market, the timeline for linkage will ultimately depend on when CARB begins the statutory review process required under California law. Even under an accelerated process, completing the full sequence of evaluation, gubernatorial findings, and rulemaking before late 2026 would leave a relatively narrow implementation window.