Ah, cap-and-trade. It’s too bad that something so crucial comes off as so confusing and sounds, well, kind of boring. But don’t go away! It’s important, I promise.
Cap-and-trade initiatives are one method that Washington and several other states (along with quite a few other countries) have come up with to help prevent the world from barreling even more rapidly into climate catastrophe. These programs seek to limit the amount of planet-warming greenhouse gases polluters produce over time. Many policy experts are pretty enthusiastic about them, especially Washington’s, which some hail as the nation’s strongest.
But in practice, cap-and-trade programs have had some … issues: Despite a cap-and-trade program launched in 2013, California is not on track to meet its emissions targets of 40% below 1990 levels by 2030. In fact, it would need to triple its emissions cuts to do so. And, as of 2018, changes in emissions patterns likely due to the program have caused more greenhouse gases and other toxic airborne pollutants, including particulate matter and volatile organic compounds, to affect low-income communities and communities of color.
Now, thanks to a bill expected to be signed into law this month, Washington is likely to link its cap-and-trade program with California and Quebec’s — a move that critics say will benefit polluters more than communities already at risk. Here’s what to know about the program and the change:
Wait, what is cap-and-trade again?
Great question. Cap-and-trade is a way to make companies pay for — and therefore, ideally, reduce — pollution. The cap part of cap-and-trade comes from the limit a government sets on carbon emissions. This is a theoretically unbudgeable ceiling on the amount of greenhouse gases that polluters can collectively release into our beleaguered atmosphere every year.
Cap-and-trade programs create one big market, where companies bid on a fixed number of annual “allowances” to pollute. In Washington, one allowance is a permission slip to dump 1 metric ton of CO2 or CO2 equivalent into the atmosphere. Polluters can also sell their allowances to other companies; that’s the trade part of cap-and-trade. Washington calls its program a cap-and-invest program, emphasizing what it plans to do with the money: Invest it in decarbonization initiatives, such as EV programs, expanding and electrifying transit systems, and more.
Polluters can also sell their allowances to other companies; that’s the trade part of cap-and-trade.
Washington’s cap on emissions goes down each year, and that decline is the steepest of any carbon market in the U.S. The price of allowances also goes up each year. If the program works, Washington’s emissions will drop to 95% below 1990 levels by 2050.
Here’s the logic behind all of this: Decarbonization will be easier for some polluters than others, and it costs money. But it wouldn’t be feasible to ask polluters to suddenly stop producing carbon wholesale. So cap-and-trade programs incentivize companies to start making changes now, because they’ll end up saving money if they don’t have to buy as many allowances.
Whew, OK. So, does all this work?
Well … in Washington, we don’t really know yet: The program came into effect in 2023, and the Washington State Department of Ecology hasn’t released statewide CO2 pollution data yet. And polluters have four years before they must use their allowances to offset their pollution, so we won’t know how often they plan to bank or use them until then.
There is evidence that California’s cap-and-trade program has lowered emissions, though not by as much as the state had initially hoped. This is due to some companies hoarding allowances when the cap-and-trade policy was new. Now, 10 years later, they’re using those allowances, making it harder for the state to meet its emissions targets.
Environmental justice advocates also have concerns. In California, some wealthy white communities saw more benefits from emission reductions after the state’s cap-and-trade initiative began than poor communities and communities of color did. According to a report by University of Southern California, Black and brown neighborhoods were less likely to see reductions in the kind of greenhouse gas emissions and toxic pollutants that come from burning fossil fuels, and were also more likely than white neighborhoods to be near polluting plants. Furthermore, some advocates doubt the entire premise of a market-based approach to decarbonization, arguing that it commodifies nature.
Some polluters have another problem with Washington’s cap-and-trade program: the price of allowances. The state ended up raising almost $2 billion in revenue from the program — a staggering $1.5 billion more than Washington’s Department of Ecology predicted, worrying politicians about its political viability.
Polluters were, um, not particularly happy about these allowance prices. Oil and gas companies in Washington state claimed that the cap-and-trade program was causing gas prices to soar in the state, although there’s really no way to verify that. Joel Creswell, a climate and environmental policy specialist at the Washington Department of Ecology, said that while the agency had anticipated that allowance prices would indeed go up over the course of the year, nobody anticipated that they would go up quite thatmuch. So lawmakers started looking into solutions, such as linking Washington’s market with California and Quebec.
All right, but how would that help? And … um … why Quebec??
Linkage would create one big-mega-supersized carbon market, where Washington’s polluters could buy and sell allowances with companies in California and Quebec. California and Quebec’s markets are a lot older and a lot bigger than Washington’s, and they are already buddies, having hooked up back in 2014. Because of supply-and-demand forces and a larger allowance supply, a bigger market could mean lower and more stable allowance prices, according to Altinay Karasapan, a policy manager at the nonprofit Climate Solutions, echoing findings from the Washington Department of Ecology’s initial linkage study. She helped pen the Climate Commitment Act, the 2021 bill that kickstarted the cap-and-trade program in Washington. “We’re seeing some volatility in our allowance costs,” she said. “And that’s because it’s a new and smaller market.”
Karasapan also predicts that lower and more stable allowance prices might help companies do a better job of planning for their carbon-free futures: By knowing how much allowances might cost in the long run, they’ll have more money to invest in decarbonization now.
I’m still thinking about those environmental justice concerns. How are those playing out in Washington?
Here’s where there’s a bit of friction. In October, the Environmental Justice Council, a body of 16 appointees whose job it is to advocate for communities overburdened by pollution, signed a letter to the Washington Department of Ecology recommending against linkage. The Climate Commitment Act requires that the Department of Ecology show that any changes to the system would directly benefit overburdened communities. In its letter, the council wrote that the department had not done enough to guarantee that such communities would indeed benefit from Washington joining markets with California and Quebec in its initial assessment of the consequences of linkage.
If allowance prices go down, the council wrote, polluters might not be motivated to actually cut emissions, and less revenue in the program could make it harder to find sufficient funding for decarbonization initiatives. Polluters might also be more likely to hoard allowances, so the council suggested putting an expiration date on them. “We still haven’t seen a good answer for how linkage would actually lead to reduced levels of greenhouse gas emissions,” said Nico Wedekind, a public interest environmental attorney at the nonprofit Front and Centered.
“We’re seeing some volatility in our allowance costs. And that’s because it’s a new and smaller market.”
The council also suggested limiting the use of carbon offsets. That’s because Black and brown neighborhoods are more likely than white neighborhoods to be located close to a polluter, and allowing polluters to buy offsets — paying a third party to, for example, plant trees to counterbalance the original company’s CO2 emissions so that it can keep polluting — could perpetuate that environmental injustice.
In a public response to the Environmental Justice Council’s letter, Washington Department of Ecology Director Laura Watson wrote that the department intends to make sure that linkage doesn’t weaken Washington’s cap-and-trade system. Then, the department pushed ahead, crafting a bill designed to ease the path to linkage that has made its way through the Legislature, and is now on Gov. Jay Inslee’s desk.
The agency said that it will continue to work with the Environmental Justice Council’s to address their concerns. The Department of Ecology’s Creswell added that overburdened communities will benefit from the change, at least indirectly, through the revenue that the cap-and-trade program brings in. That’s because 35% of the cap-and-trade revenue is meant to go to overburdened communities. “We think (linkage) is going to lead to long-term stability of the program, which will make sure that the revenue flowing in is being invested in those communities,” Creswell said.
There are still a lot of unknowns. California and Quebec still need to agree to linkage, and linking will require negotiations and rule changes, which may take a few years. Still, before next year, we can expect Washington to spend a lot on decarbonization initiatives, like electrifying school buses and installing EV charging stations throughout the state. Meanwhile, activists will be watching how the state spends that earmarked money, to make sure it is indeed going to frontline communities.
Natalia Mesa is an editorial fellow for High Country News based in Seattle, Washington, and reporting on science, and environmental and social justice. Email her at natalia.mesa@hcn.org or submit a letter to the editor. See our letters to the editor policy.
