WSR 26-15-011

PROPOSED RULES

DEPARTMENT OF ECOLOGY

[Order 24-02—Filed July 6, 2026, 7:39 a.m.]

Continuance of WSR 26-12-055.

Preproposal statement of inquiry was filed as WSR 25-08-057.

Title of Rule and Other Identifying Information: Chapter 173-441 WAC, Reporting of emissions of greenhouse gases; and chapter 173-446 WAC, Climate Commitment Act program rule—Cap and invest program updates and linkage.

For more information on this rule making visit https://ecology.wa.gov/regulations-permits/laws-rules-rulemaking/rulemaking/wac-173-441-446-cap-and-invest-program-updates-and-linkage.

Hearing Location(s): On July 7, 2026, at 1:00 p.m., via webinar. Join online and see instructions at https://waecy-wa-gov.zoom.us/meeting/register/8Z8ESjwxSSSnnkoHp9tvmw. Presentation, question and answer session, followed by the hearing. We are holding this hearing via webinar. This is an online meeting that you can attend from any computer using internet access.

For audio call U.S. toll number 1-253-215-8782 and enter access code 873 6303 9529#. Or to receive a free call back, provide your phone number when you join the event; and

On July 13, 2026, at 9:00 a.m., via webinar. Join online and see instructions at https://waecy-wa-gov.zoom.us/meeting/register/iyLZMsz1TlOFJ0JOclN5ZQ. Presentation, question and answer session, followed by the hearing. We are holding this hearing via webinar. This is an online meeting that you can attend from any computer using internet access.

For audio call U.S. toll number 1-253-215-8782 and enter access code 812 9061 0429#. Or to receive a free call back, provide your phone number when you join the event.

Date of Intended Adoption: September 23, 2026.

Submit Written Comments to: Surabhi Subedi, Department of Ecology (Ecology), Climate Pollution Reduction Program, P.O. Box 47600, Olympia, WA 98504-7600; or send parcel delivery services to Department of Ecology, Climate Pollution Reduction Program, 300 Desmond Drive S.E., Lacey, WA 98503, email CPRRulemaking@ecy.wa.gov, online comments can be submitted at https://ecology.commentinput.com?id=frD53sZtA beginning June 1, 2026, at 12:00 a.m., by July 22, 2026, at 11:59 p.m.

Assistance for Persons with Disabilities: Contact Surabhi Subedi, phone 564-999-3611, TTY 877-833-6341, Washington relay service 711, email CPRRulemaking@ecy.wa.gov, by June 30, 2026.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: Ecology is proposing amendments to chapters 173-446 and 173-441 WAC to improve the implementation of the cap and invest program, facilitate the linkage of Washington's carbon market with the California-Québec carbon market, and make other necessary updates consistent with amendments to the Climate Commitment Act (CCA).

The proposed amendments allow for the option to link Washington's carbon market with the California-Québec carbon market, creating a unified carbon market across the three jurisdictions. In a linked market, allowances issued by California and Québec could be used by Washington entities to cover their emissions, and vice versa. Linkage would also allow for joint allowance auctions, a common allowance price, and trading of allowances across jurisdictions. The rule amendments will not directly establish linkage. This rule making sets the stage for potential future action to link with California and Québec by aligning certain aspects of the cap and invest program rules with those jurisdictions, including compliance period, allowance price containment provisions, registration requirements, corporate association requirements, and auction processes. The rule includes provisions that would become effective upon linkage with another jurisdiction. The rule also establishes processes for announcing a linkage effective date and adds provisions for ecology to suspend or revoke linkage with another jurisdiction.

The proposed amendments set the allowance budgets for future compliance periods (2027-2050) and adjust 2023 through 2026 budgets consistent with statutory direction, ensuring that emissions reductions align with Washington's 2030, 2040, and 2050 greenhouse gas emissions limits. This rule also facilitates the entry of additional sectors, waste-to-energy, and railroads, to coverage under the cap and invest program in future compliance periods, as required by statute.

Ecology is proposing modifications to address topics associated with imported electricity and centralized electricity markets, as well as amendments relevant to allowance allocation to electric utilities and natural gas utilities.

The proposal also implements sections of legislation, including SB [E2SSB] 6058 (2024) to facilitate linkage; HB [2SHB] 1975 (2025), which modifies auction price containment mechanisms, allowance supply, and ceiling prices; HB [E2SHB] 1912 (2025), which addresses the exemption for fuels used for agricultural purposes; and HB [E2SHB] 2416 (2026), which concerns the treatment of waste-to-energy facilities.

In addition, the proposed rule includes amendments to enhance clarity, strengthen enforcement, and ensure that the market remains effective. These amendments are based on implementation experience from start of the cap and invest program (2023) to date.

Overall, ecology anticipates that these amendments will improve program implementation, facilitate potential future linkage, and ultimately strengthen market stability and confidence, as well as ensure the rule aligns with changes to statute.

Reasons Supporting Proposal: The proposed amendments add linkage related provisions and align certain aspects of Washington's cap and invest program with California and Québec to enable potential future linkage, as directed by CCA (chapter 70A.65 RCW).

Ecology is required under RCW 70A.65.070 to adopt the allowance budgets for the second compliance period (2027-2030), ensuring that emissions reductions align with Washington's 2030, 2040, and 2050 greenhouse gas emissions limits. Ecology is updating allowance allocation to natural gas utilities to be consistent with the updated budgets. Additionally, given the complexity and evolving nature of electricity markets in the Pacific Northwest, ecology must further develop imported electricity reporting rules to ensure consistent and complete coverage of the sector.

Ecology is also making amendments relevant to allowance allocation to electric utilities, to improve certainty, strengthen decarbonization incentives, and support market functionality.

The rule making implements elements of recently enacted legislation including SB [E2SHB] 6058 (2024), HB [E2SHB] 1912 (2025), HB [2SHB] 1975 (2025), and HB [E2SHB] 2416 (2026). In addition, ecology is proposing amendments to the rules for clarity and efficiency to improve program implementation and enforcement.

Statutory Authority for Adoption: Chapter 70A.65 RCW, Greenhouse gas emissions—Cap and invest program.

Statute Being Implemented: Chapter 70A.65 RCW, Greenhouse gas emissions—Cap and invest program; and RCW 70A.15.2200 Washington Clean Air Act.

Rule is not necessitated by federal law, federal or state court decision.

Agency Comments or Recommendations, if any, as to Statutory Language, Implementation, Enforcement, and Fiscal Matters: Ecology will conduct an environmental justice assessment in accordance with RCW 70A.02.060 as a part of this rule making.

Name of Proponent: Department of ecology, governmental.

Name of Agency Personnel Responsible for Drafting: Eli Levitt, Lacey, Washington, 360-280-2016; Implementation: Andrew Hayes, Lacey, Washington, 360-489-4621; and Enforcement: Derek Nixon, Lacey, Washington, 360-485-7594.

A school district fiscal impact statement is not required under RCW 28A.305.135.

A cost-benefit analysis is required under RCW 34.05.328. A preliminary cost-benefit analysis may be obtained by contacting Surabhi Subedi, Department of Ecology, Climate Pollution Reduction Program, P.O. Box 47600, Olympia, WA 98504-7600, phone 564-999-3611, TTY 711, visit Ecology.wa.gov/ADA for more accessibility information, email CPRRulemaking@ecy.wa.gov.

This rule proposal, or portions of the proposal, is exempt from requirements of the Regulatory Fairness Act because the proposal:

Is exempt under RCW 19.85.025(3) as the rules only correct typographical errors, make address or name changes, or clarify language of a rule without changing its effect; and rule content is explicitly and specifically dictated by statute.

Is exempt under RCW 19.85.025(4).

Scope of exemption for rule proposal:

Is partially exempt:

Explanation of partial exemptions: Ecology baselines are typically complex, consisting of multiple requirements fully or partially specified by existing rules, statutes, or federal laws. Where the proposed rule differs from this baseline of existing requirements, it is typically subject to (i.e., not exempt from) analysis required under the Regulatory Fairness Act (RFA) (chapter 19.85 RCW) based on meeting criteria referenced in RCW 19.85.025(3) as defined by the Administrative Procedure Act in RCW 34.05.310. The small business economic impact statement (SBEIS) below includes a summary of the baseline for this rule making, and whether or how the proposed rule differs from the baseline.

The proposed rule does impose more-than-minor costs on businesses.

This SBEIS presents the:

A small business is defined by RFA as having 50 or fewer employees. Estimated costs are determined as compared to the existing regulatory environment, the regulations in the absence of the rule. The SBEIS only considers costs to "businesses in an industry" in Washington state. This means that impacts, for this document, are not evaluated for government agencies.

The existing regulatory environment is called the "baseline" in this document. It includes only existing laws and rules at federal and state levels.

This information is excerpted from ecology's complete set of regulatory analyses for this rule making. For complete discussion of the likely costs, benefits, minimum compliance burden, and relative burden on small businesses, see the associated regulatory analyses document (ecology publication no. 26-14-045, June 2026).

COMPLIANCE REQUIREMENTS OF THE PROPOSED RULE, INCLUDING PROFESSIONAL SERVICES: The regulatory baseline for our analyses generally consists of existing statutes and rules. This is what allows us to make a consistent comparison between the state of the world with and without the proposed rule amendments.

For this rule making, the regulatory baseline includes:

SUMMARY OF THE PROPOSED RULE AMENDMENTS:Proposed changes to the reporting rule: The proposed rule amendments to the greenhouse gas reporting rule would:

Proposed changes to the CCA rule: The proposed rule amendments to the CCA rule would:

CHANGES DIFFERING FROM REGULATORY BASELINE: We identified that proposed rule amendments affecting allowance supply or demand interact to result in impacts to compliance costs via the carbon market in a linked market scenario, compared to the regulatory baseline. We do not expect these impacts to occur under an amended and aligned but unlinked market. These impacts to compliance costs are described below.

We also identified that other proposed amendments are likely to independently result in impacts to compliance costs that were not modeled through carbon market impacts, while the remaining amendments are not likely to impact compliance costs because they align with the regulatory baseline. Amendments likely to result in impacts to compliance costs are:

COSTS OF COMPLIANCE: EQUIPMENT, SUPPLIES, PROFESSIONAL SERVICES: Compliance with the proposed rule, compared to the regulatory baseline, is not likely to impose additional costs of equipment, supplies, or professional services.

COSTS OF COMPLIANCE: LABOR: Many of these proposed amendments would result in additional information being provided to ecology about consultants, associations, or other business or structural relationships of which the cap and invest program is not currently aware under the regulatory baseline. As such, we could not confidently assume the degree to which any given entity would have to make additional effort under the proposed rule amendments. Some entities may have little or no additional information that would need to be provided, while others may have large amounts of additional disclosures and information to submit.

Considering the scope of additional procedural and administrative changes that would be required under the proposed rule amendments, as compared to the regulatory baseline, we assumed each affected entity would incur costs of two weeks of attorney time, for two attorneys, to implement these changes. We used an hourly attorney wage rate of $107.66 and applied this cost across each of 275 likely impacted entities. We also assumed this cost would be incurred immediately. This resulted in a one-time total cost of approximately $4.7 million in 2027. This reflects costs associated with:

Additional costs to labor may result for some entities:

Entities covered by or participating in the state's clean fuels program could potentially use information and methodologies they already use for lifecycle assessment to generate clean fuel credits. In discussion with clean fuels program staff, we identified that while for some reporters these proposed amendments may require an extra step, the actual amount of reported biomass derived fuels is not likely to change (it is likely to already meet statutory goals of how much their fuels reduce greenhouse gas emissions compared to petroleum-based fuels).

Additionally, we expect minor costs for market purchasers reporting total electricity purchased from each centralized electricity market, and total retail electricity sales of each load-serving entity in their territories. These data are a standard part of doing business and are likely very minor additions to the existing reporting burden.

COSTS OF COMPLIANCE: ADMINISTRATIVE COSTS:Where applicable, ecology estimates administrative costs (overhead) as part of the cost of labor and professional services, above.

COSTS OF COMPLIANCE: OTHER: We estimated the following impacts to compliance costs under the proposed rule amendments, as compared to the regulatory baseline.

The proposed changes would clarify existing enforcement processes and are not expected to add significant costs as they represent a clarification of enforcement language and not a change in the enforcement processes themselves.

COMPARISON OF COMPLIANCE COST FOR SMALL VERSUS LARGE BUSINESSES: The impacts of the proposed rule would differ significantly across sectors and over time. To scale sectoral compliance costs to the individual business level, we identified specific small businesses and the largest 10 percent of businesses in each sector and estimated their average share of their sector's emissions. Based on this step, we identified that the proposed rule is not likely to result in compliance cost changes for small businesses in the electricity and natural gas sectors, as despite being identified in ecology's database, the small businesses we identified represent zero percent of covered emissions in their respective sectors. They may report other emissions, but these are not covered emissions under CCA.

The table below shows the median employment at the business level by sector.

Since they are the sectors for which we identified small businesses with a nonzero share of emissions, we focused this analysis on the fuel supplier (transportation) and facility (industrial) sectors. Based on relative shares of emissions and cumulative cost estimates in chapter 3 over the analytic time frame of 2027-2037, we estimated the following compliance costs impacts per employee, under the proposed rule as compared to the regulatory baseline, under a linked carbon market.

Because we estimated net cumulative cost savings under the proposed rule amendments in a linked market, both sectors would experience net cost savings per employee. In both sectors, small businesses would receive a disproportionately larger amount of cost savings than the largest 10 percent of businesses. We note that the level of disproportion depends on relative number of employees and relative cost impact under the proposed rule amendments. In our employment data, we believe employment numbers may be underestimated for small businesses, particularly in the industrial sector, as our data does not capture use of contractors and their employees. If these small businesses have higher employment than found in our data, it would serve to mitigate disproportionate impacts above, and the disproportion reflected in Table 7 is overestimated.

We also separately estimated legal services costs of meeting multiple proposed requirements for additional information to be provided to ecology. On a per-entity basis, these costs were approximately $9,000 and would be incurred by all entities participating in the cap and invest program, including general market participants. As this is a point estimate, if we divide it by the employment at a small general market participant, compliance costs per employee will inherently be larger than for the largest general market participants. The median employment for general market participants with fewer than 50 employees was six employees. The median employment at the largest 10 percent of general market participants was 203. This means compliance costs per employee would be $1,500 at small businesses and $180 at the largest businesses. We note, however, that small businesses under the RFA definition in this case include large financial businesses and investment funds that may not have the same employment structure and responsiveness to compliance costs that a typical "mom and pop" small business (e.g., a store) would have.

In the scenario of an amended, aligned rule, but with an unlinked carbon market, the proposed rule amendments would not result in any of the impacts estimated using the market model. Only costs related to impacts independently resulting from other amendments would apply.

We concluded that the proposed rule amendments are likely to have disproportionate impacts on small businesses, even if both small and large businesses would experience cumulative net cost savings. Therefore, ecology has included elements in the proposed rule amendments to mitigate this disproportion, as far as it is legal and feasible.

MITIGATION OF DISPROPORTIONATE IMPACT: RFA, at RCW 19.85.030(2), states that:

Based upon the extent of disproportionate impact on small businesses identified in the statement prepared under RCW 19.85.040, the agency shall, where legal and feasible in meeting the stated objectives of the statutes upon which the rule is based, reduce the costs imposed by the rule on small businesses. The agency must consider, without limitation, each of the following methods of reducing the impact of the proposed rule on small businesses:

We considered all the above options, and the goals and objectives of the authorizing statutes (see chapter 6). We limited compliance cost-reduction methods to those that:

While our ability to modify substantive regulatory requirements of the proposed rule amendments can be limited, as they are often dictated to a large degree by statutes, we note that elements of statutory requirements already serve to reduce the burden of the cap and invest program in general on small businesses. Additional cost to comply with the proposed rule amendments may disproportionately impact small businesses that are covered entities under the cap and invest program. However, these rule amendments facilitate linkage with the California-Québec market. If Washington links, we expect those small businesses, covered entities, would benefit from lower overall costs to comply with the cap and invest program.

While we did not find disproportionate compliance cost impacts to small electricity businesses, we note that elements of statutory requirements already serve to reduce disproportionate burden. In line with statutory requirements, the proposed amendments would allow small electricity importers to use existing qualifying reports to comply with the reporting rule, reducing duplicative work effort in recordkeeping and reporting. The proposed rule amendments also create an expedited exit from reporting rule requirements for electric power entities that have zero imported electricity because an FPMA has opted into the cap and invest program. The proposed rule amendments also enable a utility that has no compliance obligation and elects to transfer all their no-cost allowances to an FPMA to not have to register in the cap and invest program. Together these amendments could help reduce or eliminate administrative costs for some small utilities, if an FPMA opts into the cap and invest program.

SMALL BUSINESS AND LOCAL GOVERNMENT CONSULTATION: We involved small businesses and local governments in development of the proposed rule amendments, using:

Representatives of small businesses, local governments, and tribal governments were present at and participated in these public workshops, listening sessions, and community forums.

NORTH AMERICAN INDUSTRY CLASSIFICATION SYSTEM (NAICS) CODES OF INDUSTRIES IMPACTED BY THE PROPOSED RULE: The proposed rule amendments likely impact the following industries, with associated NAICS codes. NAICS definitions and industry hierarchies are discussed at https://www.census.gov/naics/.

CONSIDERATION OF LOST SALES OR REVENUE, IMPACT ON JOBS: Businesses that would incur costs could experience reduced sales or revenues if the proposed rule amendments significantly affect the prices of the goods they sell. The degree to which this could happen is strongly related to each business's production and pricing model (whether additional lump-sum costs would significantly affect marginal costs). It is also related to the specific attributes of the markets in which they sell goods, including the degree of influence each firm has on market prices, as well as the relative responsiveness of market demand to price changes. Finally, overall shifts in economic activity in the state, including competition within markets and attributes of the labor market simultaneously adjust in response to changes in compliance costs.

Similarly, employment within directly impacted industries, other industries in Washington, the labor market within and outside of the state, and in the state as a whole will also adjust in response to a change in costs.

We used the REMI E3+ model, version 3.3.0 for Washington state to estimate the impact of the proposed rule amendments on directly affected markets, accounting for dynamic adjustments throughout the economy. The model accounts for variables including, but not limited to: Interindustry impacts; price, wage, interstate and international trade, and population or labor market changes; and dynamic adjustment of all economic variables over time.

To be able to use the model, we disaggregated costs and benefits into electricity, natural gas, transportation, and industrial sectors based on their estimated emissions in the market model and assumed no-cost allowance allocation over time. To balance the model, transfers across sectors must be captured on the spender and receiver sides. In model inputs, we assumed:

It is not always straightforward to identify a perfect-fit variable in the model to reflect all types of changes and spending. It is important to note that actual spending of state revenues is determined through appropriation by the state legislature, and this rule making does not affect how funds are spent. In the case of this rule making, there is both uncertainty and likely variability in how state revenues will be spent (under the amended rule or regulatory baseline). Spending of CCA revenues to date reflects a broad range of transportation, electrification, incentives for transit mode switching, energy assistance, heat pump installation, habitat restoration, wildfire resiliency, and other projects.

We ran multiple simulations to better understand the contribution of CCA revenue spending assumptions and SCC assumptions on employment and output impact estimates, including:

We found the following modeled employment and output impacts of the proposed rule under a linked carbon market, as compared to the regulatory baseline, over the 10-year analytic time frame. We note that the REMI model did not identify significant impacts to either employment or output under a comparison of the amended rule without linkage, as costs we were able to quantify for this scenario are small compared to overall economic activity. Across our sensitivity scenarios using different spending and SCC assumptions, the model results estimated the following cumulative impacts over the analytic time frame of 2027-2037:

We note that employment impacts are highly sensitive to inclusion of how state revenue from the carbon market is spent. Estimated employment impacts are aggregations of changes to employment across all sectors in the state, in terms of full-time employee equivalents within each year and should not be interpreted as numbers of individuals losing or gaining jobs.

A copy of the statement may be obtained by contacting Surabhi Subedi, Department of Ecology, Climate Pollution Reduction Program, P.O. Box 47600, Olympia, WA 98504-7600, phone 564-999-3611, TTY 711, visit Ecology.wa.gov/ADA for more accessibility information, email CPRRulemaking@ecy.wa.gov.

July 6, 2026

Heather R. Bartlett

Deputy Director