On June 23, California and Quebec regulators released separate market notices advising market participants that both jurisdictions plan to sign a linkage agreement with Washington State this week. The notices further inform participants that the three-jurisdiction linked program is planned to begin operating in 2027.
The signing of the linkage agreement, planned for June 25 at an event in Seattle, represents a significant step toward linking the three emissions trading systems into a unified program, with allowances issued by each jurisdiction becoming fungible across all three programs. The signing follows significant progress in the Program Review process in both California and Quebec. Nonetheless, rulemaking processes will need to be conducted in all three jurisdictions before the linked program becomes operational.
In California, SB 1018 governs the linkage finalization process. Once CARB has determined compatibility for linkage and signed the linkage agreement, CARB must request the California Governor's office to issue a report on the impacts of linkage. The Governor's office then has 45 days to issue a report to the state Legislature determining whether linkage with Washington would put California's climate goals at risk, along with other requirements. This is followed by a rulemaking process amending California's regulations to allow fungibility with Washington-issued allowances.
For Quebec, the province will also need to conduct its own formal rulemaking process to amend its regulations to allow fungibility with Washington-issued allowances. Quebec's National Assembly would also need to approve the linkage agreement.
Based on a review of the California and Quebec linkage effort with Ontario in 2017, the process with Washington could be completed relatively quickly. However both California and Quebec would first need to complete their current regulatory amendment processes before proceeding. Furthermore, upcoming elections in both California and Quebec could push the linkage process into 2027:
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In California, CARB is currently targeting implementation of the updated Cap-and-Invest regulations in September 2026, meaning the state's linkage process will begin after that point. While California will elect a new Governor in November, CARB could still issue a request to Governor Newsom per SB 1018, who can response before the new Governor takes office in January 2027.
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In Quebec, the province plans to implement its updated regulations in fall 2026 as well, with the linkage process not commencing until after regulatory implementation. The province will also hold a provincial election in October. Per Quebec election laws, no major regulatory processes may occur in the period leading up to the election, and current polls suggest the governing CAQ party is likely to lose. A new government and Premier would not take office until late or October or early November, meaning the province’s completion of the linkage process may not be completed until early 2027.
With Washington already having undertaken an extensive process to amend its Cap-and-Invest regulations to facilitate linkage, the timeline for when the California-Quebec-Washington linked Cap-and-Invest program will begin operating will depend primarily on California and Quebec.
If the linkage process concludes before November 2027, Washington covered entities will be able to use California and Quebec-issued allowances for compliance against the state's first compliance period (CP1) obligations, reducing the need to rely on Washington cost containment reserves.
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