Even as California and Washington state prepare to merge their cap-and-trade climate programs, New York’s retreat from creating a similar program has sparked renewed debates about energy costs.
After years of painstaking work, California and Washington are poised to merge their programs aimed at reducing emissions and bringing in revenue to help fight climate change. The sweeping regulatory frameworks set limits on the amount of carbon dioxide that businesses can release and charge them per ton.
Until recently, supporters expected New York to be close behind the two Western states by launching its own program. Together, the three states produce nearly a quarter of the nation’s total goods and services, potentially giving the carbon markets significant influence over the U.S. economy.
Just as important, supporters said, a New York program could help the effort spread across the country, enabling smaller states to join well-established markets stabilized by economic powerhouses. With the Trump administration’s rollbacks of federal climate policy, some backers see cap-and-trade as the best path for Democratic-leaning states to take action on climate change.
But those hopes are now very much in doubt.
Citing affordability concerns, New York Democratic Gov. Kathy Hochul is seeking to delay her state’s signature climate law, which would establish a cap-and-trade program. Lawmakers and environmental groups have lambasted Hochul’s move, but acknowledge she has significant leverage as she seeks to negotiate the changes in the ongoing state budget standoff.
“This is solely out of necessity — to protect New Yorkers’ pocketbooks and economy. … (T)he undeniable fact is we cannot meet the Climate Act’s 2030 targets without imposing new and additional crushing costs on New York businesses and residents,” Hochul wrote in an op-ed in Empire Report.
With New York’s cap-and-trade regulations already behind schedule, the further delays and political concerns raised by Hochul could cause other states considering a carbon market of their own to hesitate. But leaders in California and Washington say they’ve proven that cap-and-trade can work, and that their move to merge markets will ensure a durable program ready to take on a growing national profile.
Cap-and-trade programs limit carbon emissions to a set amount that shrinks each year, and require businesses to bid at auctions for permits known as “allowances” for each ton they emit. States use the revenues brought in from those auctions for clean energy development, electrification of buildings and transportation, and climate mitigation projects.
A coalition of Eastern states participate in a cap-and-trade program, known as the Regional Greenhouse Gas Initiative, that covers only power plants.
In 2013, California became the first state to establish an economywide cap-and-trade program, four years after Congress failed to pass a bill to create a national program. No other state acted until 2021, when Washington state lawmakers passed a bill, rebranded as cap-and-invest, with a focus on helping the communities most burdened by environmental pollution and climate change.
Conservative groups pushed a ballot measure that attempted to repeal Washington’s program in 2024, with a campaign focused on gas prices, but voters overwhelmingly opted to keep the carbon market running.
Since then, California and Washington have been working through a complicated series of legislative and regulatory maneuvers to legally merge their programs. California’s program is already linked with the Canadian province of Quebec, which would make Washington the third government to come on board.
State leaders say combining the programs will create a more stable market, while making it easier for multistate companies to comply under a single regulatory program.
Last month, the three governments released a draft linkage agreement, a key step in merging their carbon markets. Lawmakers say they’re still seeking public feedback and ironing out details, but they expect the programs to be formally merged next year.
“Our goal was never to just reduce emissions in the state of Washington,” said Washington state Sen. Marko Liias, a Democrat who serves on the Environment, Energy & Technology Committee. The Trump administration’s hostility toward climate action, he said, “only underscores the need for this kind of regional and subnational cooperation.”
Even for opponents of Washington’s cap-and-trade program, the agreement with California and Quebec is a welcome development. The latest auction under Washington’s program sold allowances at $60.43 per ton of carbon emissions, while credits sold at California’s auctions have held at closer to $30.
Our goal was never to just reduce emissions in the state of Washington.
– Washington Democratic state Sen. Marko Liias
Conservative groups have said Washington’s aggressive emissions reduction targets have created a bidding war for limited credits, driving up energy prices for consumers. They welcome the merger, which will make California’s and Quebec’s larger pool of credits available to Washington businesses under a combined auction.
“Essentially what happens is that California will subsidize us,” said Todd Myers, vice president for research with the Washington Policy Center, a free market think tank in the state that has opposed the program. “I think it’s a good move.”
The Western States Petroleum Association, an industry group with members in both states, has conducted modeling that shows the merger will increase prices in California, said Jessica Spiegel, a vice president with the association. Her group is urging Washington lawmakers to issue more carbon allowances.
Liias, the Washington lawmaker, said that while affordability is a key concern for many Americans, voters in his state are also worried about the costs of wildfires driven by climate change and high asthma rates caused by pollution.
The California Air Resources Board, which administers the cap-and-trade program in that state, did not grant an interview request.
While California and Washington prepare to join forces, cap-and-trade supporters in New York are fighting to keep their program alive.
Unlike the other states, New York’s carbon market did not come from a detailed piece of legislation. Instead, state agencies were tasked with crafting it to comply with New York’s 2019 climate law mandating steep emissions reductions by 2030.
But state officials missed a 2024 deadline to issue regulations for the carbon market.
“They had the regulations ready to go after this huge process and stakeholder engagement, and then they just didn’t,” said Justin Flagg, director of communications and environmental policy for Democratic state Sen. Liz Krueger, who chairs the Finance Committee. “The governor pulled the plug, and they did not release the regulations.”
Environmental groups sued Hochul for delaying the program, and a judge ruled last October that her administration had failed to comply with the law. The state has appealed that ruling.
Hochul’s office did not respond to an interview request.
Last month, Hochul asked lawmakers to delay the entire climate law, pushing back deadlines to reduce emissions and casting doubt on the cap-and-trade program. Once a champion of cap-and-trade, Hochul now argues that it will drive up costs for consumers.
Hochul blamed President Donald Trump for opposing renewable energy projects, as well as starting the war in Iran that has driven up global fuel prices.
But environmental advocates argue Hochul is attempting to retaliate for the lawsuit seeking to force her administration to issue cap-and-trade regulations.
“We have a real backtracking from the governor on the climate law at large, and particularly her own proposed cap-and-invest program,” said Liz Moran, New York policy advocate with Earthjustice, a nonprofit group that litigates environmental issues. “It certainly plays into this false narrative that climate action and affordability run against each other, when in reality we see them as running hand in hand.”
While the showdown in New York drags on, leaders in other states will be watching closely.
Lawmakers in Maryland have introduced a bill that would direct state agencies to conduct a study for a potential cap-and-trade program.
Oregon lawmakers have come close to passing cap-and-trade bills in recent years, with efforts stymied by Republican walkouts in 2019 and 2020. Key players revived the conversation last year, citing the program in neighboring Washington.
And in Rhode Island, some lawmakers have proposed a fee on carbon that would apply to all fossil fuels sold in the state, with revenues directed to renewable energy and climate resilience projects.
The sponsors of those bills did not respond to interview requests.