SEI experts submit recommendations for Washington state’s burgeoning “cap-and-invest” program

Answering an open call for comment by the Washington state Department of Ecology, SEI Senior Scientist Derik Broekhoff and SEI US Center Director Michael Lazarus submitted a letter detailing the implications of the state joining a wider coalition of governments operating cap-and-invest programs to drive down carbon emissions.

Washington’s cap-and-invest program entered into force in January 2023, further accelerating the state’s efforts to cut greenhouse gas emissions 45% below 1990 levels by 2030; 70% by 2040; and 95% plus net-zero carbon emissions by 2050. The state now hosts quarterly auctions for emissions allowances and intends to use that revenue to support environmental justice initiatives, as well as investments in climate resiliency, clean transportation and health.

The Department of Ecology is now deciding whether to join the Western Climate Initiative, which includes California and Quebec, Canada, in a shared cap-and-invest market. While pointing out the benefits of joining this effort, such as fostering a more liquid and stable market, Broekhoff and Lazarus warn about the potential negative effects of linking with a program such as California’s, whose system is less stringent than Washington’s, including a possible dilution of Washington’s ambitions. Giving Washington businesses access to California’s carbon allowances could, for example, reduce auction revenues in Washington by roughly 40%, cutting potential investments in environmental justice and other in-state projects.

Furthermore, California’s program is currently set to run through 2030, while Washington’s timeline extends through 2050, and Quebec’s has no end date – factors which could stoke uncertainty for Washington’s market participants who need to make long-term investment decisions.

Though California decision-makers are considering proposals to extend its program, Broekhoff and Lazarus warn Ecology against “full linkage” with WCI until that happens and encourage the agency to build guardrails to protect Washington’s ambitious climate goals.