What's Happening?
Governor Gavin Newsom has taken a significant step forward in California's plan to link its carbon market with Washington State. On September 21, 2026, Governor Newsom made the formal findings legally required for California to proceed with linking the two
markets, consistent with advice from the Attorney General. This action allows the California Air Resources Board (CARB) to initiate the public regulatory process, which is the final step before the markets are formally linked. The proposed linkage aims to create a larger, more stable carbon market, which is expected to help California continue to efficiently reduce climate pollution and support investments in cleaner transportation, affordable housing, wildfire resilience, and other community priorities. California first launched its carbon market in 2013 and linked with Quebec's Cap-and-Trade System in 2014. Washington State became the second U.S. state to launch a carbon market in 2023, with its system designed for future linkage.
Why It's Important?
The linkage of California's carbon market with Washington State, and potentially Quebec, is a crucial development in U.S. climate policy. This expanded market would create the third-largest economy in the world operating under a unified carbon pricing system, enhancing the effectiveness and stability of emissions reduction efforts. A larger market is expected to lead to more stable carbon prices, providing businesses with greater certainty for long-term investments in decarbonization technologies. This can drive down the cost of clean technologies, accelerate their adoption, and foster job growth in high-growth industries. For California, the Cap-and-Invest Program has already generated billions of dollars for climate investments, funded numerous projects, and supported thousands of jobs, while helping the state meet its climate goals ahead of schedule. The linkage is anticipated to further strengthen these outcomes and provide greater economic and environmental benefits.
What's Next?
Following Governor Newsom's authorization, the California Air Resources Board (CARB) will now begin the public regulatory process required to formally link the markets. This process will involve public hearings and stakeholder engagement to finalize the rules and mechanisms for the integrated carbon market. Washington State has already completed its regulatory changes to make its market compatible. Quebec is also working on regulatory updates, with the three jurisdictions having signed a linkage agreement earlier this year. The formal linkage of the markets is anticipated to occur in 2027. Once linked, businesses in all participating jurisdictions will be able to utilize allowances and credits from the combined system, making it more efficient and economical to meet compliance requirements and further reduce emissions.
Beyond the Headlines
This initiative represents a significant example of subnational leadership in climate action, particularly in the context of varying federal approaches to environmental policy. By creating a robust, interconnected carbon market, California and Washington are demonstrating that bold climate action can be compatible with economic growth and job creation. The expansion of such market-based mechanisms could serve as a model for other states or regions seeking to address climate change efficiently. Furthermore, the collaboration highlights the potential for states to drive innovation and investment in clean energy and sustainable practices, fostering a competitive advantage in the global green economy. The success of this linkage could also influence international climate policy discussions, showcasing the effectiveness of regional cooperation in achieving ambitious environmental targets.
