Washington allowance prices are converging toward California–Québec

Washington’s 2 September cap-and-invest auction settled at $39.50 per allowance, down $25.06, or 39%, from June’s $64.56 and the lowest current-auction price since September 2024. All 6.28 million allowances offered were sold, while qualified bids covered the offer 1.88 times, up from 1.74 times in June.

Washington’s standalone market balance still points to tight supply. Covered emissions exceeded the annual allowance budget in both years reported by Ecology. The 2026 budget of 49.0 million allowances is 18% below the 59.8 million tonnes emitted in 2024. Reserve demand was also strong before September, with compliance buyers bidding for 4.2 to 7.8 times the allowances offered at reserve sales between October 2025 and May 2026.

The September move is therefore better explained by expected linkage than by a change in Washington’s underlying balance. Washington, California and Québec signed their linkage agreement on 25 June. Once linkage takes effect, allowances issued by any of the three jurisdictions can be used across the linked market. Ecology expects the common price to be driven largely by California–Québec, whose combined 2026 allowance budgets are 6.2 times Washington’s. Washington’s premium over the California–Québec auction price fell from $35.75 in June to $7.02 in September, even as the California–Québec price increased.

Ecology auction, reserve-auction and ECR summary reports (2025–2026); CARB and MELCCFP joint auction results #42–#48; Ecology GHG Reporting Program data; WAC 173-446-210.

Exhibit 1 · Washington and California–Québec current-auction settlements

Source: Washington Department of Ecology auction summary reports #9 to #15; CARB and MELCCFP joint auction results #42 to #48.

Washington’s annual allowance budget declines by about 4.76 million allowances a year, from 63.3 million in 2023 to 49.0 million in 2026. Covered emissions were 64.0 million tonnes in 2023 and 59.8 million in 2024, above the budget in both years. Ecology has not yet published 2025 covered emissions.

Table 1 · Washington annual allowance budget and covered emissions

WAC 173-446-210 Table 210-1, budgets in force before 24 October 2026, with the amended 2026 budget in parentheses; Ecology GHG Reporting Program data (data.wa.gov), covered emissions as revised in April 2026.

House Bill 1975 adds near-term supply. It increases the 2023–2026 budgets by about 6.0 million allowances in total, raising the 2026 budget to 51.4 million when the amended rule takes effect on 24 October. It also makes about 14.08 million additional reserve allowances available from 2027. Ecology’s implementation guidance links the change to ensuring that businesses hold enough allowances for the first compliance period, which closes with full surrender on 1 November 2027.

Market pressure was visible before the September auction. Quarterly settlements reached the reserve Tier 1 trigger in September and December 2025 and again in March 2026. Ecology then held four reserve sales between October 2025 and May 2026 at $60.43 and $65.26. All four sold out, with bids covering 4.2 to 7.8 times the volume offered.

Table 2 · Ecology reserve sales, October 2025 to September 2026

Ecology APCR auction summary reports #4 to #8 (Publications 25-14-059, 25-14-080, 26-14-017, 26-14-025 and 26-14-073).

Auction #15 offered 6.28 million current allowances, including 2.80 million from Ecology and 3.48 million consigned by utilities. The offer was 28% larger than June’s 4.92 million, while demand increased faster. Qualified bids covered the auction 1.88 times compared with 1.74 times in June, and compliance entities purchased 79% of the volume. The auction cleared at $39.50, $11.58 above the $27.92 floor.

Two sales later in September reinforced that level. On 16 September, Ecology sold 731,000 vintage-2023 allowances from the emissions containment reserve at $39.50, with bids covering the volume 2.11 times. On 30 September, the annual pre-compliance reserve sale offered 172,348 allowances at $65.26 and received no bids. Those reserve allowances move directly into compliance accounts and cannot be resold, so buying at $65.26 was unattractive while current allowances were available near $39.50. In May, the same reserve price had attracted bids equal to 7.79 times the volume offered.

The additional supply announced under House Bill 1975 does not explain the September decline on its own. Ecology published the additions on 29 April, before the June auction cleared at $64.56. Its 11 June update shifted 5.57 million new vintage 2023–2026 allowances into the December auction without changing the total amount added. June also followed Ecology’s proposed linkage rule filed on 1 June. The material change between the June and September auctions was the 25 June linkage agreement itself.

From June 2025 through June 2026, Washington’s quarterly auctions settled at 2.24 to 2.50 times the price of the preceding California–Québec joint auction. In September, the ratio fell to 1.22 and the dollar premium narrowed by about 80%. The California–Québec price rose from $28.81 in May to $32.48 in August, while Washington moved sharply lower toward it.

Table 3 · Washington and California–Québec current-auction settlements, US$ per allowance

Ecology auction summary reports #9 to #15; CARB and MELCCFP joint auction results #42 to #48. Each joint auction was held about two weeks before the Washington auction beside it. Gap and ratio are Climate Decode calculations.

Washington’s amended rule defines the effect of linkage. From the effective date, California and Québec allowances can be surrendered in Washington, and Washington allowances can be surrendered in California and Québec under WAC 173-446-090(4). Ecology’s linkage findings state that the linked price is expected to be largely influenced by the California–Québec joint market because of its much larger scale.

The first Washington compliance period closes with full surrender on 1 November 2027. A buyer purchasing allowances in September was therefore pricing the probability that linkage takes effect before that deadline. If it does, California–Québec allowances that cleared at $32.48 in August can satisfy the same Washington obligation.

Washington’s advance auctions had already shown this convergence for later vintages. Allowances of the 2028 and 2029 vintages, which generally cannot be used before 2029 and 2030, sold at $26.61 in June 2025, $29.40 in December 2025 and $30.00 in June 2026. Each was within $1.24 of the same vintage in the preceding California–Québec advance auction, while Washington current allowances in those auctions sold between $58.51 and $70.86.

Washington has completed its rulemaking. Ecology’s director signed the amendments on 17 September and they take effect on 24 October. Washington officials have said they expect the linked market to operate in 2027. Three remaining steps determine the effective date.

The remaining $7.02 premium over California–Québec can be read as the market value of implementation risk. Section 23 describes the agreement as a voluntary initiative that creates no enforceable rights, and each government retains the ability to withdraw. If linkage were delayed beyond 1 November 2027, Washington entities would have to complete first-period surrender using Washington supply in a market where reported emissions have exceeded the allowance budget.

Four events over the next year will show whether Washington allowances remain anchored near the California–Québec price.

Climate Decode · Advisory

How will linkage change your Washington compliance cost?

Climate Decode tracks Washington and California–Québec supply, demand, auction results and each remaining linkage step.

Sources

Washington Department of Ecology auction summary reports #15 (Pub. 26-14-063) and #14 (26-14-039), and #9 to #13 (25-14-003, 25-14-037, 25-14-051, 25-14-083, 26-14-003); APCR summary reports #4 to #7 (25-14-059, 25-14-080, 26-14-017, 26-14-025) and #8 (26-14-073); ECR Auction #1 summary (26-14-070); Auction Notice #16 (26-14-093); HB 1975 implementation guidance (26-14-035, updated 11 June 2026); Cap-and-Invest Linkage Criteria Findings (26-14-020, June 2026); Agreement on the Harmonization of Carbon Market Programs (June 2026); Chapter 173-446 WAC as adopted (CR-103), including WAC 173-446-090 and Table 210-1; Office of Governor Ferguson (25 June 2026); Office of Governor Newsom (23 September 2026); CARB and MELCCFP joint auction results #48 (August 2026), #47 (May 2026) and #42 to #46; Ecology GHG Reporting Program data.

This article is analytical research provided for information only and is not investment advice.