Cap-and-Invest (Washington state)

Cap-and-Invest is a program run by the government of the US state of Washington to fund climate change policy through a carbon emissions trading system, commonly known as cap and trade.

Program design

The Cap-and-Invest program was created by the Climate Commitment Act in 2021. Businesses that meet a threshold for carbon emissions must cover the full amount of their emissions for a set compliance period using instruments called allowances and offsets. Each instrument is equal to 1 metric ton of greenhouse gases.[1] According to the law, businesses meeting certain criteria are given some allowances for free, but all businesses must obtain enough instruments to cover their entire emissions, either through auctions administered by the Department of Ecology, or through the secondary market. For example, during the initial compliance period natural gas utilities have been provided with free allowances covering 93% of their baseline emissions.[2]

Linkage

The carbon market is designed with the intention to link with other carbon markets, such as California and Quebec's Western Climate Initiative (WCI). This would increase the size of the secondary market, making prices more stable and, in the short term, lowering prices.[3]

In March 2026, a draft linkage agreement with the Western Climate Initiative was released. The agreement would create a framework to not only transfer compliance instruments between the three markets, but also to hold joint auctions across all three markets.[4] California and Quebec's markets have been linked since January 1, 2014. Prices in California and Quebec's auctions have generally been lower than Washington's with the highest settlement price ever recorded being $42 per metric ton, whereas the highest settlement price in Washington's auction history was $70.86 per metric ton.[5] According to two studies from Washington Department of Ecology and the University of California, linkage would align the prices of Washington carbon allowances with the lower and more stable WCI allowances. The CA-QC market is approximately six (6) times bigger than Washington's standalone market, so linkage would dramatically increase liquidity in the allowance market.[6]

Offsets

Offset credits represent a project that verifiably reduces at least one metric ton of greenhouse gases in Washington state. Unlike some other cap and trade programs, carbon offsets can only be used for a small percentage of a compliance entity's emissions: a maximum of 8% total with up to 5% from general offset credits and up to 3% from offset projects on federally recognized Tribal land. Additionally, all valid offsets used in Washington state's carbon market are "under the cap", meaning that for every offset created, an allowance is removed from issuance by Ecology, such that the total number of instruments available on the market remains the same. Offsets can only be purchased through the Compliance Instrument Tracking System Service (CITSS), the same digital tool used for conducting auctions and surrendering allowances.[7]

As of 2026, the only types ("protocols") of offset projects approved by Ecology are:

  • Destruction of Ozone Depleting Substances Protocol: Destruction of CFCs from heat pumps
  • U.S. Forest Protocol: Derived from California's U.S. Forest Protocol
  • Urban Forest Protocol: Planting trees in urban areas (based on California's Urban Forest Protocol)
  • Livestock Protocol: Capturing methane on pig and cattle farms using specialized "digester" tanks

Blue carbon sequestration projects are being explored as an additional protocol as of 2026.[8]

Auctions and price history

Auctions

The program uses sealed-bid auctions, whereby the price that each participant bids is unknown to other participants. After bidding is closed, participants are allocated the number of allowances that they bid for, in order of highest price first, until all allowances have been accounted for. However, the price that all the successful participants actually pay (the settlement price) is the lowest successful bid price. Any participant who bid a price lower than the settlement price, will not receive any allowances at auction, and will instead have to purchase them on the secondary market.[9] The Department of Ecology also establishes price floors and ceilings for allowances, increasing over time and adjusted for inflation.[10][11][12] As of 2024, participants must bid in lots of 1,000 allowances.[13] Given that the lowest settlement price (as of April 2026) that has ever occurred in a Washington state auction is $24.02, all participants that have successfully purchased allowances from the auction so far have paid at least $24,020.

Allowance Price Containment Reserve (APCR) auctions are intended to keep prices from escalating too quickly. These auctions are automatically called after an auction where prices rose above a certain threshold and they are only open to polluting entities. In an APCR auction, prices are fixed at Tier 1 (lower) and Tier 2 (higher) prices, and there are a set number of allowances up for auction in each tier.[14][15]

Most allowances have a "vintage year," which is the earliest year that it can be used to cover a business' emissions. A limited number of allowances are sold in advance of their vintage year. Allowances with earlier vintage years can always be used in later years, but allowances cannot be used before their vintage year. For example, a 2027 vintage allowance cannot be used in 2026. Allowances sold in APCR auctions have no vintage and can be used in any year.

Because each allowance represents 1 metric ton of greenhouse gas emissions, the most recent auction prices can be used by businesses as a shorthand for gauging the "cost to pollute" charged by the state government.

Example auctions

For the following examples, a total of 5,000 allowances are up for auction, and 3 parties bid at auction. See Table 1-a for the simplest example, where the highest bidder receives all of the allowances they asked for, the lowest bidder receives none of them, and the middle bidder receives part of what they requested.

Table 1-a
Participant Bid price Bid amount Price paid

$/allowance

 Allowances purchased Total cost
A $20 2,500 N/A 0 $0
B $30 2,000 $30 1,000 $30,000
C $40 4,000 $30 4,000 $120,000
Total - - $30 5,000 $150,000

However, the lowest bidder may still get some allowances if not all of the allowances up for sale were allocated to the higher bidders. In the case of Table 1-b, because the auctioneer wants to sell as many allowances as possible, they will allocate the remaining allowances to the lowest bidder, even though this lowers the price that all participants pay for their allowances.

Table 1-b
Participant Bid price Bid amount Price paid

$/allowance

 Allowances purchased Total cost
A $20 2,500 $20 2,000 $40,000
B $30 2,000 $20 2,000 $40,000
C $40 1,000 $20 1,000 $20,000
Total - - $20 5,000 $100,000

In some cases, this can even reduce the total revenue generated by the auction. In Table 1-c, if the auctioneer had been able to allocate only 4,000 of the 5,000 allowances, then the settlement price would have stayed at $30. Instead, because the remaining 1,000 allowances had to be allocated to the lowest bidder, the settlement price for all participants was lowered to $20. This decreased the potential revenue from $120,000 ($30 x 4,000) to $100,000 ($20 x 5,000). The result is that the auction is designed to incentivize the availability of carbon allowances, even if the revenue generated for the government is lower.

Table 1-c
Participant Bid price Bid amount Price paid

$/allowance

 Allowances purchased Total cost
A $20 2,000 $20 1,000 $20,000
B $30 1,000 $20 1,000 $20,000
C $40 3,000 $20 3,000 $60,000
Total - - $20 5,000 $100,000

Auction history

Impact of Initiative 2117

At the 2024 meeting of the North American Carbon World, Director of the Washington State Department of Ecology, Laura Watson, suggested that the reason for the sudden drop in settlement price for carbon allowances in the first auction of the year was a result of the initiative getting on the ballot.[16][17]

Analysts expected the first auction after I-2117 was voted down to see a significant increase in settlement price. These predictions were based on both the sizeable margin of defeat for the initiative and on the current price for allowances on secondary markets. On election night, secondary market prices jumped $10 to approximately $60. However, the December 2024 auction settled at only $40.26 with a bid-to-cover ratio of 1.15. Data showed that compliance entities were generally participating in lower numbers than expected, despite projections that there is an overall shortfall of allowances.[18][19]

Compliance

Businesses and other required reporting entities must cover all of their emissions with allowances and/or offset credits. Compliance is measured in four year compliance periods, the first of which covers 2023-2026. On the compliance deadline (November 1) following each year in a compliance period, entities must submit compliance instruments covering at least 30% of their emissions from the previous year. On the final compliance deadline in a compliance period, entities must submit compliance instruments covering all of their remaining emissions from the compliance period.[20]

November 1, 2024 marked the beginning of the program's compliance requirements. Required reporting entities had to submit documentation to the Department of Ecology that showed they had compliance instruments (allowances or offsets) covering at least 30% of their 2023 emissions. The 2023 compliance report showed a 99.996% compliance rate.[21]

The Department of Ecology fined Climate Care Innovations, an offset project operator, $425,000 for falsely claiming that it owned over 3 million allowances. Offset project operators are not allowed to own allowances, and in reality they had no such allowances or offsets, according to Ecology. On February 11, 2025, their registration for the market was revoked.[22][23]

On November 1, 2025, compliance entities were required to surrender instruments covering 30% of their 2024 emissions as well as any of their under-reported emissions from 2023, if applicable. The overall compliance rate was 99.995% with the vast majority of compliance instruments being allowances given or sold at auction by Ecology. Only 0.407% of instruments were offset credits from projects with direct environmental benefits to Washington state and not on Tribal land.[24]

Cosmo Specialty Fibers, an abandoned pulp mill with 800,000 gallons of corrosive chemicals leaking out of storage tanks near the Chehalis River, was the only entity which did not fulfill its obligation of carbon allowances in 2023, and it failed to surrender the required allowances again in 2024. It was separately fined $2.3 million for pollution in 2025.[25][26][27][28]

Revenue and investments

Auction revenue accounts

The revenue generated from the sale of carbon allowances is deposited into three main accounts, plus four accounts that derive funding from the main accounts. Each account has different restrictions on how funds can be spent. All funding must first be appropriated by the Washington State Legislature from an account before it can be spent.[29][30]

Account name Required usage Funding source
Carbon Emissions Reduction Account (CERA) Reducing transportation emissions, investing in alternatives and reductions to single occupancy passenger vehicles, and investing in emissions reduction programs for freight, ferries, and ports $367 million/yr from auction revenues
Climate Active Transportation Account Active transportation projects 24% of CERA
Climate Transit Programs Account Public transit projects 56% of CERA
Air Quality Health Disparities Improvement Account Expanding air monitoring in overburdened communities highly impacted by air pollution, and reducing health disparities in those communities >$20 million/yr from auction revenues
Climate Investment Account (CIA) First used to fund administration of Cap-and-Invest program, capped at 5% of total auction revenues All remaining auction revenues
Climate Commitment Account Supporting Washington's transition to a low-carbon economy, improve air quality, and increase access to clean energy for Washington residents 75% of CIA after admin costs
Natural Climate Solutions Account Protecting fish and wildlife habitats, improve aquatic ecosystems and water quality, and protect against floods 25% of CIA after admin costs

During 2026's budget session, Governor Bob Ferguson proposed raiding the CCA accounts of more than half a billion dollars to pay for working families tax credits.[31][32]

Investments

For fiscal year 2023 (FY23), which started on July 1, 2022 and ended on June 30, 2023, the Washington state legislature appropriated $76 million from CCA accounts.[33] For the 2023-25 biennium budget, total appropriations jumped to $3.2 billion. However, in the fiscal year ending in June 2024, only 15% of appropriations had been spent, potentially due to the threat of I-2117.[34][35]

Fiscal Years[a] Total appropriations Total expenditures Benefits overburdened communities (OBC)

>= 35% / biennium

 Supported by

Tribal resolution

>= 10% / biennium

 Ref
FY23 $76 M $54 M Not required to report[36]
FY24 - $478 M $289 M $1 M [37]
FY25 - $1,022 M $560 M $54 M [37]
Total FY24-25 $2,752 M $1,500 M 57% ($849 M) 4% ($55 M) [38]

Climate justice provisions

The Climate Commitment Act requires that a minimum of 35%, with a stated goal of 40%, of auction proceeds be used for climate justice, meaning projects that benefit overburdened communities, defined as:

“a geographic area where vulnerable populations face combined, multiple environmental harms and health impacts or risks due to exposure to environmental pollutants or contaminants through multiple pathways, which may result in significant disparate adverse health outcomes or effects.”[39]

Additionally, at least 10% of investments must go towards projects formally supported by an Indian tribe.[40]

For air pollution mitigation projects, Department of Ecology identified 16 areas which were both overburdened and highly impacted by air pollution.[41][42][43] The results of this study were used as eligibility criteria for $10 million offered in Air quality in overburdened communities grants.[44]

In the first full biennium where CCA funds were distributed, Ecology far surpassed the minimum of 35% spending benefiting overburdened communities with 57% of revenue spent on OBCs. However, the amount of spending on projects supported by a Tribal resolution fell short of the required 10%, reaching only 4%.

Spending by agency

Agency 2023-25[38] 2025-2027
Transportation $522 M
Commerce $488 M
Natural Resources $168 M
Ecology $83 M
Health $44 M
Washington Conservation Corps $33 M
University of Washington $23 M
Recreation and Conservation Office $17 M
Transportation Improvement Board $17 M
Washington State University $14 M
Department of Enterprise Services $14 M
Office of Superintendent of Public Instruction $13 M
All other agencies combined $62 M

Example investments from 2023-25 biennium

  • One time $200 rebate on electricity bill for low-to-medium income households.[49]
  • Climate and Health Adaptation Initiative (CHAI)[57]
  • Improving Air Quality in Overburdened Communities[41]

See also

References

Notes

  1. ↑ Fiscal year is defined as starting the prior July 1 and going through June 30 of that calendar year (e.g., FY24 starts July 1, 2023 and ends June 30, 2024)

Citations

  1. ↑ "Auctions & market - Washington State Department of Ecology". ecology.wa.gov. Retrieved 2026-04-09.
  2. ↑ "Business Brief - Washington State Cap-and-Invest". IETA. Retrieved 2026-04-13.
  3. ↑ Environmental, Its Intersections with; Issues, Political (2026-03-13). "WA aims to stabilize carbon market, lower costs with key strategy". The Seattle Times. Retrieved 2026-04-09.
  4. ↑ "DRAFT - Draft Washington-California-Québec linkage agreement". apps.ecology.wa.gov. Retrieved 2026-04-09.
  5. ↑ "Cap-and-Trade Program Data Dashboard | California Air Resources Board". ww2.arb.ca.gov. Retrieved 2026-04-09.
  6. ↑ "Cap-and-Invest Linkage Criteria: Draft Findings". apps.ecology.wa.gov. Retrieved 2026-04-19.
  7. ↑ "Offsets - Washington State Department of Ecology". ecology.wa.gov. Retrieved 2026-04-09.
  8. ↑ "Department of Ecology - Committees, Boards, and Workgroups". www.ezview.wa.gov. Retrieved 2026-04-09.
  9. ↑ "Cap-and-invest - Washington State Department of Ecology". ecology.wa.gov. Retrieved May 31, 2024.
  10. ↑ WAC 173-446-335
  11. ↑ WAC 173-446-210
  12. ↑ WAC 173-446-380
  13. ↑ "WCI, Inc. Auction Platform". www.wci-auction.org. Retrieved June 1, 2024.
  14. ↑ WAC 173-446-370
  15. ↑ "WAC 173-446-APCR - Washington State Department of Ecology". ecology.wa.gov. Retrieved May 31, 2024.
  16. ↑ Path 1: The Expansion of WCI and Developing Requirements for It (Video). April 4, 2024. Retrieved June 2, 2024 – via YouTube.
  17. ↑ Denkmann, Libby; Anderson, Hans (October 7, 2024). "Will Washington state do away with cap-and-trade? Voices for and against I-2117". www.kuow.org. Retrieved October 10, 2024.
  18. ↑ "Breaking: Washington Auction #8 Clears at $40.26; Baffling Market, Amid Ongoing Emissions Deficit". us1.campaign-archive.com. 2024-12-06. Retrieved 2025-01-14.
  19. ↑ "Washington Carbon Allowances Rally $10/mt; Cap-and-Invest Program to Continue". OPIS, A Dow Jones Company. 2024-11-06. Retrieved 2026-04-13.
  20. 1 2 "Auctions and market - Washington State Department of Ecology". ecology.wa.gov. Retrieved June 1, 2024.
  21. ↑ "2023 Cap-and-Invest Compliance Summary Report". apps.ecology.wa.gov.
  22. ↑ "Climate Care Innovations penalized $425,000 for violating Cap-and-Invest rules that preserve market integrity". ecology.wa.gov. Retrieved 2025-07-28.
  23. ↑ "WA bans company trying to sell 'fishy' carbon allowances".
  24. ↑ "Nov. 1, 2025, Washington Cap-and-Invest Program Compliance Report". apps.ecology.wa.gov. Retrieved 2026-04-09.
  25. ↑ Duan, Ann (July 23, 2025). "Dormant Grays Harbor pulp mill fined $2.3 million for multiple environmental violations". The Olympian.
  26. ↑ "Closed pulp mill fined $2.3 million for environmental violations". ecology.wa.gov. Retrieved 2026-04-09.
  27. ↑ Swanson, Conrad (2025-07-22). "WA fines defunct pulp mill $2.3 million for violations, inaction". The Seattle Times. Retrieved 2026-04-09.
  28. ↑ World, Jerry Knaak / The Daily (2025-08-25). "Despite recent fines from state, pulp mill along Chehalis River might have a future". The Daily Chronicle. Retrieved 2026-04-09.
  29. ↑ "Auction revenue - Washington State Department of Ecology". ecology.wa.gov. Retrieved 2025-06-17.
  30. ↑ RCW § 70A.65.100
  31. ↑ Swanson, Conrad (2026-02-17). "WA climate funds needed to plug huge budget gap, lawmaker says". The Seattle Times. Retrieved 2026-04-09.
  32. ↑ "Former Gov. Inslee critiques Ferguson's plan for climate money". The Seattle Times. 2026-01-08. Retrieved 2026-04-09.
  33. ↑ "Report to the Legislature: Distribution of Funds from Climate Commitment Act Accounts Fiscal Year 23". apps.ecology.wa.gov. Retrieved 2025-06-16.
  34. ↑ "Report to the Legislature: Distribution of Funds from Climate Commitment Act Accounts Fiscal Year 24". apps.ecology.wa.gov. Retrieved 2025-06-16.
  35. ↑ "CCA Dashboard: How Climate Commitment Act funds are invested". climate.wa.gov. Retrieved 2025-06-16.
  36. ↑ WAC 173-446B-010
  37. 1 2 "FY25 CCA Dashboard". www.arcgis.com. Retrieved 2026-04-09.
  38. 1 2 "Report to the Legislature: Climate Commitment Act Investments Fiscal Year 2025". apps.ecology.wa.gov. Retrieved 2026-04-08.
  39. ↑ RCW § 70A.65.010
  40. ↑ RCW § 70A.65.230
  41. 1 2 "Overburdened Communities Highly Impacted by Air Pollution". ArcGIS StoryMaps. Department of Ecology Air Quality Program. March 19, 2025 [March 1, 2023]. Retrieved 2025-06-16.
  42. ↑ "Overburdened communities - Washington State Department of Ecology". ecology.wa.gov. Retrieved 2025-06-16.
  43. ↑ "Improving Air Quality in Overburdened Communities Highly Impacted by Air Pollution: 2023 Report". apps.ecology.wa.gov. Retrieved 2025-06-16.
  44. ↑ "Overburdened communities grants - Washington State Department of Ecology". ecology.wa.gov. Retrieved 2025-06-16.
  45. ↑ "Youth can ride transit for free in most of Washington". wsdot.wa.gov. 2022-10-14. Retrieved 2025-01-15.
  46. ↑ "Washington Youth Fare Program for Amtrak Cascades". amtrakcascades.com. Retrieved 2025-01-15.
  47. ↑ "Youth 18 and younger get free transit passes for all Sound Transit services". www.soundtransit.org. Retrieved 2025-01-15.
  48. ↑ "Q: What does it cost to ride the Fast Ferry?". www.kitsaptransit.com. Retrieved 2025-01-15.
  49. 1 2 "Save money with rebate and incentive programs". climate.wa.gov. Retrieved 2025-01-16.
  50. ↑ "WA's $5M e-bike rebate program will launch in April – Seattle Bike Blog". 2025-01-15. Retrieved 2025-01-16.
  51. ↑ "Move Ahead Washington public transportation grant programs". wsdot.wa.gov. Retrieved 2025-06-16.
  52. ↑ "Commerce awards over $85 million to expand electric vehicle charging across Washington state". Washington State Department of Commerce. 2024-02-01. Retrieved 2025-01-16.
  53. ↑ "Press Release". www.skagitcounty.net. Retrieved 2025-06-16.
  54. ↑ "Washington state is giving $5 million to a massive aluminum production plant in Spokane. Why?". www.spokesman.com. 23 May 2024. Retrieved 2025-01-16.
  55. ↑ "Overburdened communities grants - Washington State Department of Ecology". ecology.wa.gov. Retrieved 2025-06-16.
  56. ↑ "148th Street Non-Motorized Bridge | City of Shoreline". www.shorelinewa.gov (in Afrikaans). Archived from the original on 2025-03-23. Retrieved 2025-09-08.
  57. ↑ "Climate and Health Adaptation Initiative". doh.wa.gov. Retrieved 2025-01-16.
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