In a pivotal moment for climate policy, Washington State's Cap-and-Invest program has withstood a repeal challenge. On November 5, 2024, voters decisively rejected Initiative 2117 (I-2117), which aimed to dismantle the carbon trading system, with 61.7% voting to keep the program as of early November 6, 2024. Against a backdrop of affordability concerns, this demonstrates support for climate programs that are designed to maximize local impacts and impacts on overburdened communities.
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Source: New York Times
Context and Background
The Cap-and-Invest program plays a central role in Washington's strategy to reduce greenhouse gas emissions via a market-driven cap-and-trade approach. I-2117 proposed prohibiting carbon tax credit trading and repealing the legislation, threatening funding for essential state programs in transportation, clean air, renewable energy, and emissions reduction. A well-coordinated campaign underscoring these potential losses swayed public sentiment, ultimately ensuring the program's survival.
Market Implications and Complex Dynamics
The failure of I-2117 is expected to stabilize the market, which has faced price volatility due to regulatory uncertainty throughout 2024. If Washington does not link with WCI as planned, ClearBlue’s analysis highlights tight market balances that signal a potential depletion of APCR (Allowance Price Containment Reserve) allowances by the end of the first Compliance Period (2023-2026). Regulators are targeting the APCR Tier 1 price level for the Washington program as they move to link with WCI.
Updated Market Reaction
Following the I-2117 vote, Washington Cap-and-Invest allowance prices for December 2024 delivery rose by USD 7.50 to USD 58 on ICE. This price level sits between the 2024 APCR Tier 1 price of USD 56.16 and the expected 2025 APCR Tier 1 price of approximately USD 60. The exact escalation for 2025, determined by inflation, will be finalized next week. This immediate price reaction aligns with ClearBlue’s forecast and reinforces the program’s tight market dynamics.
Regulatory Challenges in Emissions Reporting
The lack of consistent and transparent emissions data has created uncertainty for market participants. ClearBlue anticipates further clarity on 2023 emissions by year-end, but the timeline for regulatory releases remains uncertain and covered emissions may or may not be released.
Linkage with the Western Climate Initiative (WCI)
Achieving linkage with the WCI is considered a critical milestone for Washington's Cap-and-Invest program. A successful linkage by 2027 would enhance program durability, increase market liquidity, and provide a broader pool of compliance instruments. Regulators have stated that if linkage occurs before November 2027, Washington entities will be permitted to use WCI allowances for Compliance Period 1, smoothing market volatility and enhancing price predictability.
Strategic Importance of WCI Review
Linkage with WCI is a key factor containing Washington allowance prices in the medium term. However, the ongoing WCI program review, expected to result in changes to the linked California-Quebec program, will play a crucial role in shaping expectations for both markets. Political and regulatory alignment with WCI jurisdictions remains essential, and potential delays in linkage arrangements could affect market dynamics.
As market conditions evolve, ClearBlue remains committed to providing timely updates and insights. Contact us for more information on ClearBlue’s Washington and WCI market intelligence.