WCI market structure: accounts, auctions and price backstops

California, Québec and Washington use the same compliance instrument: one allowance for one tonne of CO₂e. Since 2023, the linked California–Québec auction has cleared between $28 and $35 per allowance, only modestly above a floor that rises each year by 5% plus inflation.

As banked surplus declines, price formation depends on which allowances are released, which remain in government accounts and which entities can access each price tier. This note maps those mechanics under California’s amended regulation effective 1 September 2026, Québec’s RSPEDE and Washington’s WAC 173-446.

California Code of Regulations title 17 as approved 31 August 2026; CARB price notices and joint auction results; Québec RSPEDE; Washington WAC 173-446.

For each budget year, CARB creates allowances equal to the cap in §95841 Table 6-2: 254.0 Mt for 2026 and 225.6 Mt for 2027. Each receives a vintage and first enters a state-controlled account that determines whether it is auctioned, allocated, reserved or retired.

California Code of Regulations title 17, §§95870 and 95871, as approved by OAL on 31 August 2026.

Two accounts directly alter market supply. The Build Up California Reserve adds 118.3 Mt of Manufacturing Decarbonization Incentive allowances outside Table 6-2 of the regulation. The Allowance Removal for Offset Use Account withholds future-budget allowances as offsets are used. The other accounts mainly govern allocation, timing, reserve access or retirement.

Once allowances enter private hands, a covered entity can hold them in three account types.

•Holding account. Freely tradable, subject to the holding limit in §95920.

•Compliance account. Instruments moved here are committed to surrender and cannot be removed by the entity under §95831(b)(8).

•Limited Use Holding Account. Utilities receive free allocation here. The allowances can leave only through auction consignment, with proceeds returned to customers.

Vintage sets the first year an allowance can be used. It can cover emissions from its own vintage or any later year and can be banked indefinitely. It cannot cover earlier emissions; §95856(b) bars a 2028 allowance from covering 2026. Advance-auction allowances are sold three years early and become usable only when their vintage begins.

California and Québec conduct four joint auctions each year. Bids are sealed, successful bidders pay one settlement price, and consigned allowances clear before state-owned volume. No bid below the Auction Reserve Price is accepted. The floor rose from $17.71 in 2021 to $27.94 in 2026 and resets annually by 5% plus the latest twelve-month CPI-U.

When demand is below the volume offered, §95911 determines where unsold allowances go.

•Consigned allowances. Unsold volume remains in the Auction Holding Account and is offered again until sold.

•State-owned allowances. These return only after two consecutive auctions settle above the floor, capped at 25% of the volume otherwise scheduled.

•After 24 months. State-owned current-vintage allowances still unsold move to the Allowance Price Containment Reserve.

After the May 2025 auction left 7.2 Mt of 119.2 Mt unsold at the floor, the August and November auctions cleared above the floor. February 2026 then re-offered and sold the 7.2 Mt alongside scheduled volume. No allowances reached the reserve.

California’s 2026 ladder is $27.94 at the auction floor, $65.31 at reserve tier 1, $83.92 at tier 2 and $102.52 at the ceiling. Each level escalates annually by 5% plus inflation.

Source: CARB price notices and CARB/MELCCFP auction results. The settlement band covers linked auctions since 2023.

Reserve sales are available only to California-registered entities; §95913(b) excludes linked-system entities. A sale is offered when the previous auction settles at or above 80% of tier 1, about $52 in 2026, and before the 1 November surrender deadline. Allowances sell at fixed prices, tier 1 before tier 2.

The ceiling activates after both reserve tiers are depleted. Access is limited to California entities short for the next surrender, and purchases are capped at that shortfall. If the Price Ceiling Account is exhausted, CARB issues ceiling units as needed. They enter the compliance account directly, and sale revenue must fund at least one tonne of emission reductions per unit.

Which tier becomes marginal, and which of your entities can reach it? We track account balances and release rules across all three jurisdictions to 2045.

Québec has participated in California’s joint auction since 2014, and Washington plans to link. Auction floors are closely aligned. Upper-price protections differ materially.

Sources: California Code of Regulations title 17; Québec RSPEDE (Q-2, r. 46.1) as amended by O.C. 1252-2026; Washington RCW 70A.65 and WAC 173-446 as adopted 17 September 2026.

Two differences matter most for compliance prices.

•Québec has no formal ceiling. Its 38.2 Mt ministerial reserve has three categories, with category C as the final step. California reserve and ceiling units are unavailable to Québec entities. A Québec emitter that exhausts category C must buy ordinary allowances from other holders; any remaining shortfall triggers the RSPEDE’s three-for-one requirement.

•Washington’s ceiling is lower. At $80 for 2026–2027 it sits $22.52 below California’s 2026 ceiling. Combined with a tighter standalone balance, that helps explain why Washington auctions have generally cleared at roughly twice the linked price since 2023. Linkage would give Washington buyers access to the larger linked supply pool and common auction price.

The linked market has historically cleared close to the floor because allowance supply has exceeded near-term demand. As the bank declines, marginal supply can move to reserve tier 1, tier 2 and ultimately the ceiling. Eligibility, timing and available volume differ at each step, so account mechanics matter alongside the aggregate balance.

Three questions matter most for compliance planning.

•When does the bank stop absorbing annual deficits? This depends on caps, free allocation, offsets and emissions across all three jurisdictions.

•Which price backstop can each buyer access? California, Québec and Washington entities face different reserve and ceiling rules.

•How do unsold-allowance and reserve rules shift supply across years? These rules determine when withheld volume returns and when price pressure appears.

Climate Decode · Advisory

When does the bank stop absorbing the deficit?

Account balances, release rules and price backstops across California, Québec and Washington through 2045, with linkage scenarios.

Sources

California Code of Regulations title 17, §§95831, 95841, 95856, 95870, 95871, 95911, 95913, 95915 and 95921, as approved by OAL 31 August 2026; CARB annual auction reserve price notices; CARB/MELCCFP joint auction results; Québec RSPEDE (Q-2, r. 46.1) as amended by O.C. 1252-2026; Washington RCW 70A.65 and WAC 173-446 as adopted 17 September 2026.

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