Editor’s Note: In 2021, when Washington enacted the Climate Commitment Act, Sightline published an explainer of the new law. We are publishing this updated explainer with the latest information about the law.
Jump to…
- How does the Climate Commitment Act cap greenhouse gas emissions?
- How do polluters get allowances?
- How much do allowances cost, and how much revenue has the Climate Commitment Act generated for Washington?
- What does the Climate Commitment Act revenue fund?
- What are the environmental justice requirements of Washington’s Climate Commitment Act?
- Does the Climate Commitment Act allow carbon offsets?
- Will Washington link with California and Quebec?
In 2021 Washington enacted the Climate Commitment Act, becoming only the second US state (after California) with an economy-wide cap-and-invest program. With the passage of the Climate Commitment Act, Washington also put in place its primary enforcement mechanism for achieving the state’s greenhouse gas reduction goals. The law went into effect in January 2023.
In November 2024, Initiative 2117 on Washington’s ballot puts to voters the option to keep the program or repeal it. (The initiative also prohibits Washington from enacting a new carbon tax or cap-and-invest program). By way of education about the policy, Sightline answers frequently asked questions about the Climate Commitment Act’s cap-and-invest program and how it has worked to date.
How does the Climate Commitment Act cap greenhouse gas emissions?
Washington law, originally enacted in 2008 and updated in 2020, mandates that the state cut its greenhouse gas emissions roughly in half by 2030 and by 95 percent by 2050. Put another way, the state emitted more than 100 million metric tons of greenhouse gas pollution in 2019 (the most recent year data is available); by 2030, Washington must shrink that figure to 50 million metric tons and to 5 million metric tons by 2050.
The Climate Commitment Act is the primary policy Washington has to attain these statewide emissions targets. The 2021 law directed the Washington State Department of Ecology to set a declining cap on pollution for companies that emit more than 25,000 metric tons of greenhouse gases annually. This cap set by the Climate Commitment Act covers roughly 75 percent of the state’s total greenhouse gas emissions.
Washington counts about 160 facilities that emit more 25,000 metric tons of greenhouse gases annually, including the state’s five oil refineries, several utilities, and manufacturing companies, such as steel and cement factories.1
To enforce the emissions cap, the Climate Commitment Act requires the state’s top polluters, known in the law as “covered entities,” to acquire one allowance for each metric ton of carbon dioxide equivalent (CO2e) they release into the atmosphere. (The Climate Commitment Act exempts pollution from combusting certain fuel types, such as jet fuel and biofuels, from emissions calculations.) Each year, the Department of Ecology gradually ratchets down the number of allowances available, according to a declining allowance budget (shown below) that tracks Washington’s overall greenhouse gas emissions targets. As allowances become scarcer over time, they rise in price, incentivizing polluters to reduce their emissions rather than buy allowances.
It’s still too early to know whether Washington’s Climate Commitment Act cap has lessened the state’s climate pollution. For one, Washington has not released data on the state’s greenhouse gas emissions since the Climate Commitment Act went into effect.
In addition, the law’s first compliance deadline has not yet occurred. On November 1, 2024, covered entities will have to submit their first set of compliance instruments (i.e., allowances or offsets—more on offsets below) equal to 30 percent of their prior year’s emissions. (Emissions are counted in aggregate per four-year compliance period. There are seven compliance periods between 2023 and 2050.) By the end of each compliance period, covered entities must have submitted compliance instruments for all their emissions over the prior four years. That means the emissions impact of the Climate Commitment Act will not become clear until at least 2026.
How do polluters get allowances?
All polluters covered under the Climate Commitment Act (those emitting more than 25,000 metric tons of greenhouse gases annually) must obtain allowances equal to their emissions, whether by buying them in an auction or receiving them for free from the state. Washington provides free allowances to three types of businesses:
- Electric utilities receive free allowances for the purpose of mitigating the cost impact of the Climate Commitment Act on their customers. Utilities can choose to sell their no-cost allowances in the state auction and must return the proceeds to ratepayers, prioritizing low-income households. No-cost allowances to electric utilities phase out as they shift their power generation to 100 percent carbon-free sources, as required by Washington’s Clean Energy Transformation Act.
- Natural gas utilities also receive free allowances to mitigate cost impacts on their customers. Gas companies receive fewer allowances each year, in line with the declining emissions cap. Of these free allowances, 65 percent (to start and ramping up eventually to 100 percent) must be sold at auction. The utility must use the proceeds of the auction to benefit customers. Low-income customers must see no rate increases due to allowance costs. As of June 2024, utilities had generated more than $508 million for their customers from consigning their allowances to auction.2 Gas customers in Washington are already seeing reductions on their monthly bills from the proceeds of these allowances. Puget Sound Energy’s average residential customer, for example, received a bill credit of about $30 per month this past winter.3
- Manufacturing companies that Washington determines to be vulnerable to out-of-state competition also receive free allowances. These so-called emissions-intensive, trade-exposed (EITE) industries include oil refineries, steel and aluminum manufacturers, and pulp and paper factories. About 40 EITEs are covered entities under the Climate Commitment Act. They receive no-cost allowances equal to 100 percent of their baseline emissions for the first compliance period (2023–26), decreasing to 94 percent of baseline emissions by the third compliance period (2031–34). The legislature has not yet established an approach for allocating allowances to EITE industries from 2035 onward. If the legislature does not adopt an allowance policy for these entities by December 1, 2027, the state’s EITE entities will continue to receive free allowances equivalent to 94 percent of their baseline emissions.
The no-cost allowances that Washington provides to utilities and EITE companies represent more than half of the total allowance budget from 2023 to 2030, as shown below. (Estimates past 2030 are not yet available.).
All other covered entities must purchase allowances in a quarterly auction run by the Department of Ecology. Facilities that do not comply with the program are subject to fines of up to $50,000 per violation, per day.
How much do allowances cost, and how much revenue has the Climate Commitment Act generated for Washington?
The Department of Ecology determines the price of allowances in quarterly auctions, within a defined range of a rising floor and ceiling price.
When the legislature was still deliberating the Climate Commitment Act, a fiscal analysis estimated that the starting allowance price would begin at $20.60 per ton of CO2e in 2023 and increase 7 percent each year after that. That estimate was based on prices in California’s carbon market.
In reality, Washington’s carbon price debuted much higher, at $48.50 per ton in the first auction in February 2023, due to higher-than-expected demand. Prices in Washington spiked to $63.03 per ton in August 2023. That’s still less than half the $190 per ton estimate for the social cost of carbon, according to the United States Environmental Protection Agency.
These higher-than-expected prices led the Department of Ecology to hold two off-schedule auctions to up the supply of allowances and take pressure off prices. Washington’s allowance prices have since fallen to $29.88 per ton as of September 2024, the most recent auction, and are now roughly equal to prices in California’s market.
Washington state also originally lowballed the estimate of revenue the Climate Commitment Act would generate from polluters buying allowances, putting it at $450 million in the market’s first year of operation. In fact, Washington raised $1.8 billion—roughly quadruple the estimate—in 2023.
As of the most recent auction in September 2023, the state has generated more than $2.3 billion total from the Climate Commitment Act.4
The Climate Commitment Act will generate a total of more than $4 billion in state revenue between fiscal years 2025 and 2029, according to estimates by the Department of Ecology.
What does the Climate Commitment Act revenue fund?
To date, Washington policymakers have appropriated more than $3 billion of Climate Commitment Act revenue. (The amount appropriated is higher than the amount raised so far because the legislature appropriates funding for two fiscal years, relying in part on Climate Commitment Act revenue projections from the Department of Ecology.)
Climate Commitment Act revenue must be used to fund environmental and community projects in Washington, specifically those that reduce transportation emissions; increase access to public transit, walking, and biking; support Washington’s transition to clean energy; promote resilience of sensitive ecosystems; and/or improve air quality and health disparities.
To date, that has meant investments in safer bike lanes and sidewalks, electric buses and ferries, rebates on utility bills for low-income households, better air quality monitoring systems, restoration of fish and wildlife habitats, community solar projects, electric vehicle charging stations, more affordable high-efficiency electric heating and cooling systems, and much more. (Clean & Prosperous Institute, a group advocating against the repeal of the Climate Commitment Act, has compiled a database and map of all appropriations the legislature has made so far that are funded in part or in whole by the cap-and-invest program.)
Climate Commitment Act revenue is deposited into one of seven accounts (three main accounts and four subaccounts), each with a specific purpose:
Source: Washington State Department of Ecology.
Below is a breakdown of the roughly $3 billion in Climate Commitment Act revenue the legislature has appropriated so far, by account.5
- Carbon Emissions Reductions Account ($1.05 billion). The purpose of this account is to reduce pollution from transportation and increase transportation safety. A defined amount of about $360 million per year must go into the Carbon Emissions Reductions Account until 2037. After 2037, this switches from a fixed amount to a percentage (50 percent of all Climate Commitment Act revenue). Funds are further split into two subaccounts:
- Climate Active Transit Account ($252 million): About a quarter of the funding in the Carbon Emissions Reductions Account is reserved for active transportation projects such as bicycle and pedestrian improvement projects and safe routes for kids to get to school.
- Climate Transit Programs Account ($589 million): Another 56 percent of the Carbon Emissions Reduction Account is for transit programs, including grants to improve bus service, and tribal transit mobility programs.
- Climate Investment Account ($2.06 billion): The bulk of Climate Commitment Act funding so far has come out of the Climate Investment Account. This account funds cap-and-invest program administration costs but cannot exceed 5 percent of the total auction proceeds. So far the legislature has appropriated less than this (about $80 million) to program administration, which includes data collection and staff capacity at state agencies implementing the Climate Commitment Act. After program administration costs are met, funding is divided into two subaccounts:
- Climate Commitment Account ($1.5 billion): Three-quarters of the Climate Investment Account funding is devoted to projects that broadly advance Washington’s decarbonization goals. This includes projects that improve energy efficiency, rebates to lower the cost of high-efficiency electric appliances such as heat pumps and induction stoves, investments in renewable energy and grid modernization, energy bill assistance to low-income families, and workforce development programs for a clean energy economy. In September 2024, roughly 700,000 Washington households received a $200 bill credit on their utility bills funded by this account. At least $50 million per year from this account goes to supporting tribes in Washington state in adapting to the effects of climate change, such as sea level rise.
- Natural Climate Solutions Account ($463 million): Another quarter of the Climate Investment Account is directed to projects to increase habitat resilience for vital ecosystems across the state. Qualifying projects include those focused on clean water, healthy forests, wildfire resilience, fish barrier removals, and conservation of critical habitats.
- Air Quality & Health Disparities Improvement Account ($22 million): Since an economy-wide cap on carbon doesn’t guarantee reductions in pollution any particular neighborhood, it could lead to unequal patterns of pollution persisting. Thus, the legislature has agreed to allocate at least $20 million every two years for projects that improve air quality and reduce health disparities in overburdened communities.6
What are the environmental justice requirements of Washington’s Climate Commitment Act?
When administering funds or grants from any of the Climate Commitment Act accounts, agencies must conduct an environmental justice assessment and ensure a minimum of 35 percent (with a goal of 40 percent) of investments that directly benefit vulnerable populations in overburdened communities. Benefits, as the legislature has defined them, include investments or activities that reduce environmental harms to these communities and protect them from air pollution or climate change.
The Climate Commitment Act also requires a minimum of 10 percent of Climate Commitment Act revenue to fund projects formally supported by resolution of a tribe, with priority for projects directly administered or proposed by a tribe.
An estimated 43 percent of Climate Commitment Act investments that the legislature made in the 2023–25 budgets were directed to overburdened communities, according to an October 2023 analysis by the Washington State Office of Financial Management (OFM). The legislature appropriated another 7 percent to projects supported by tribal resolution, according to the same OFM study. Front and Centered, a coalition of communities of color–led groups across Washington state, disputed OFM’s figures based on its own analysis, finding that only about 10 percent of the Climate Commitment Act investments went to overburdened communities and about 6 percent went to tribes. (Still, Front and Centered is urging its members to reject the Climate Commitment Act repeal effort.)
The Climate Commitment Act also links to Washington’s first statewide environmental justice law, the Healthy Environment for All Act, better known as the HEAL Act. The HEAL Act, which policymakers passed in 2021 alongside the Climate Commitment Act, requires several state agencies to better incorporate environmental justice into their work. The HEAL Act also established an environmental justice council, which the legislature has tasked with helping to advise on the Climate Commitment Act’s implementation.
Finally, the Climate Commitment Act requires the Department of Ecology to improve air quality in overburdened communities by deploying a new air quality monitoring network and establishing air quality targets. The Department of Ecology must set these targets based on whichever is more stringent: national ambient air quality standards or air quality in nearby communities that are not overburdened. The agency has so far identified 16 areas in Washington (see map below) that are “historically overburdened with health, social, and environmental inequities and are highly impacted by criteria air pollution, such as ozone and fine particles.”
Source: Washington State Department of Ecology.
In August 2024, the agency opened applications for $10 million worth of grants for projects in these communities or for projects led by Tribes to improve air quality. The grants are funded by the Climate Commitment Act. The department is still determining whether it needs to adopt additional regulations to protect air quality in these communities.
Does the Climate Commitment Act allow carbon offsets?
Carbon offsets are credits for reducing emissions from an external source, often an agricultural or forestry project, that businesses can purchase to purportedly cancel out (i.e., offset) their own emissions. Carbon offsets are facing increasing scrutiny globally for not actually reducing emissions.
The Climate Commitment Act allows covered entities to use carbon offsets but with several important restrictions. Offsets in the Climate Commitment Act must:
- Be “under the cap.” Unlike in California’s carbon market, companies cannot use offsets to pollute more than what is allowed under the state’s established emissions cap.
- Offer direct environmental benefits to Washington state. All offset projects must reduce or avoid greenhouse gas emissions in the state. The Climate Commitment Act allows out-of-state projects if they lead to emissions reductions in Washington.
- Not exceed 5 percent of an entity’s emissions. Polluters can cover up to 5 percent of their carbon pollution with offset projects in the first compliance period (2023–26). That figure drops to 4 percent in the years between 2027 and 2050.
- Follow robust monitoring requirements. Offsets must represent emissions reductions that are “real, quantifiable, permanent, verifiable, enforceable, and additional” to pollution that would be reduced anyway. A verified third party must approve all offsets that companies use to comply with the Climate Commitment Act.
Lastly, the Department of Ecology can prohibit the use of offsets by specific entities if they are found to contribute to air pollution in overburdened communities.
It’s not yet clear to what extent covered entities will use offsets to comply with the Climate Commitment Act, since the first compliance deadline (November 2024) is approaching.
Will Washington link with California and Quebec?
Lawmakers wrote the Climate Commitment Act with the intention of being able to hook into the Western Climate Initiative (WCI), California and Quebec’s linked cap-and-invest system. Linkage would mean joint allowance auctions across the jurisdictions, a shared allowance price, and an ability for polluters to cover their emissions with allowances purchased in either jurisdiction. (WCI’s allowance budget is six times larger than Washington’s.)
Washington policymakers directed the Department of Ecology to explore the possibility of linkage with WCI and established three criteria that must be met for the markets to connect:
- Any linked jurisdiction must ensure that benefits of the program reach overburdened communities;
- Linkage cannot adversely impact either jurisdiction’s vulnerable populations; and
- Linkage cannot hinder Washington state’s ability to meet its emissions limits.
One of the driving concerns behind the third criteria was whether the 300 million unused allowances in California and Quebec would flood Washington’s market, deflating prices and making it more attractive for Washington businesses to simply purchase allowances rather than reduce pollution.
In October 2023 the Department of Ecology published a report exploring these issues. It argued that linkage would likely improve the Climate Commitment Act’s “durability, longevity, and efficacy” due to presumed lower and more stable prices that would come from a larger market. (Washington’s price fell below California’s in the first quarter of 2024 even without linkage; both hovered around $30 in the most recent auctions). Ecology determined that linkage would likely meet the first criteria and came to no definitive conclusion about the second or third.
In response, Washington’s Environmental Justice Council sent a letter to the Department of Ecology recommending against linkage, arguing that the department’s report left uncertain whether linkage would negatively impact overburdened communities and populations. The council also argued that linkage could make it more challenging for Washington to meet its emissions reduction limits if the state’s carbon price tanked, which would disincentivize covered entities from curbing pollution. Front and Centered also criticized the Department of Ecology’s findings, arguing that linkage could worsen pollution in overburdened communities since California’s environmental justice requirements are less stringent than Washington’s.
Despite these concerns, in March 2024, Washington moved closer to linkage with Senate Bill 6058, which made technical changes to the Climate Commitment Act that make it easier to sync up the markets. In September 2024, California, Quebec, and Washington state released a joint statement formally announcing their intent to begin discussing a linkage agreement. The earliest the governments could likely finalize the agreement would be late 2025.
Washington voters will decide whether the Climate Commitment Act continues
Washington enacted the United States’ second-only economy-wide cap-and-invest policy in 2021. The Climate Commitment Act, which went into effect in 2023, has so far generated more than $2 billion in revenue for projects in the state, including for cleaner air and water, safer transit, and healthier homes. The law is also the primary enforcement mechanism Washington has on its books to meet its goals of reducing greenhouse gas emissions by 95 percent by 2050. In November 2024, voters will decide whether or not to keep Washington’s Climate Commitment Act. Initiative 2117, on statewide ballots, would repeal the law and prevent Washington from enacting another similar one in its stead.
