A three-jurisdiction carbon market linking California, Washington and Québec is targeted for 2027 operation, after Gov. Gavin Newsom authorized the California Air Resources Board to begin the formal rulemaking required to connect Washington's Cap-and-Invest program with the existing California-Québec system.

The directive, announced Wednesday during New York Climate Week, allows CARB to initiate California's regulatory process. Washington has already completed the rule changes needed to align its auction structure with the California-Québec market, and officials from all three jurisdictions signed a linkage agreement in June.

What does a linked carbon market actually do?

Under a linked system, companies covered by any of the three programs can use compliance instruments issued by the others to meet their emissions obligations. The arrangement preserves each jurisdiction's authority over its own climate program while enlarging the pool of allowances and offsets available to regulated entities.

California and Québec have operated a linked market since January 2014. Washington launched its Cap-and-Invest program in 2023 and has spent more than three years evaluating a connection. Washington's Department of Ecology finalized the necessary regulatory amendments this month, including auction provisions that mirror the California-Québec framework.

Washington's Department of Ecology has confirmed that the three jurisdictions expect to begin operating a linked market in 2027, contingent on the remaining regulatory and statutory requirements in California and Québec.

How big is the combined market?

Washington's governor's office estimates the linked economies of California, Washington and Québec together would constitute a market roughly the size of the world's third-largest national economy. For compliance buyers, that scale translates into:

• A larger allowance supply pool across the three programs
• Cross-jurisdiction fungibility of compliance instruments
• Greater hedging optionality for entities operating in multiple states or provinces
• A more uniform price signal, contingent on aligned auction schedules

Market participants have used cross-border allowances under the California-Québec link for more than a decade. Extending the same principle to Washington would add a second U.S. state to a system that, until now, has included only one.

What still has to happen?

California's authorization is procedural, not final. CARB must complete the state's public rulemaking process, and Québec has additional statutory steps. Washington, by contrast, has cleared its domestic regulatory hurdles.

The sequencing matters. Washington is ready on its regulatory side, California is starting, and Québec still has domestic procedures to clear. Until all three finish, no compliance instrument can move across the expanded border under the new agreement.

The next regulatory milestone to track is CARB's rulemaking docket, where the technical amendments required for auction and tracking integration will be published for public comment. Washington's completed auction alignment, finalized this month, sets the template CARB is expected to follow.

What changes for compliance buyers and investors?

For entities already covered by Washington's Cap-and-Invest program, linkage opens a pathway to acquire California-Québec allowances and offsets, subject to program limits on external compliance use. For California- and Québec-covered entities, Washington allowances enter the available pool.

California and Québec officials have stated that greater market integration could improve the efficiency of emissions reductions and give businesses additional options for meeting their obligations.

For compliance entities and carbon-market analysts, the operative question is whether the three programs can translate the June linkage agreement into operational reality before the 2027 target.