The Western Climate Initiative (WCI) — the joint California-Quebec carbon market — has spent over two years waiting for clarity on potential program changes with growing concerns that it may not appear until 2026.
Bullish sentiment initially pervaded the WCI market in December as California Air Resources Board (CARB) originally planned on publishing its long-awaited draft of cap-and-invest amendments by the end of the year. But this sentiment has been tempered by the possibility that CARB may instead release guidance on its plans because of the limited time left in the year, with a draft published in early 2026, sources said.
The WCI partners are considering more-stringent program rules for 2027 and beyond, including increased incentives for participants to reduce greenhouse gas (GHG) emissions. But market participants may feel like they are experiencing deja vu — at this same time last year, they were expecting to see draft plans for updates to each program.
CARB delayed publishing a draft of these program amendments multiple times over the last two years, which in turn has resulted in Quebec delaying the release of its own proposed changes.
The agency earlier this year deferred to state legislators and their work to extend the state's 'cap-and-invest' program to 2045 from its previous 2030 sunset date. Lawmakers passed this program extension package, AB 1207 and SB 840, in September, putting the ball back in CARB's court.
Staff at an October workshop said CARB planned to publish its amendment proposal, which includes changes required by the legislation, by the end of this year and bring it before its board for review by April. At the meeting, staff floated the idea of removing at least 118mn metric tonnes (t) from the 2027-2030 program allowance budgets to keep the program on target for a 40pc reduction in GHG emissions, compared with 1990 levels, by 2030.
The agency previously considered setting a stricter 48pc or 55pc by 2030 target, which would have required the removal of a larger number of allowances through 2030. The change in the program's ambition was a central point of the agency's rulemaking discussions since they started in 2023. The 40pc target is a more "viable" option at this time, but this decision is not final, CARB staff said in October.
The change in the US economy and federal policy away from Inflation Reduction Act incentives and greenhouse gas regulation this year may have contributed to CARB's 2030 target shift, said Nick Roy, a national and state energy policy research associate with environmental policy think tank Resources for the Future.
"It is probably true that there is not the governor's office pushing for the same level of ambition that they were originally because of federal policy changes," Roy said.
WCI partner Quebec is considering removing 17.5mn allowances, equal to historical carbon offset use in the program, and limiting future offset use for compliance, the province's environment ministry said in an October 2024 market notice. The province has also weighed transitioning to a government purchase and retirement system to replace carbon offsets as part of these changes, but it has not provided further details.
The province plans to publish its draft regulations in winter 2026, with adoption in spring-summer 2026.
A formal proposal would shed light on CARB's plans going forward as well as how the agency plans to implement program changes required by AB 1207 and SB 840.
CARB has one year to adopt the new regulations after it publishes the draft.
Legal scrutiny
Whether the administration of President Donald Trump plans to act on its threat of legal action against California's "cap-and-invest" program is still unclear.
An 8 April executive order directed US attorney general Pam Bondi to evaluate legal action against state and local laws hindering the development or use of domestic energy resources. The order specifically cited California's carbon market.
California Carbon Allowances for December delivery fell by more than $2.50/t to $26.74/t the day after the order, but have since climbed above $30/t.
Market participants believe the Trump administration could target a proposed link between the WCI and the Washington state carbon markets. Such a link could happen in mid- to late-2027, according to California and Washington regulators. This could create a narrow window for any federal action before Trump leaves office in January 2029. The threat of federal legal action still pervades the market, but participants expect that a lawsuit becomes increasingly unlikely as time passes.
