Washington State

Cap & Invest Program Comparison

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Element  California
(AB 32 / SB 32)
Quebec Oregon HB 2020
(not passed)
Links C2ES
  David Roberts (Vox)
Economic Assessment
Legislature Overview
Revenue Impact Statement
HB 2020A Staff Summary
Statewide GHG Goals 40% below 1990 levels by 2030   40% below 1990 levels in 2035, 80% below in 2050
Stringency of Cap Reduction ~3% per year through 2020, faster (~4%) from 2021-2030 ~3% per year To meet statewide goals (above)
Covered Emissions Roughly 85% coverage, complemented by additional mitigation policies. Covers the “Kyoto protocol gases” (CO2, N2O, CH4, HFCs, SF6, PFCs) plus NF3 and other fluorinated gases. Roughly 85% coverage, complemented by additional mitigation policies. Covers the “Kyoto protocol gases”. Roughly 80% coverage (~100 entities), complemented by additional mitigation policies exist. Covers CO2, CH4, N2O, HFCs, PFCs, SF6, NF3
Emissions Covered at (MMt-CO2e) 374 (as of 2015) 68 (as of 2015) ~80% of statewide emissions
Emissions Cap (MMt-CO2e) Projected cap at 334.2 in 2020 plus offsets, and 150 in 2030 plus offsets. 65 No cap. Did not pass in 2019 session.
Allowance Allocation & Distribution

Partial auctioning, quarterly for transport, natural gas (NG) extraction and other fuels.

NG suppliers, auction increases over time.

Industrial facilities receive free allowances initially, transitioning to auctioning.

Investor-owned utilities must consign their free allowances to be sold at auction; must use proceeds for ratepayer benefit.

Phase 1: Free allocation for EITE sectors based on historical levels, with transition from free to output based allocation. Auctioning for electricity and fuel distributors.

Phase 2: EITEs get free allocations based on real output, diminishes by 1–2% a year.

No cap. Did not pass in 2019 session.

Would have held annual or more frequent auctions. Free allowances for NG utilities in proportion to low-income residential purchases, plus 60% of remaining with consigned use of proceeds from those allowances.

Free for power utilities based on forecast retail load), declining to a minimum of 20% free by 2050.

95% free for EITEs in phase 1, then best available technology benchmarking through 2050.

EITE Earmarking Free allowances for transition assistance, starting to decline in 2018. Free allowances determined by leakage risk and sector-specific benchmarks. n/a

No cap. Did not pass in 2019 session

Study on leakage risk and for EITE designation.

2021-2024: 95% free allowances.

2025-2050: Benchmarking for free allowance share, updated every 9 years.

Auction Floor Price $10 in 2012, increasing 5% annually plus inflation.  

Did not pass in 2019 session

Projected to be $16.77 in 2021, rising to $25.75 by 2030. To be officially determined by Climate Policy Office.

Auction Ceiling Price $40 as of 2012 with 5% plus inflation annual increase. If reached, triggers additional allowances available for sale. Beginning in 2021 a hard price ceiling will be set at which unlimited allowances will be available.   Yes. To be determined by Climate Policy Office.
Excluded Emissions Agriculture, fugitive emissions. International and interstate flights.   Aviation fuels, watercraft, locomotives, agriculture, land use, landfill.
Average Allowance Cost $17.45 average for current allowances, $17.40 average for future allowances in May 2019 auction. See CA, as joint auction market. n/a
Strategic Reserve A percentage of allowances is held in a strategic reserve with different prices: $40, $45, $50 in 2013, rising 5% annually over inflation.   Would have required CPO to allocate a percentage of allowances for each annual budget to be distributed into an allowance price containment reserve.
Secondary Market

Most recent secondary market at $17.88.

Period 1: high volatility in allowance futures market

Period 2: relatively stable in allowance futures market.

See CA, as joint market. n/a

Banking allowed with limits. No borrowing from future. Cost containment reserve with defined increase in reserve every period.

Regulated entities are subject to holding limits on banking, based on a multiple of the entity’s annual allowance budget.

Banking allowed with limits. No borrowing from future. Cost containment reserve with defined increase in reserve every period. Was not defined in the bill, with determination of banking rules left to the director.
Annual Obligation Entities must provide allowances and/or offsets for 30% of their previous year’s emissions each year.   Was not defined in the bill, with determination of banking rules left to the director and the CPO
Offsets 8% offsets through 2020, down to 4% 2021-2025 and 6% 2026-2030. From 2021, half of offsets must benefit California and all must be US located. 8% offsets 8% offsetting with half required to directly benefit Oregon with prioritization for impacted communities, members of eligible tribes, and natural and working tribes.

Bilateral link to Quebec with mutual recognition of Compliance mechanism. Unilateral link to offsets from US,

Canada, Indonesia, Mexico, and Brazil (international offsets allowed through 2020?).

Indirect link to international offsets through California link,

Previous bilateral link to Quebec. Common compliance mechanism.

Was designed to link with the California system
Revenue $3.385 billion (2014-2017) $2.05 billion (2013-2017) $487 million projected for 2021
Green Earmarking of Revenue 25% required by law to be used for green spending. 100% of revenue allocated to climate change mitigation and adaptation. Transportation Decarbonization Investment Account from transport fuels, with remainder to Climate Investment Fund.
Distributional Earmarking of Revenue $1.2 billion in cumulative investments benefiting disadvantaged communities (At least 35% of cumulative GHG Reduction Fund investments directly benefit disadvantaged communities). No explicit low-income provisions.

Did not pass, would have allocated:

$10 million/year for a Just Transition Fund.

Required designation of impacted communities, with TDIA prioritization of these and CIF required to have 40% of projects benefiting impacted communities. Another program to help underserved customers

transition off propane or fuel oil.

Included wage and labor considerations for fund recipients.

Covered Party Threshold 25,000 metric tons of CO2 equivalents per year (power facilities and industrial plants). Expanded to fuel distributors in 2015. Those with over 10,000 metric tons must report annually but are not subject to the cap.   25,000 metric tons of CO2
Related Legislative Committee     Would have established the Joint Committee On Climate Action and abolished the Oregon Global Warming Commission.
Governing State Agency California Air Resources Board (CARB)   Climate Policy Office would have been established in the Department of Administrative Services.
Compliance Obligation 3-year compliance periods (following 2-year Phase 1), with a partial surrender obligation due each year. Reported emissions must be verified by a third party.   Would have been determined by Director and the CPO.
Operative Date  In operation In Operation No program in place.
Registration Covered entities and other participants must register with CARB to participate in allowance auctions and report annually.   Must be registered to participate in the Oregon Climate Action Program.
Penalties  If a deadline is missed or there is a shortfall, four allowances must be surrendered for every metric ton not covered in time.   Would have been determined by director
Auction Bidder Collusion Safeguards 

Quarterly, single round, sealed bid, uniform price.

The regulation expressly prohibits any trading involving a manipulative device, a corner of or an attempt to corner the market, fraud, attempted fraud, or false or inaccurate reports.

Violations of the regulations can result in civil or criminal penalties. Perjury statutes apply.

The program includes mechanisms to monitor for and prevent market manipulation.


Overview of other select cap programs

European Union

The EU Emissions Trading System (EU-ETS) encompasses 28 EU member states plus Iceland, Liechtenstein, and Norway. The system covers emissions from the power, industrial, and aviation sectors (for flights within the European Economic Area). Launched in 2005, it is the oldest and largest system worldwide, covering 4.5 billion tons of CO2-equivalents or about 40% of total emissions in the region. 

The EU-ETS is currently in its third phase and will enter Phase 4 at the beginning of 2021 with a steeper pace of annual emission cuts (up to 2.2% from 1.74%) through 2030 accompanied by a stronger Market Stability Reserve to limit price shocks and limit surplus allowances.  Other key Phase 4 changes include steps to better recognize carbon leakage with targeted free allocations plus new financing for low-carbon innovation and industrial modernization. 

Allowance prices on the secondary market in 2018 averaged 15.82 euros ($18.76). The program includes more than 11,000 power plants and manufacturing facilities as well as aircraft operators for any intra-region flights. Since the start of the program, revenues have totaled 35.9 billion euros ($42.4 billion), of which 14.2 billion euros ($16.8 billion) were collected in 2018. Use of at least half the revenues are intended for climate and energy-related purposes, with information submitted by member states reporting roughly 80% has been used for climate-related purposes.

Limited banking has been allowed since 2008, while borrowing is not permitted. Offset credits are not anticipated to be available for Phase 4 compliance. Between Phases 2 and 3, offsets could be used for up to 50% of the overall reduction under the EU-ETS (about 1.6 billion tons of CO2-equivalents. Entities in non-compliance will be named and fined an “excess emissions penalty” of 100 euros per ton of CO2-equivalents for any emissions in excess of allowances surrendered.

A review in 2017 by Schmalansee and Stavins on Lessons Learned from Three Decades of Experience with Cap and Trade found five main lessons from the EU-ETS. 

  1. The availability of good data is important for sound allowance allocation and cap-setting decisions” to avoid over or under-allocation of allowances.
  2. It is necessary to allow for banking from one period to the next” to avoid price collapses at the end of one phase.
  3. The EU ETS illustrates the perverse outcomes that result when ‘complementary’ policies are applied to reduce emissions that are also covered under the cap, particularly in the absence of a price floor. Unless such complementary policies apply to sources outside the cap or address other market failures, they relocate emissions, drive up aggregate abatement costs, and depress allowance prices.
  4. Although granting free allowances can help address distributional concerns as well as serving other political purposes, it is ultimately insufficient for dealing with international competitiveness concerns, because unless allocations are linked to production, they do not affect marginal production costs.
  5. The history of the EUETS shows that it is possible to move over time from a regime of generally free allowances to one in which most allowances are auctioned.

Other links of interest: 


OECD report on ETS environmental and economic performance


Regional Greenhouse Gas Initiative (RGGI)

The RGGI is the first ETS in the United States, with operations starting in 2009 in 10 states (CT, DE, ME, MD, MA, NH, NJ, NY, RI, VT), though NJ withdrew before 2012 but intends to rejoin in 2020. Virginia is preparing their own ETS with plans to link to this program. The program covers only power sector carbon emissions, roughly 18% of the regions emissions. 

After a second review in 2017, a new model rule proposed a 30% reduction in capped emissions from 2020-2030 and an emissions containment reserve to allow for greater reductions if the cost is lower than anticipated. 

The average auction price in 2018 was $4.87 per ton of CO2-equivalent, with an auction floor of $2.2 per short ton in 2018 rising 2.5% per year to reflect inflation. A cost-containment reserve triggers additional allowance availability at a cost of $10 in 2017, $13 in 2021 and then a 7% annual increase. An emissions containment reserve is envisioned starting in 2021 to withhold allowances to secure emissions reductions at a trigger price falling below $6 per short ton and increasing by 7% per year.

Allowance banking is allowed without restriction although adjustments to the cap are made to address the aggregate impact of banking by reducing future auction allowances. Borrowing is not allowed. Offsets for up to 3.3% of compliance by an entity is allowed through 2030 from five offset types in RGGI states. For excess emissions, future compliance allowances equal to three times the excess emissions have to be surrendered. 

In 2018, The program collected $3.1 billion, including $239 million, from quarterly auctions. Revenues are returned to the RGGI states and primarily invested in consumer benefit programs: energy efficiency, renewable energy, direct energy bill assistance, and other greenhouse gas reduction programs.

A review in 2017 by Schmalansee and Stavins on Lessons Learned from Three Decades of Experience with Cap and Trade found three main lessons from the EU-ETS. 

  1. A cap-and-trade system that auctions its allowances can generate substantial revenue for government, whether or not the system has much effect on emissions.
  2. The leakage problem is potentially severe for any subnational program, particularly a power sector program, because of the interconnected nature of electricity markets.
  3. A changing economy can render a cap nonbinding (causing allowance prices to fall) or drive allowance prices to excessive levels. This suggests an important role for price collars.

From the International Carbon Action Partnership (ICAP): With a great deal of overlap in participating states, a Transportation and Climate Initiative (TCI) is under consideration. The TCI would be a regional collaboration of 13 northeastern and mid-Atlantic US jurisdictions that pursues the goal to reduce GHG emissions from the transportation sector and minimize the transportation system’s reliance on high-carbon fuels. In December 2018, a coalition of 10 of the participating TCI jurisdictions (all but Maine, New Hampshire, and New York) announced the future design of a regional low-carbon transportation policy proposal, which aims to establish a carbon pricing mechanism. The proposal is supposed to cap carbon emissions from the combustion of transportation fuels by introducing a “cap-and-invest” program or another carbon pricing mechanism, emphasizing the possibility for TCI jurisdictions to raise revenue through the program and invest it into low-carbon and resilient transportation infrastructure projects. A first draft policy proposal is expected to be prepared in 2019.


South Korea

Launched in 2015 as East Asia’s first nationwide mandatory ETS, the program covers over 600 emitters accounting for 68% of national GHG emissions and is an essential component in meeting the 2030 target of 37% below BAU emissions. 

The second phase starting in 2018 contained some key changes such as an expansion of benchmark-based allocation, introduction of 3% auctioning for non-EITE entities, new banking rules, and the permitted restricted use of international credits. 

Phase 3 is scheduled to run from 2021-26, with free allowances decreasing from 97% to 90%. The average secondary market price in 2018 for allowances was $20.62 per ton of CO2-equivalents. 

Banking is allowed with some restrictions across phases. Limited borrowing is allowed within a single phase. In Phase 2, up to 10% of each entity’s compliance obligation is allowed through offsets, including up to 5% international offset credits. 

The maximum penalty is $91 or three times the average market price of allowances in that year. 

There are no program linkages yet, but they are under consideration for Phase 3. 

Market stability auction have raised $99.4 million, with another $12.7 million from regular allowance auctions. Most of this ($95.31 million) was collected in 2018.



China has eight pilot ETS program underway in different cities or provinces, each with slightly different characteristics and coverage – from the power, cement, metals, and textiles sectors in Guangdong province, to the heat sector and public buildings (amongst others) in the city of Tianjin – and covering over 1.2 billion tons of CO2-equivalents. 

In total, the pilots covered almost 3,000 entities from more than 20 industry sectors by the end of 2017. 

The total trading volume reached 200 million tCO2e, and total trading value was about 45.1 billion yuan with a price range between 1-123 yuan/tCO2e. China Certified Emission Reduction (CCER) credits that are allowed had a total traded volume of 130 million tCO2e with a total value of 920 million yuan.” (EDF)

A national ETS system is under development which would likely cover more than three billion tonnes of CO2e in its initial phase, accounting for about 30% of national emissions with a focus on power sector CO2. 

China Certified Emissions Reduction credits are anticipated to be available for use and banking, but borrowing is not likely to be permitted. 

Others ETS

Other ETS programs are: 

  • Currently in place in Nova Scotia, Kazakhstan, New Zealand, Switzerland, and Tokyo.
  • Scheduled to be implemented in Colombia, Mexico, Ukraine, New Jersey, and Virginia.
  • Under consideration in Brazil, Chile, Indonesia, Japan, Taiwan, Thailand, Turkey, Vietnam, and New Mexico.