The California carbon market, Washington carbon market and carbon credits are moving toward a three-jurisdiction trading system after California Gov. Gavin Newsom authorized regulators to begin the formal process of linking the state’s market with Washington.

The decision, announced Wednesday during New York Climate Week, allows the California Air Resources Board to start the regulatory process required to connect the two markets. Washington, meanwhile, has completed its own regulatory changes needed to make its system compatible with the existing California-Québec market.

The proposed linkage is expected to become operational in 2027, although additional regulatory steps remain in California and Québec.

Under a linked system, companies covered by the participating programs can use compliance instruments from the other jurisdictions to meet their emissions obligations. That creates a larger pool of allowances and credits while preserving each jurisdiction’s authority over its own climate program.

California and Québec have operated a linked carbon market since January 2014. Washington launched its Cap-and-Invest program in 2023 and has spent more than three years analyzing a potential connection with the California-Québec system. Officials from all three jurisdictions signed a linkage agreement in June.

Washington finalized regulatory changes this month, including provisions that align its auction rules with the existing market.

The expansion would create a substantially larger regional carbon market. Washington and California officials say greater market integration could improve the efficiency of emissions reductions and give businesses additional options for meeting their obligations.

For companies participating in the programs, linkage can allow allowances and other compliance instruments to move between jurisdictions.

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