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Carbon Spotlight
Linking Up: California, Québec, and Washington Sign Carbon Market Agreement, Advancing Linkage Efforts
The state of Washington’s carbon market is one step closer to joining forces with its neighbors. On 25 June 2026, California, Québec, and Washington signed a carbon market agreement (the Agreement), bringing Washington one step closer to linking its capand-invest carbon market with the joint California-Québec market.12 A cap-and-trade, or cap-and-invest, carbon market sets a shrinking limit on total greenhouse gas emissions from covered entities and requires those entities to hold tradable allowances equal to their emissions; “linking” two or more of these markets lets participants in each jurisdiction buy, sell, and use allowances interchangeably, effectively merging separate markets into one larger, more liquid trading pool.
From Stand-Alone Market to Linkage Washington’s pursuit of linkage
with the California-Québec market traces back to the Climate Commitment Act (CCA), which the Washington Legislature enacted in 2021.3 The CCA authorized the Washington State Department of Ecology (Ecology) to seek and enter into agreements linking Washington’s carbon market with other jurisdictions with greenhouse gas emissions trading programs, and since then, Carbon Quarterly has been tracking Washington’s progress.4 This multiyear effort toward linkage reached a major milestone with the Agreement.
How the Agreement Would Work
The Agreement, titled the “Agreement on the Harmonization of Carbon Market Programs for Reducing Greenhouse Gas Emissions,” is intended, in part, to enable each jurisdiction to provide for interchangeable compliance instruments, apply consistent accounting mechanisms, and hold joint auctions of compliance instruments.5 As a road map for achieving those goals, the Agreement calls for regular consultation among the three jurisdictions, ongoing efforts to harmonize each jurisdiction’s program, standardized offset and joint auction protocols, mutual recognition and trading of compliance instruments, and information sharing.
Each of these steps addresses a practical barrier to linkage: Harmonized protocols and mutual recognition are intended to make compliance instruments interchangeable across jurisdictions, while information sharing and regular consultation allow regulators to keep the programs aligned as each jurisdiction’s rules evolve.6 Without this harmonization, a linked market could fragment or become vulnerable to arbitrage between jurisdictions with looser or stricter rules. In signing the Agreement, California, Québec, and Washington are seeking to create a larger, more liquid carbon market that can reduce compliance costs, improve price stability, and give covered entities greater flexibility in meeting their compliance obligations.
Under a linked market, the three jurisdictions would hold joint allowance auctions, share a common allowance price, and allow market participants to trade compliance instruments across jurisdictions—meaning a business in Washington could satisfy its compliance obligations by purchasing allowances originally issued in California or Québec and vice versa.7 Ecology’s Cap-and-Invest Linkage Criteria Findings conclude that linkage is expected to reduce compliance costs compared with Washington’s stand-alone market.8 The Cap-and-Invest Linkage Criteria Findings also indicate that a linked market will provide greater stability because a more liquid market will help reduce price volatility.9
What Comes Next
Even with the Agreement, however, the promise of lower costs and greater stability is not available until a linked market becomes operational. Each jurisdiction must first satisfy its own legal and regulatory requirements, including completing necessary regulatory changes to effectuate a linked market. The Agreement itself will not become effective until each government completes its internal requirements and the three governments mutually agree on an effective date. Washington anticipates that each jurisdiction will complete these necessary steps and that a linked market will begin operating in 2027—meaning covered businesses in all three jurisdictions face at least another year of navigating separate compliance regimes and allowance prices before they can access the benefits of a linked market. The Agreement marks the most significant step yet toward a unified carbon market. With linkage now within sight, attention will shift from whether the markets will link to when the regulatory pieces fall into place and how the expanded market performs once trading begins.
Carbon Policy
National Security and Domestic Fossil Fuels: Trump Administration Deploys Defense Production Act Authorities to Advance Domestic Fossil Fuel Production
A law written to arm American troops in the Korean War is now bankrolling coal plants and export terminals. In June 2026 alone, the Department of Energy (DOE) tapped the Defense Production Act (DPA) to steer up to US$500 million toward 13 coal-related projects—one piece of a much broader push by the Trump administration to expand its use of DPA authorities to shape the domestic industrial base. The administration frames domestic fossil fuel production as a matter of national security and industrial resilience, directing federal funds and administrative support to existing fossil fuel producers and prospective new developers alike.
Wartime Powers and Modern Politics: How the DPA Works
The DPA, enacted during the Korean War to mobilize American industry for war, grants the president broad authority to direct domestic industrial capacity in support of national defense. Two of its titles matter most here: Title I, which governs contract priorities and allocation, and Title III, which authorizes federal funding and loans to expand domestic productive capacity and supply.10
Title I lets the federal government jump the line: It can require companies to give government contracts preferential treatment over other businesses when doing so promotes national defense. That authority makes Title I central to the DPA framework, giving the federal government a lever to direct scarce industrial resources toward national defense needs ahead of everyone else’s orders.
The Trump administration’s fossil fuel push runs through Title III, including Section 303, which provides a range of federal financial incentives—loans, loan guarantees, purchases, and purchase commitments—to create, maintain, protect, expand, or restore domestic production of materials, industrial resources, and critical technology items deemed essential to national defense.11 Before tapping that authority, though, the president must clear one hurdle: a formal finding, known as a Section 303 determination, that there is a “domestic industrial base shortfall” in the resource at issue.12 There is also a dollar cap. Ordinarily, Title III funding requires congressional authorization once a project’s cost tops US$50 million. 13 That cap can be waived, however, the moment Congress or the president declares a national emergency.14
Trump’s DPA Playbook
The trigger for all of this was President Trump’s Inauguration Day declaration of a national energy emergency.15 That declaration directed federal agencies to use available emergency authority to speed up the production and delivery of energy and energy infrastructure, but it stopped short of a blank check: The DPA still requires a specific presidential determination of need for each resource, material, or critical technology item before Title III funding can flow.16
The Trump administration wasted little time cashing in that authority. In April 2026, President Trump issued five Section 303 determinations covering entire sectors of the domestic energy industry at once: petroleum, grid infrastructure, coal, large-scale energy infrastructure, and natural gas.17 In blunt terms, the president declared that current energy production, transportation, and refining was “inadequate” and posed an “unusual and extraordinary threat to the Nation’s economy, national security, and foreign policy.”18 Those five declarations opened the door for the DOE to deploy Title III’s funding and loan mechanisms across each of those sectors. The
DOE followed through with money in June 2026, announcing up to US$500 million in DPA Title III funds for 13 coal-related projects. Of that, up to US$425 million will go to 12 projects expanding and reinvigorating coal-fired power plants, and up to US$75 million will fund the West Gateway Terminal Project, a rail-served marine export terminal in Oakland, California, capable of handling more than 10 million tons of bulk commodities annually.19 The DOE says the projects are designed to strengthen domestic coal mining value chains, support reliable baseload power generation, and shore up critical energy infrastructure.
The Trump administration’s Section 303 determinations reach further than coal, though no dedicated funding has followed yet for petroleum and natural gas. The petroleum determination covers domestic production, refining, gathering and transmission pipelines, storage, and marine terminal capacity; the natural gas and liquefied natural gas (LNG) determination covers transmission, processing, storage, and LNG capacity. Together, they give the DOE a green light to fund upstream, midstream, and downstream petroleum and natural gas infrastructure as defense-critical industrial capacity, if and when it chooses to deploy available DPA funding.
Impacts and Implications for Domestic Energy Production
The shift is a sharp reversal from the Biden administration’s use of the same law. In 2022, President Biden invoked the DPA to accelerate domestic production of clean energy infrastructure, transmission technology, and critical minerals.20 President Trump’s Section 303 determinations flip that script entirely, redirecting one of the executive branch’s largest and most powerful funding mechanisms toward supporting and expanding the coal, petroleum, natural gas, and LNG industries instead. The reversal also underscores a broader theme in federal carbon policy: The statutory tools often remain the same even as the policy objectives change dramatically. For energy producers and developers, the DPA has, therefore, become another increasingly consequential lever of federal energy policy
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