Earlier this year, Washington state made a big move for the environment. The state launched an economywide carbon market, becoming the second US state after California to take such a step. This development brings Washington to a crossroads: should it integrate its carbon market with the joint system that California and Quebec currently operate?
The possible integration holds significant consequences. By joining forces with California and Quebec, Washington might ease the financial implications of carbon emissions for its businesses. After Washington’s sales in August, emission allowances were priced at around $63 each, nearly twice as much as in California and Quebec. While some see these high prices as a reflection of Washington’s dedication to reducing emissions, concerns arise regarding the economic impact, notably in rising gas prices.
In California, the situation is different. The surplus of allowances and relatively low cost have led businesses to stockpile, potentially weakening the state’s strict climate goals. Danny Cullenward, a climate economist, emphasizes the need for balance. “You can have a program with high prices, which will do a lot of work to cut emissions.” Or “you can design a program with lower prices, which will lead to lower revenues and fewer reductions.” he said.
The potential merger of carbon markets among California, Quebec, and Washington is being closely watched by other US states. They understand that such a partnership could influence future carbon pricing both environmentally and economically.
For clarity, carbon markets aim to cut down greenhouse gas emissions. They offer businesses the choice of how to achieve set reductions. Businesses must comply with these limits or buy allowances to offset carbon emissions. Limited budgets should promote eco-friendly business practices.
California led the charge with its economywide system, followed by Washington’s program that oversees businesses contributing to 75% of the state’s emissions. The two differ in their strategies. Washington targets a 7% yearly emissions reduction, increasing the demand and price of allowances. In contrast, the surplus of allowances in California has kept their prices lower.
The potential for a shared market among California, Quebec, and Washington suggests a unified approach to regulating carbon emissions. However, such a merger would require various approvals and legislative modifications. Lys Mendez, a spokesperson for the California Air Resources Board (CARB), said in an email, “If Washington wants to link, California would then do its evaluation process. That “would take us about two years to finalize the linkage process.”
For Washington, this potential link raises complex questions. Although the state recognizes that high allowance prices could benefit the environment, this might strain the economy and attract public criticism. Integrating into a larger, more balanced market could ease these financial pressures yet possibly weaken businesses’ urgency to reduce their emissions due to the lower prices.
In California, the over-accumulation of allowances by businesses is a big concern that threatens the state’s climate objectives. This surplus, almost matching the annual issuance of new permits, could hinder program effectiveness till 2030. CARB plans to address these concerns by reducing future allowances, which could increase allowance costs but require careful consideration to avoid economic backlash.
The different paths of Washington and California in their carbon markets showcase their unique environmental and economic strategies. As Washington ponders merging with the joint system, it must weigh environmental objectives against economic sustainability.
Derik Broekhoff of the Stockholm Environment Institute advises Washington to wait until California finalizes its market adjustments before committing to a merger. However, the Washington Policy Center sees potential economic benefits from the merger, even as it recognizes the possible impact on California’s market.
The potential collaboration between Washington, California, and Quebec in carbon markets could shape a new standard in sustainable economic procedures, offering a model for others. The choices these states make will influence their economies but benefit their global environmental health.